Risk Management for Leontief‐Based Interdependent Systems

Abstract

When stricken by a terrorist attack, a war, or a natural disaster, an economic unit or a critical infrastructure may suffer significant loss of productivity. More importantly, due to interdependency or interconnectedness, this initial loss may propagate into other systems and eventually lead to much greater derivative loss. This belongs to what is known as a cascading effect. It is demonstrated in this article that the cascading effect and the derivative loss can be significantly reduced by effective risk management. This is accomplished by deliberately distributing the initial inoperability to other systems so that the total loss (or inoperability) is minimized. The optimal distribution strategy is found by a linear programming technique. The same risk management can also be applied to situations where objectives need to be prioritized. A case study featuring 12 economic sectors illustrates the theory. The result suggests that using the same amount of resources, minimizing risk (inoperability) of infrastructures will generally give rise to highest payoff, whereas overlooking it may result in greatest total loss. The framework developed in this work uses a steady-state approach that applies primarily to managing situations where the attack is catastrophic resulting in very long recovery time.

Global Impacts of the Automotive Supply Chain Disruption Following the Japanese Earthquake of 2011

“…Moreover, a plurality of I-O risk-based models, for example, the inoperability input-output model and its derivative, has also been used to analyse the recovery of sectors and evaluate risk management strategies (Haimes and Jiang, 2001;Jiang and Haimes, 2004;Santos and Haimes, 2004;Lian and Haimes, 2006;Barker and Santos, 2010). However, although some of these studies have estimated the interregional impacts of disasters (Okuyama et al, 1999;Yamano et al, 2007;Okuyama, 2010;Jonkeren and Giannopoulos, 2014), most of them have a single country/regional perspective and do not include the intra-country/regional impacts produced by the existing links through international trade.…”

A stochastic recovery model of influenza pandemic effects on interdependent workforce systems

“…This has developed the complexity of economic systems and added more interdependencies across economic sectors. Jiang and Haimes (2004) have studied reducing the overall loss in an interdependent set of economic sectors given an initial perturbation. The I-O model has been extended in different ways to model the impact of disasters on various workforce sectors (Ruiz-Juri and Kockelman 2006).…”

Vulnerability analysis of complementary transportation systems with applications to railway and airline systems in China

“…The system dynamics approaches use feedback loops, stocks, and flows to model the dynamic and evolutionary behavior of the interdependent systems by describing important causes and effects under disruptive scenarios, so that it can analyze the effects of policy and technical factors to reflect system evolution in the long term and provide investment recommendations, incorporate multi-attribute utility functions to compare alternative infrastructure protection strategies and help build consensus among stakeholders in a decision [29][30][31][32]. The economic theory based approaches regard each infrastructure system as an entity in a market of economy and then model their interdependencies by economic models, such as input-output models and computable general equilibrium models, which enable to analytically study how perturbations propagate among interconnected infrastructures and how to implement effective mitigation efforts [33][34][35][36][37]. The network based approaches model each involved system by a network and describe their interdependencies by interlinks, which enable to describe the topological features of interdependent systems and flow characteristics upon systems, identify the critical system components and provide suggestions on mitigation strategies at detailed topological levels [38][39][40][41][42][43][44].…”