Quick methods for assessing economic damages caused by natural disasters

The March 11 earthquake of magnitude 9.0 off the coast of Japan (3.11 earthquake), followed by devastating tsunami brought a huge damage to the area stretching over 500 kilometers north and south in East Japan. After forty days death tolls are still climbing each day as unaccounted for victims are being found in debris on land and in the sea.

In any disaster, a quick assessment of economic damages is absolutely necessary, without which recovery planning and fiscal budgeting are impossible. However, in the case of a disaster of this scale, damage assessment by on-site survey is too time-consuming, if not totally impossible.

Thus the purpose of this study is to propose a simple but quick epidemiological estimation method, based only on the number of dead and missing people reported by the National Police Agency on a daily basis.

We tried four different models. Model 1 estimated by OLS the relationship between the economic damages and the number of victims using the past 15 year’s record of Japan’s natural disasters published by the Fire and Disaster Management Agency. We used a panel data of 47 prefectures covering 15 years. Model 1 when applied to the ongoing disaster yielded a forecast of 44 trillion yen for economic damages.

Model 2 used the same method as Model 1 focusing only on those prefectures that were damaged in the 3.11 earthquake. The prediction we could derive was 50 trillion yen. In Model 3 we made use of a subset of the panel data focusing only on “disaster cases,” where disaster refers to those incidents with more than 10 reported deaths. The dependent variable is economic damages in nominal term and independent variables are the number of victims and prefectural nominal GDPs. The prediction we obtained by Model 3 was 44 trillion yen.

Model 4 tried to estimate the economic damages by the Kanto Earthquake of 1923, the Fukui Earthquake of 1948, the Isewan Typhoon of 1959, and the Hanshin-Awaji (Kobe) Earthquake of 1995, which claimed the lives of 105,000 people, 3,769 people, 5,098 people, and 6,437 people, respectively.  A simple extrapolation method gives an estimate of economic damages for the East Japan Earthquake of 2011 at 47 trillion yen.

Thus, all four models give a number between 44 and 50 trillion yen. Among them, we propose that Model 1 is the simplest and quickest method for assessment of economic damages. A damage of 44 trillion yen is almost double the national government’s assessment. We alert that the recovery and reconstruction efforts need be geared to our estimate rather than the government’s.