Application of Price-Elastistic Supply Input-Output Model on the Economic Impacts of Hurricanes Katrina and Rita: Disruption in U.S. Oil-Industry

Recent Hurricane Katrina and Rita caused severe economic cessations without expectations in Louisiana State. The natural disasters temporarily produced quantity losses in oil-industry and lead to further economic losses via interindustrial relations. In a sense that oil industry plays a key role to support national economy, estimation of the economic impacts of the disasters should be based on the supplydriven input-output (IO) model. However, common limitation in IO models is over-estimate total impacts in a relatively long-term duration due to the linear characteristics of IO coefficients. Empirically, we observe consumers change their behaviors as price changes. The price change would follow price elasticity as well as quantity changes in the market. Therefore, by constructing a new supply-driven model using price elasticity of demand for oil refinery, that is, price-elastistic supply-driven model, this study will analyze the national economic impacts of disrupted oil-industry due to Hurricane Katrina and Rita. This price-elastistic supply-driven model is a temporal expansion of supply-driven IO study. This study, also, has an important implication in the aspect that it is the first empirical application of price-type supply-driven model for the U.S.