Rails, Risks, and Resilience: A Dynamic Spatial Equilibrium Model with Natural Disaster Risks
Rails, Risks, and Resilience: A Dynamic Spatial Equilibrium Model with Natural Disaster Risks
Abstract
We present a dynamic, stochastic, and spatial model that incorporates disaster risk to examine how aggregate risks and spatial frictions influence population distribution and welfare. A disaster temporarily reduces regional productivity and suspends transportation networks. The model is applied to the analysis of Japan’s Tokai Trough Earthquake (TTE) and maglev train project. Estimation is based on sufficient statistics of future expected values by future migration flows and novel data on rail network disruption from the 2011 Tohoku earthquake. TTE risk reduces the welfare not only in the vulnerable regions close to the expected epicenter but also in further regions, revealing the regional spillover effects of the disaster risk. The maglev train project increases the welfare by 1.6\% on average, whose effects are larger in the north-east regions under the economy with TTE risk.