Table 1 Advantages and disadvantages of various disaster impact methods
I-O methods | CGE Methods | Econometrics | Cost-benefit analysis |
|---|---|---|---|
Advantages | |||
Simplicity | Can address market based mechanisms and behaviours | Very good forecasting capability | Simplicity |
Clear distinction between indirect and direct effects | Can model broad range of impacts (e.g., response to price changes) | Rigorous well-developed model validation | Attempts to capture all costs and benefits |
Well suited to distributional impact analysis | Can look at distributional impact | No major biases in estimating impacts | Applies expert knowledge and experience to generate cost estimates |
Excellent organisational framework for data collection and display | Better suited to long term recovery analysis | Incorporates uncertainty | Model transparency |
Provides transparent view of the economy | Can model impacts across a range of macroeconomic variables. | Does not assume market equilibrium | Single unit-measurement so costs and benefits can be easily compared |
Well-suited to short-term recovery periods | Â | Â | Benefits are easy to double count |
Ability to integrate with other models (e.g., engineering, econometric) | Â | Â | Â |
Disadvantages | |||
Rigidity due to linearity | Intended for long-run equilibrium analysis | Significant data demand requirements | Does not account for economic multiplier effects |
Ignores agent behavioural response to disaster | Usually provides over optimistic results because of flexibility of response | Not well suited to modelling rare events | Subjective costs and complications |
Inadequately deals with monetary interventions | No explicit distinction between direct and indirect effects | Difficult to obtain disaggregated, regional data | Single unit-measurement assumes all things can be compared |
Relies on market equilibrium, while disasters represent a disequilibrium | Assumes all agents optimise | No explicit distinction between direct and indirect effects | Â |
Characterised as providing over pessimistic results | Assumes agents have perfect information | Model is based on historical experience which is unlikely to provide good | Â |
| Â | Â | Inadequately allows for economic multiplier effects | Â |
| Â | Â | Research question must be well specified | Â |