National Land Structure and Disaster Vulnerability

1. National Land Structure and Disaster Vulnerability (This is the first result and your comments are highly appreciated) Ryoji ISHII & Daisuke FUKUDA TSU, Tokyo Institute of Technology Geotectonic lines

2. Background National land structure (i.epopulation distribution) and disaster risk Japan faces the higher risk of natural disasters Tokyo metropolitan area • 3.6% of the land area • 27.5% of the population • 31.9% of GDP Trade-off Centralized national land structure may lead to higher disaster vulnerability Centralized national land structure improves productivity (economics of agglomeration) Examine the relationship between the disaster vulnerability and the national land structure (to be centralized? or de-centralized?)

3. Background Characteristics of the natural disaster • Direct impacts • Capital losses, human losses • Spatially-indirect impacts • Decrease in production due to the suspension of providing intermediate goods in other regions • Temporally-indirect impacts • Lower productivity continues for a while until the full restoration “Disaster vulnerability” Necessary to model how the impact spread across regions over time when a disaster occurs. Necessary to model stochastic property of the disaster. The natural disaster is stochastic event.

4. Concept of “Economic Resilience” GDP or Social welfare Disaster [Source] Ron Martin (2010) “Regional economic resilience, hysteresis and recessionary Shocks,” Journal of Economic Geography.

5. Objective To develop the stochastic dynamic multi-regional macroeconomic model to analyze the fundamental relationship between national land structure and disaster vulnerability ※National land structure is defined by … • Population distribution (Total population is fixed) • Disaster risk • Topological relationship of regions Exogenously given and Fixed in the model Ex. three regions 60% of population 33% of population 33% 33% 20% 20% Decentralized Centralized

6. Modelling methodology: DSGE-based approach • DSGE = Dynamic Stochastic General Equilibrium • Macroeconomic (i.e. dynamic) model with microeconomic foundations • Consider “stochastic shocks” on productivity • Ex: RBC (Real Business Cycle) model by Kydland& Prescott (1982) • Many extensions and applications(e.g. textbooks by Heer et al. (2009); Den Haan et al. (2011)) • Application in disaster analysis • Barro (2006, QJE): non-gaussian shocks of rare disaster • Schmitt-Grohé& Uribe (2004, JEDC); Andreasen (2012, RED): effects of rare disasters and uncertainty shocks on risk premia • Segi et al. (2011, JSCE): risk-sharing rule of disaster in multi-regional economy • Our study: “vulnerability” analysis within multi-regional DSGE framework.

7. Multi-regional Economic system at time-step Time Other Regions Time Region Time Capital Capital Infrastructure Infrastructure D Capital Infrastructure Production technology Production technology Population Investment Transfer Investment Goods Consumption Representative household

8. Multi-regional Economic system at time-step Time Other Regions Time Region Time • Setup • At the start of time , each region has its own production capital. • Capitals have been accumulated from the past. • The national economy has a common infrastructure for all regions. • Population of each region is fixed and does not change over time. Also, people are supposed not to change their residential regions. Capital Infrastructure Population

9. Multi-regional Economic system at time-step Time Other Regions Time Region Time Capital Infrastructure • A natural disaster occurs stochastically before the regions conduct their production activities. • Damages from the natural disaster is defined as a ε% reduction of production capital in the affected region and of the infrastructure, respectively. D Natural disaster Capital Infrastructure Population

10. Multi-regional Economic system at time-step Time Other Regions Time Region Time Capital Infrastructure • Each region produces goods by using their own production capital, local labor, and the infrastructure. D Production technology Capital Infrastructure Production technology Production technology Population Goods

11. Multi-regional Economic system at time-step Time Other Regions Time Region Time Capital Infrastructure • A single homogenous good is used for the consumption and the investment. • Goods are transferred freely across regions (i.e. no transport cost). D Goods market Capital Infrastructure Production technology Production technology Population Investment Transfer Investment Goods Consumption

