economic impact of production bottlenecks caused by disasters impacting interdependent industry sectors abstract this paper provides a new linear programming model based on leontief s input output model to investigate the economic consequences of production capacity bottlenecks caused by disasters an important contribution of the paper is the incorporation of industry sectors preferences in allocating limited products services between final domestic demand foreign final demand and intermediate industries this provides support for estimating some of the indirect economic impacts of disasters the paper also considers recovery operations within disrupted sectors from the standpoint of evaluating the performance of the economy during the transition period after a disaster the models are implemented to investigate the economic consequences of electricity sector disruption in singapore and finally computational results are reported

on the integration of production and financial hedging decisions in global markets we study the integrated operational and financial hedging decisions faced by a global firm who sells to both home and foreign markets production occurs either at a single facility located in one of the markets or at two facilities one in each market the company has to invest in capacity before the selling season starts when the demand in both markets and the currency exchange rate are uncertain the currency exchange rate risk can be hedged by delaying allocation of the capacity to specific markets until both the currency and demand uncertainties are resolved and or by buying financial option contracts on the currency exchange rate when capacity commitment is made a mean variance utility function is used to model the firm s risk aversion in decision making we derive the joint optimal capacity and financial option decision and analyze the impact of the delayed allocation option and the financial options on capacity commitment and the firm s performance we show that the firm s financial hedging strategy ties closely to and can have both quantitative and qualitative impact on the firm s operational strategy the use or lack of use of financial hedges can go beyond affecting the magnitude of capacity levels by altering global supply chain structural choices such as the desired location and number of production facilities to be employed to meet global demand

uncertainty and the neutrality of government financing policy abstract some ideas from the theory of finance are applied to consider whether debt financed tax cuts affect desired consumption it is shown that government financing policy is a matter of indifference to infinitely lived households if a perfect substitute for public debt exists the analysis allows for uncertainty about future taxes and for missing markets in some kinds of assets income redistribution risk and the public insurance aspects of an income tax scheme qualify this neutrality result but in general the net effect is ambiguous the real resource costs of financial transacting as well as government superiority in the intermediation process may be one rationale for activist debt management policy a better understanding of functioning capital markets is essential to evaluate these arguments

investment risks under uncertain climate change policy abstract this paper describes results from a model of decision making under uncertainty using a real options methodology developed by the international energy agency iea the model represents investment decisions in power generation from the perspective of a private company the investments are subject to uncertain future climate policy which is treated as an external risk factor over which the company has no control the aims of this paper are to i quantify these regulatory risks in order to improve understanding of how policy uncertainty may affect investment behaviour by private companies and ii illustrate the effectiveness of the real options approach as a policy analysis tool the study analysed firms investment options of coal and gas fired power plants and carbon capture and storage ccs technologies policy uncertainty is represented as an exogenous event that creates uncertainty in the carbon price our findings indicate that climate policy uncertainty creates a risk premium for power generation investments in the case of gas and coal fired power generation the risk premium would lead to an increase in electricity prices of 5 10 in order to stimulate investment in the case of ccs the risk premium would increase the carbon price required to stimulate investment by 16 37 compared to a situation of perfect certainty the option to retrofit ccs acts as a hedge against high future carbon prices and could accelerate investment in coal plant this paper concludes that to minimise investment risks in low carbon technologies policy makers should aim to provide some long term regulatory certainty

fuzzy input output model for optimizing eco industrial supply chains under water footprint constraints global water stress is expected to increase due to population growth economic development and climate change because of this trend there is an increased interest in the water intensity of industrial activities conducted via the product supply chain or within specified geographical boundaries or regions both at the enterprise or regulatory level the total water footprint of economic activities should be evaluated in consideration of local water resource consumption virtual water trade and resource availability as individual entities seek to protect their respective interests the challenge is to optimize inter regional trade of goods with the consideration of the interests of participants in the network this work presents a fuzzy inputeoutput model for optimizing supply chains under water footprint constraints two case studies involving tile manufacturing and biofuel production are considered to demonstrate the use of the model

economic resilience of the firm a production theory approach abstract as a result of catastrophic events firms and other organizations are faced with input shortages and price shocks firms can respond to these events using a variety of resilience actions or tactics here we provide a microeconomic foundation for analyzing a comprehensive range of these tactics incorporating both inherent and adaptive concepts of resilience we classify these tactics and derive optimality conditions for production with the use of each class of resilience in the context of a nested constant elasticity of substitution ces function consisting of aggregated capital k labor l infrastructure i and materials m the framework has broad applicability including measurement and scoring of resilience cost effectiveness assessment of resilience tactics individually and as a group calculation of resilience indices and supply chain management

