Estimating business and residential water supply interruption losses from catastrophic events

Following man-made or natural catastrophes, widespread and long-lasting disruption of lifelines can lead to economic impacts for both business and residential lifeline users. As a result, the total economic losses caused by infrastructure damage may be much higher than the value of damage to infrastructure itself. In this paper, we consider the estimation of economic impacts to businesses and residential consumers resulting from water supply disruption. The methodology we present for estimating business interruption losses assumes that marginal losses are increasing in the severity of disruption, and that there may be a critical water availability cutoff below which business activity ceases. To estimate residential losses from water supply interruption we integrate consumers’ demand curves, calibrated to water agency price and quantity data. Our methodologies are spatially disaggregated and explicitly account for the time profile of infrastructure repair and restoration. As an illustration, we estimate the economic losses to business and residential water users of one of the major water supply systems of the San Francisco Bay Area of California resulting from two potential earthquake scenarios, a magnitude 7.9 event on the San Andreas Fault, and a magnitude 7.1 event on the Hayward Fault. For the business loss estimation, our modelling framework is general enough to calculate and compare losses using loss functions from several previous studies. Our preferred models estimate business and residential losses for the San Andreas event as $14.4 billion and $279 million, respectively. For the Hayward event, estimated business and residential losses are $9.3 billion and $37 million, respectively.