Abstract
To make prudent resource management decisions, one must consider the cost of each resilience tactic as well as its effectiveness. One tactic might be capable of reducing more than twice the BI losses of another, but if it costs ten times as much to implement, the former is not the better option.
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Notes
- 1.
Conservation often involves the installation of energy-saving equipment. When this more than pays for itself, an energy-efficiency improvement has taken place.
- 2.
For example, economies of scale would actually increase the marginal benefits successively as resilience is carried out, counter to the more standard downward-sloping marginal benefit curve. Net revenue would also increase if fixed costs are significant. Working in the opposite direction, however, would be factors such as keeping the business open at some minimum level for the sake of its public image. The most significant factor affecting the MB curve, however, would be on the gross revenue side. The perfectly competitive firm could sell as much of its product as needed at a constant price to maximize profits, which is essentially at a constant marginal revenue. However, firms in imperfectly competitive markets would face a declining marginal revenue curve, putting pressure on the net revenue function to decline as well.
- 3.
This condition holds even for an increasing marginal benefit curve, as long as its slope is flatter than the marginal cost curve.
- 4.
The order-of-magnitude estimate stems from a simple back-of-the-envelope calculation. Electricity and water inputs represent less than 5 % each on average of total production costs of nearly all businesses in the economy. Assuming, rates of return (or profit rates in general) are reasonably equal across all business enterprises, again on average, this means that net revenue losses are more than 20 times higher for the economy than for the utility supplier. Moreover, this number increases when indirect (multiplier or general equilibrium) effects are taken into account.
- 5.
Strictly speaking only resilience tactics that have this characteristic (mainly supply-side ones) would have their MB segments raised. This would make for a likely non-monotonically increasing or decreasing MB curve and would complicate the identification of an optimum.
References
Rose A (2009) Economic resilience to disasters. Community and Resilience Institute Research Report Number 8. ORNL
Rose A (2016) Benefit-cost analysis of economic resilience actions. In: Cutter C, S (ed) Oxford research encyclopedia of natural hazard science. Oxford University Press, New York, forthcoming
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Rose, A. (2017). Risk Management. In: Defining and Measuring Economic Resilience from a Societal, Environmental and Security Perspective. Integrated Disaster Risk Management. Springer, Singapore. https://doi.org/10.1007/978-981-10-1533-5_8
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