measuring the efficacy of inventory with a dynamic input output model abstract this paper extends the recently developed dynamic inoperability input output model diim for assessing productivity degradations due to disasters inventory policies are formulated and incorporated within the diim to evaluate the impact of inventories on the resilience of disrupted interdependent systems the inventory diim can provide practical insights to preparedness decision making through explicit tradeoff analysis of multiple objectives including inventory costs and economic loss reductions the model is demonstrated in several illustrative examples to depict various nuances of inventory policies the paper then culminates in a case study that utilizes input output and inventory accounts from the bureau of economic analysis

a fuzzy linear programming enterprise input output model for optimal crisis operations in industrial complexes abstract industrial complexes may be subject to significant risk of cascading failure caused by various disruptions and emerging economies are potentially more susceptible to the impacts as less established policies are in place to deal with these issues in particular there is a need to develop adaptation strategies to ensure the resilience of industrial activities to various perturbations that may result from climate change the inherent complexity of such systems makes decision making for risk management a non trivial task that is best facilitated with the aid of mathematical models enterprise input output models have been used extensively to model production systems at different scales in this work a fuzzy linear programming enterprise input output model is developed to determine optimal adjustments in production levels of multi product systems when a crisis is induced by a loss of resource inputs the model allows for adjustments that are equitable for different decision makers that may comprise an industrial complex or a supply chain capabilities of the model are illustrated with a case study on the effect of water shortage on an aluminum production system

risk aversion in inventory management traditional inventory models focus on risk neutral decision makers i e characterizing replenishment strategies that maximize expected total profit or equivalently minimize expected total cost over a planning horizon in this paper we propose a framework for incorporating risk aversion in multiperiod inventory models as well as multiperiod models that coordinate inventory and pricing strategies we show that the structure of the optimal policy for a decision maker with exponential utility functions is almost identical to the structure of the optimal risk neutral inventory and pricing policies these structural results are extended to models in which the decision maker has access to a partially complete financial market and can hedge its operational risk through trading financial securities computational results demonstrate that the optimal policy is relatively insensitive to small changes in the decision maker s level of risk aversion

market imperfections opportunity and sustainable entrepreneurship this research develops the argument that four types of market imperfections i e inefficient firms externalities flawed pricing mechanisms and information asymmetries at once contribute to environmental degradation and that they also provide significant opportunities for the creation of radical technologies and innovative business models we show that these opportunities establish the foundations for an emerging model of sustainable entrepreneurship one which enables founders to obtain entrepreneurial rents while simultaneously improving local and global social and environmental conditions to advance this new field we offer suggestions for a research agenda focusing on two areas the relationship between market imperfections and entrepreneurial opportunities and the emerging field of sustainable entrepreneurship

a measure of the sensitivity of saving to interest rate uncertainty with non expected preferences abstract we propose a local measure of the precautionary premium when the consumer faces interest rate uncertainty and has selden type preferences it appears to be useful in order to generalize and to rationalize different results obtained in comparative statics

precautionary savings and the permanent income hypothesis this paper derives the explicit solution of a dynamic stochastic optimal consumption problem for infinitely lived agents whose preferences exhibit in the presence of non diversifiable labour income uncertainty a constant elasticity of intertemporal substitution and constant absolute risk aversion the constancy of the elasticity of intertemporal substitution which implies that marginal utility at zero consumption is infinite guarantees that the non negativity constraint on consumption is never binding along the optimal path the assumption of constant absolute risk aversion allows an explicit computation of human wealth and provides a simple representation of the precautionary savings motive

p graph approach for gdp optimal allocation of resources commodities and capital in economic systems under climate change induced crisis conditions abstract climate change impacts may manifest via multiple pathways often leading to a shortage of resources reduction in production capacities or reduction in available labor inputs that are vital for economic activities effective climate change adaptation strategies are needed to determine the optimal allocation of scarce resources commodities or capital under crisis conditions to minimize the economic consequences in such cases it is necessary to account for structural properties of economic systems to ensure that rational distribution policies are implemented input output models are used to illustrate interdependencies among economic sectors and to assess both direct and indirect effects of disruptive events alternatively these interdependencies may be exploited for developing effective recovery efforts to minimize the ripple effects of a crisis in this paper a process graph representation of the input output model is developed to generate a rational procedure for the allocation of scarce resources commodities or capital during crisis conditions the process graph model is a graph theoretic approach originally developed for chemical process design applications the analogous problem structure allows it to be used for the input output system the method is demonstrated through several case studies to identify allocation policies geared towards reducing the impact of disruptions attributed to critical resources commodities or capital results show that depending on the economic structure the optimal allocation of scarce resources commodities or capital will satisfy the final demands of some economic sectors and reduce the production capacity of others in order to minimize the reduction of total gross domestic product though similar results can be obtained through traditional mathematical programming models the process graph platform has the advantage to visually present the distribution of scarce resources commodities or capital within the system this work is a first attempt to implement the process graph approach in the fields of economics and climate change adaptation in conclusion the process graph based approach developed in this work can be used to provide policymakers with insights in developing appropriate risk mitigation plans associated with climate change induced crisis conditions potential applications include both the development of disaster preparedness measures for anticipated disruptions as well as the implementation of real time emergency response in the midst of a crisis

