Estimating production losses from disruptions based on stock market returns: Applications to 9/11 attacks, the Deepwater Horizon oil spill, and Hurricane Sandy

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2017-01-01
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Pathak, Aditya Kiran
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Cameron A. MacKenzie
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Altmetrics
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Industrial and Manufacturing Systems Engineering
The Department of Industrial and Manufacturing Systems Engineering teaches the design, analysis, and improvement of the systems and processes in manufacturing, consulting, and service industries by application of the principles of engineering. The Department of General Engineering was formed in 1929. In 1956 its name changed to Department of Industrial Engineering. In 1989 its name changed to the Department of Industrial and Manufacturing Systems Engineering.
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Industrial and Manufacturing Systems Engineering
Abstract

The threats to human life and infrastructure are ever growing due to global terrorism, conflicts and climate change as well as the omnipresent threat of natural disruptions like earthquakes, volcanos, tsunamis etc. Disruptions or disasters lead to sudden changes in demand, production and supply. In case of such scenarios it is essential to optimize the utilization of available resources and avoid further wastage. In this study a model is presented to measure the changes in production due to changes in supply and demand of goods and services, and measure possible losses to industries during such disruptions. It is anticipated that there is a strong economic correlation of growth among the industries and there is a ripple effect causing losses to interdependent industries and economies in such scenarios. It is believed that, variability in the economy is preceded by stock market price fluctuations. The trend of any economy is reflected in the stock markets that it encompasses and these markets provide instantaneous feedback to changes in a state of normalcy. These stock markets have been used to study the variability in economic output of industries, and measure the dynamic changes in production or output of industries. The results of the study justify the existence of such a correlation between the gross output of industries and the stock indices that are related to these industries. Study of past disruptions is performed through a deterministic model and a stochastic model and the results obtained resonate with the existing estimates published by studies measuring the economic impacts of these disruptions. Such a study would enable governments, corporations and individual businesses to make informed decisions regarding the allocation of resources and contingency plans in case of such a disruption. The risk of monetary and market losses can be substantially reduced thus enabling faster recovery and higher resilience.

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Sun Jan 01 00:00:00 UTC 2017