ESRI Discussion Paper Series No.250
Economic recovery scenario planning for the Tokyo inland earthquake

Takero Doi
(Assistant Professor, Faculty of Economics, Keio University;
Visiting Fellow, Economic and Social Research Institute, Cabinet Office)

The full text is written in Japanese.

Abstract

The economic damage caused by the Tokyo Inland Earthquake disaster is estimated at 112 trillion yen by the Central Disaster Management Council of Japan. The estimated figure however is surrounded by so much uncertainty that there surely exists a risk of the actual damage caused by an earthquake disaster exceeding the estimated damage. Moreover, the figure does not present a concrete image of disasters and the recovery process and has little impact on the development of concrete countermeasures against the economic problems caused by the disaster.

In order to cope with such a problem, we employ "scenario planning" as a decision-making method under uncertainty. In this paper, we developed four scenarios of economic damage and recovery processes after the disaster. These scenarios are generated by the following two major uncertainties.

The first uncertainty is the default risk of Japanese government. In the event that Japan's financial status deteriorates or the damage caused by the earthquake far exceeds the estimate, the Japanese government might face difficulties in financing the recovery. The second uncertainty is a gap between demand and supply in a recovery-related market, especially in the construction sector. If the gap is sufficiently larger, damaged houses, infrastructure, and firms' assets can be quickly restored without price increase. Otherwise, restoration will take a long time and bring with it the risk of price increase.

The anticipated Tokyo inland earthquake will not be so catastrophic as to compel the Japanese government to default. However, it will be large enough to delay the recovery process and cause a price increase, since the construction market has shrunken to almost half since the 1995 Hanshin Awaji Great Earthquake. To avoid such a risk, assistance from the international community in debris removal, waste disposal, and reconstruction should be seriously considered.

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