12. Multi-regional Economic system at time-step Time Other Regions Time Region Time Capital Infrastructure • Representative households incur utility according to their consumption level. D Representative household Capital Infrastructure Production technology Production technology Population Investment Transfer Investment Goods Consumption Representative household

13. Multi-regional Economic system at time-step Time Other Regions Time Region Time Capital Capital Infrastructure Infrastructure • Capital stock and infrastructure are accumulated by investment. • But, adjustment costs are required for investment. They are defined as a function of capital stock and investment. D Capital accumulation Capital Infrastructure Production technology Production technology Population Investment Transfer Investment Goods Consumption Representative household

14. Dynamical economic system • The social welfare is given by the linear sum of the utilities of all regions (i.e. Benthamite-type social welfare function). • The social planner determine the sequence of control variables to maximize the objective function. • The objective function is the expected present value of the social welfare for all time horizons. Economic system at time Instantaneous social welfare Sequence of control variables: Economic system at time Instantaneous social welfare

15. Dynamical economic system • The social planner’s problem Economic system at time Instantaneous social welfare Balance of goods flow Capital accumulation Economic system at time Natural disaster Instantaneous social welfare

16. Quantifying disaster vulnerability Consumption • Steady state • The condition that capital does not change between time t and t+1 and disaster doesn’t occur while that. Natural disaster Steady state • Restoration path • the dynamic process returning to the original steady state after the disaster Capital Social welfare • Disaster vulnerability • Spatial and temporal widespread impact of the natural disaster • The area surrounded by the restoration curve and the social welfare at the steady state. Disaster vulnerability Disaster happens Time

17. Results of Numerical Simulations Parameters • National land structure (exogenously changed) • Population distribution • Disaster risks fixed • Topological relationship • Infrastructure (its usability varies with topology) Same risk level High risk Low risk Case.1 Case.2 All the regions have the same likelihood of disaster and the equivalent capital-loss ratio. Asymmetric risk level across regions. Case.3 Linear arrangement Circular arrangement Effects of network topology

18. Results: Case.1 (two regions) The same disaster risk in all regions • To avoid catastrophic impact, decentralized national land structure might be desirable. 50% Same risk level All the regions have the same likelihood of disaster and ratio of capital loss Maximum value of vulnerability • At the 50% population share of Region 1, the nation has the highest social welfare. Decentralization would have the effects of reducing disaster vulnerability. 50% A disaster in Region 1 Region 1 Region 2 A disaster in Region 2

19. Results: Case.2(two regions) Asymmetry in disaster risk level across regions 41% Low risk High risk Region 2 has the lower disaster risk. • At the 41% of population share of Region 1, the nation has the highest social welfare. • To avoid catastrophic impact, on the other hand, 20% of population share of Region 1 is optimal (least vulnerability). Desirable national land structure in terms of maximizing social welfare or avoiding disaster vulnerability are different. 20% A disaster in Region 1 Region 1 Region 2 A disaster in Region 2

20. Results: Case.3 (three regions) Difference in topological relationship of regions Circular arrangement Linear arrangement Region 1 Region 2 Region 1 Region 3 Region 2 Region 3 • In both arrangements, decentralized national land structure is desirable. • The disaster vulnerability per welfare in the linear arrangement is higher than that in the circular arrangement. If the accessibility to the infrastructure is low, national land structure might have a high disaster vulnerability.

21. Conclusion Current findings • Consideration of • inter-regional trade, multiple goods cases, population mobility, agglomeration economy … • Reconsideration of “vulnerability” concept within economic framework • The centralized national land structure would have high disaster vulnerability than decentralized one. • In the case of asymmetric disaster-risk level across regions, the desirable national land structure either in terms of social welfare or disaster vulnerability might be different. • Infrastructure would have the effect of equalizing the disaster vulnerability across regions. • If there is the difference in the usability to the common infrastructure , the disaster vulnerability might increase (i.e. topological effects). Lots of works to do!

22. Thank you for your kind attention.