Economic Analysis for DHS: Microeconomic/Macroeconomic Modeling, Simulation, and Analysis Washington, D.C. May 10, 2006

1. Economic Analysis for DHS:
Microeconomic/Macroeconomic Modeling, Simulation, and Analysis
Briefing to The White House
Washington, D.C.
May 10, 2006
Mark A. Ehlen, Ph.D.
Computational Economics Group
National Systems Modeling & Analysis
Sandia National Laboratories
Albuquerque, NM
maehlen@sandia.gov

2. Real DHS problems drive NISAC economic analyses
Natural disasters Financial and other markets
Hurricanes: Isabel, Dennis, Ivan, Frances, Impacts of infrastructure disruptions on payment
Katrina, Rita, Wilma, Pre-Hurricane Season system functions (ongoing)
Analysis (ongoing) Impacts of terrorism on commodity futures
Earthquake: Seattle (2005) markets (ongoing)
Bio: Impacts of pandemic influenza (Table Top Effects of rolling brownouts on California electric
Exercise), smallpox (2006), BSE (2003) power markets (ongoing)
Infrastructure disruptions Public policy
Impacts of Pacific Northwest port shutdown Asset prioritization (2006)
(2003) State grants process (2005)
Impacts of rail disruptions on chemical industry
(2003)
Impacts of U.S. airspace disruptions (2005
Senior Officials Exercise)
Impacts of pandemic influenza on critical
infrastructure performance (ongoing)
Impacts of Soo Lock disruption on regional
economies (2006)
Value chains
Chemical industry (2003 chlorine, 2004 TIH)
Goodyear global supply chain (ongoing)
Impacts of regional disruptions on food industry
(ongoing)
Impacts of AI on medical/food industries
(forthcoming)

3. DHS requests are for macroeconomic and microeconomic impacts
Macroeconomic
Domestic
GDP, employment, income
Price levels (CPI, producer prices)
By industrial sector, state
International
GNP, changes in growth rates
Changes in current account (trade
flows) and capital account (financial
flows), exchange rates
Microeconomic
Classes of firms impacted most
By industry, firm size, corporate
structure, economic preparedness
Chemical, food, medical industries
changes to production, inventories,
shipments, profitability

4. These requests drive NISAC analytics and tool development
Regional/national agent-based microeconomic (N-ABLE)
Regional/national econometric
macroeconomic (REMI)
National system-dynamics
macroeconomic (CIPDSS)
domain
International
econometric macro
Benefit-cost
analysis
NISAC and CIPDSS infrastructure analysis
year
2003 2004 2004 2005 2006 2007
Infrastructure insight Economic insight

5. NISAC macroeconomic tools
REAcct
Input-output and CGE-based methodology for
estimating first-order direct/indirect impacts of man-
made/natural disasters
Generally for short-run, temporary b usiness disruptions
REMI
50-state + WDC, 70-industry econometric IO model
CGE, Keynesian, historically ob served
output/employment/price conditions.
Most heavily documented, peer-reviewed macroeconomic
model availab le
DHS applications:
Hurricane Katrina, Rita, MANPAD, pandemic influenza,
state grants process
World Economy Model
REMI, G-Cubed, GEM, or Yale MCU econometric
model.
~80% of world GNP, 10-industry
DHS applications:
Pandemic influenza

6. Problem-driven tool development: REAcct
Purpose Direct economic impacts
To automate the process of (1) identifying economic firms
directly impacted by disruptions, (2) estimating direct and
indirect impacts, and (3) conducting sensitivity analysis of these
estimates to changes in disruption assumptions.
Data sources
County Business Patterns, GDP-by-Industry Data, National
Income and Product Accounts, RIMS II multipliers, research.
Methodology
A combination of input-output and supply chain effects models;
future extensions will include techniques that capture on-site
and in-transit inventory effects, regional purchase coefficients,
and infrastructure disruption effects captured by other NISAC Numb er of small b usinesses
infrastructure and economic models.
Applications
NISAC FAIT tool - programmatically applying REAcct to the
network analysis of infrastructure disruption cascades, so as to
rank-order critical assets.
NISAC MAP tool - as part of asset prioritization for DHS, MAP
team is considering REAcct for rapid, first-order estimates of
asset economic value.