temporal risk aversion intertemporal substitution and keynesian propensities to consume abstract a two period life cycle model of precautionary saving is constructed in which the link between the coefficient of relative risk aversion and the inverse of the elasticity of intertemporal substitution is broken there is excess sensitivity of consumption to unanticipated changes in future income if there is temporal risk aversion consumers with ricardian rationality display keynesian propensities to consume out of a tax cut however if there is temporal love for risk rational consumers save less and consume more in response to a postponement of taxation

multiple objective analysis of input output models for emergency management this paper shows how a visual interactive dynamic multiple objective linear programming decision support system can effectively be used for analyzing input output models we have applied our approach to studying the quantitative effects of economic or political crises to the finnish economy examples of such crises are nuclear power plant accidents trade embargoes and international conflicts an input output model of the finnish economy with 17 industries sectors is employed our system has been implemented on a microcomputer and is being used by the national board of economic defense several typical case situations are discussed

production with risk hedging optimal policy and efficient frontier demand for many products may depend on the price of a tradable asset or on the economy in general for example demand for equipment that plants or harvests corn correlates with the corn price on the commodity market and discount stores experienced increased sales revenue during the last recession thus we model demand as a stochastic process with two components in addition to the usual gaussian component reflecting demand volatility there is a drift component taking the form of a function of a tradable asset price in the case of dependence on the general economy the asset price can be a broad market index such as the s p 500 index with this demand model we study the one time production quantity decision along with a real time risk hedging strategy over a given planning horizon the production cycle pursuing a mean variance formulation we derive the optimal solution to both production and hedging decisions we give a complete characterization of the efficient frontier and quantify the improv

analytical assumptions and causal ordering in interindustry modeling since the publication of leontief s path breaking work the overwhelming majority of applications of inter industry models have relied on the standard model of demand driven production functions even when the exogenous perturbation originated on the supply side 13 for some time now in fact some economists have been suggesting an alternative to the standard model in situations of supply constraints 8 58 64 9 1 249 69 10 5 447 54 6 281 89 however this alternative model relying on supply constrained allocation functions is not based on the precepts of standard microeconomic theory rather than assuming that input shares are constant as in the standard model the alternative model assumes that output shares are constant an assumption which is not tied to any demonstrated optimizing behavior on the part of firms both models would seem to be somewhat limited the standard model due to its demand only orientation the alternative model due to its untested analytical underpinnings 1 in fact as this paper demonstrates there is an inherent symmetry underlying interindustry analysis the standard leontief interindustry model can be formulated to directly analyze supply constrained perturbations just as the ghoshian allocation model can be formulated to directly handle demand induced perturbations that is there actually exist four frameworks for employing interindustry models that are differentiated by the analytical assumptions i e production or allocation function and the causal ordering i e demand driven or supply contrained employed this paper demonstrates the four frameworks discusses the rationales for their use and provides illustrative results based on their application to the 1967 u s interindustry table section ii of this paper develops the four theoretical frameworks and demonstrates their symmetry simple empirical results are presented in section iii together with some recommended potential applications conclusions are offered in the final section

a system dynamic approach for exploring the effects of climate change risks on firms economic performance a number of studies have recently examined the potential relationships between climate change and the business community the majority of such studies have emphasized statistical and benchmarking techniques to identify how climate change could have implications on firms operations and their economic performance these techniques draw primary data from questionnaire surveys and corporate environmental reports in an ex post basis a fact that provide evidence in a linear probabilistic and static character these studies have provided limited insights regarding the future complex effects of climate change on corporate economic performance this paper aims to contribute to this literature by developing a dynamic model to investigate the evolutionary trends of the relationships between climate change risks financial performance and the operational processes of firms the main scope is to identify how physical regulatory reputational and litigation risks will affect day to day operations an integrated model will be established in order to improve managers and academics understanding of climate change and business performance four scenarios will also be tested to illustrate what if relationships in the presence of climate change risks finally the proposed model is based on the corporate climate change management system thinking system dynamic and stella software

