In a market economy, we expect “short- run” impacts mitigated in the “long-run” – as people are prompted to be inventive and opportunistic. Gary Becker and Kevin Murphy wrote in the WSJ on Oct 29, 2001: “Prosperity Will Rise Out of the Ashes.” It did.
Economic impact modeling approaches are unsettled. Study findings vary greatly. Approaches involve measurement and modeling; both are controversial.
Modelers had hoped for simple relationships between structure damage losses and business interruption losses. The post-disaster studies done in recent years (disclosure: I have been involved in some of these) provide results that do not reveal any simple relationship.
What to do? Screen businesses in terms of plausible documented back-up/continuity plans and credible supply-chain back-ups?
Can insurers offer businesses with credible back-up plans premium reductions? How to evaluate and screen plans? “Do you have a supply-chain back-up plan in place?” Incentive effects would be useful. This could be win-win-win (insurer, insured, society). There would be less moral hazard if pre-commitment of the insured were demonstrated.
Until we learn how understand business interruption better, an alternative involves focus on business interuption loss mitigation plans. The quality of a firm's production back-up plans may be easiest to evaluate than an impact model. And insisting on such plans informs all involved