7. NISAC microeconomic tools
NISAC Agent-Based Laboratory for N-ABLE enterprise model
Economics (N-ABLE™)
Large-scale, enterprise-firm modeling of supply
chains, regional economies, entire nation.
Enterprise-level connections to critical
infrastructures.
Identifies sectors, classes of firms
(small/medium/large), regions of the country most
vulnerable to infrastructure disruptions.
Overall model is designed for simulations running
106 firms on Thunderbird, Sandia’s parallel
computing cluster (currently 5th fastest in the An N-ABLE value chain
world).
Benefit-cost analysis
Models investment decision process of
government authorities.
Compares cost effectiveness of new
technologies/strategies against “do-nothing”
(baseline) strategy.

8. Problem-driven tool development: N-ABLE™
Purpose
To analyze the impacts of disruptions on regional value chains, specifically: (1) identify the networks of
firms impacted directly and indirectly, (2) estimate the intra-firm impacts (e.g., production, inventories)
and inter-firm impacts (e.g., sales and shipment levels), and (3) estimate how the collective network can
adapt to a disruption and any related policy instruments.
Data sources
E.g., County Business Patterns, GDP-by-Industry Data, National Income and Product Accounts, private
date sources (e.g., Chlorine Institute, Goodyear Tire & Rubber Company, Probe Economics).
Methodology
(1) Use data-driven, agent-based
enterprise model to create synthetic firms
that resemble operational and market
characteristics of actual firms;
(2) model value chains as market-based
and non-market-based (e.g., social
interactions) networks;
(3) analyze networks using network theory
metrics (connectedness, betweenness) to
estimate brittleness/robustness of value
chain;
(4) estimate impacts to GDP, employment,
income, inventories, shipments, production,
over days to months.
Network representation of chlorine supply chain (5000 firms)

9. NISAC is collaborating with Goodyear Tire & Rubber Company to
advance its economic analysis capabilities
Purpose
Analyze the economic impacts of
infrastructure disruptions on private
companies:
1. create an agent-based economic network
representation of firms’ purchasing,
shipping, production, distribution, and end-
use sale;
2. perform validation of model against
existing GY distribution optimization Network representation of Goodyear supply chain
techniques;
3. model impacts of various infrastructure
disruptions (electric power, transportation)
on production, shipping, inventories, costs;
4. assist in new GY disaster planning group
formed to mitigate losses due to
infrastructure-based supply chain
disruptions.
Validating analysis of distrib ution centers

10. An example of how economic analysis fits in NISAC: Katrina
Storm data, infrastructure data, economic data
Population Physical Electric Telecomm- Transportation/ Petroleum/ Chemical/
effects damage power unications commodities natural gas HAZMAT
Economic disruption
is superset of all population,
physical damage, and
infrastructure disruptions
Local direct and Regional and national Regional and Small Relocation Financial
indirect impacts value chain analysis national macro b usiness impact markets
(REAcct) (N-ABLE - experimental) impacts (REMI) analysis analysis analysis
2 pre-reports,
Collected
and rationalized 10 post-reports,
economic results 1 post-post report

11. Current path: strengthening our capabilities
Advancing tools to meet DHS need
Need to tune existing models (e.g., REAcct) to more
classes of disruptions
Need to productionize microeconomic simulation,
analysis, and reporting tasks
Need more tools that can estimate impacts of short-term
(days to weeks to months) disruptions
Accessing critical data
Need access to more restricted-use infrastructure,
commodity flow, and economic data
Increasing strategic collaborations “Since Hurricane Katrina, NISAC has
significantly improved their capab ility
Public: DOT, BEA, BLS, Treasury, FAA, DOS, USDA
to provide reports detailing the
Private: Firms and associations across industries cascading impact of major disasters
Academic: have worked with MIT, Cornell, WSU on the Nation’s infrastructure b ut it
does not include a rob ust
assessment of the economic
impacts.”