precautionary saving and the timing of taxes this paper analyzes the effects of government debt and income taxes on consumption and saving in a world of infinitely lived households having uncertain and heterogeneous incomes the special structure of the model allows exact aggregation across households despite incomplete markets the effects of government debt are shown to be substantial roughly comparable to those resulting from finite horizons and crucially dependent on the length of time until the debt is repaid also anticipated changes in taxes are shown to cause anticipated changes in consumption finally an index of fiscal stance is derived

a tale of two market failures technology and environmental policy abstract market failures associated with environmental pollution interact with market failures associated with the innovation and diffusion of new technologies these combined market failures provide a strong rationale for a portfolio of public policies that foster emissions reduction as well as the development and adoption of environmentally beneficial technology both theory and empirical evidence suggest that the rate and direction of technological advance is influenced by market and regulatory incentives and can be cost effectively harnessed through the use of economic incentive based policy in the presence of weak or nonexistent environmental policies investments in the development and diffusion of new environmentally beneficial technologies are very likely to be less than would be socially desirable positive knowledge and adoption spillovers and information problems can further weaken innovation incentives while environmental technology policy is fraught with difficulties a long term view suggests a strategy of experimenting with policy approaches and systematically evaluating their success

input output models for the analysis of a local global supply chain abstract a supply chain can be analysed as a network of production processes which can be localised within and outside a given geographic area each process can be defined as a system that produces output flows in consequence of input flows in this paper an input output approach based on production processes is used to develop specific models that investigate flows among production processes either of a whole global supply chain or of a part of the supply chain localised within a given area local by product and waste outputs are also considered the developed models can help improve design and management of supply chains also in terms of sustainable development of a local area in fact this use of the input output analysis entails a deeper understanding of the relationships among the processes and the environment

measuring changes in international production from a disruption case study of the japanese earthquake and tsunami the earthquake and tsunami that struck japan on march 11 2011 caused a tremendous loss of life and property the disaster also disrupted global supply chains which was blamed for anemic growth in the global economy a multiregional input output model can quantify the international impacts on production due to changes in demand from companies reducing their orders because of a disruption by using the input output model to conceptualize a supply chain we present a unique method for calculating indirect production losses caused by disabled production facilities methods for calculating the possible transfer of demand to industries in other countries are also discussed we apply the multiregional input output model to the japanese earthquake and tsunami comparing results generated by japanese consumer sales with those generated by japanese production data reveals that japanese demand was satised by other countries and that inventory in the production pipeline likely allowed consumer sales to remain strong

precautionary saving and fuzzy information abstract we consider a two period life cycle model where uncertainty about future labour income is modelled by a fuzzy set applying a defuzzification strategy that explicitly takes the individual s behaviour towards risk into account we show that pessimistic individuals engage in precautionary savings even if marginal utility is not convex e g in case of a quadratic utility function

operational flexibility and financial hedging complements or substitutes we consider a firm that invests in capacity under demand uncertainty and thus faces two related but distinct types of risk mismatch between capacity and demand and profit variability whereas mismatch risk can be mitigated with greater operational flexibility profit variability can be reduced through financial hedging we show that the relationship between these two risk mitigating strategies depends on the type of flexibility product flexibility and financial hedging tend to be complements substitutes i e product flexibility tends to increase decrease the value of financial hedging and vice versa financial hedging tends to increase decrease the value of product flexibility when product demands are positively negatively correlated in contrast to product flexibility postponement flexibility is a substitute to financial hedging as intuitively expected although our analytical results assume perfect flexibility and perfect hedging and rely on a linear approximation of the value of hedging we validate their robustness in an extensive numerical study

precautionary saving in the small and in the large the theory of precautionary saving is shown to be isomorphic to the arrow pratt theory of risk aversion making possible the application of a large body of knowledge about risk aversion to precautionary saving and more generally to the theory of optimal choice under risk in particular a measure of the strength of the precautionary saving motive analogous to the arrow pratt measure of risk aversion is used to establish a number of new propositions about precautionary saving and to give a new interpretation of the dreze modigliani substitution effect copyright 1990 by the econometric society

estimating the economic impacts of power supply interruptions abstract the cost of power system rationing which is a crucial parameter for determining optimal resilience investments is usually estimated using reduced form linear models or ordinary input output analysis however such methods do not properly address either consumers rational reactions to rationing policy or policy design nonlinearities to solve this problem this paper estimates the effects of power system rationing using a general equilibrium model the model solution shows that the power cut distribution among industries is a critical variable for quantifying policy effects and provides insights into optimal policy design