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Dynamic Impacts of a Catastrophic Production Event: The Foot‐and‐Mouth Disease Case
Author(s) -
Cordier Alexandre,
Gohin Jean,
Krebs Stephane,
Rault Arnaud
Publication year - 2013
Publication title -
risk analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.972
H-Index - 130
eISSN - 1539-6924
pISSN - 0272-4332
DOI - 10.1111/j.1539-6924.2012.01902.x
Subject(s) - stylized fact , outbreak , welfare , foot and mouth disease , bankruptcy , production (economics) , business , event (particle physics) , economics , market economy , finance , medicine , microeconomics , physics , virology , quantum mechanics , macroeconomics
In foot‐and‐mouth disease (FMD) free countries, the occurrence of an FMD outbreak is a rare event with potentially large economic losses. We explore the dynamic effects of an FMD outbreak on market variables and economic surplus taking into account the largely neglected issue of farm bankruptcy. Simulations are performed on a stylized agricultural economy, which is a net exporter before the outbreak. We find complex dynamic market effects when the farm credit market suffers from information imperfections leading to farm closure. Welfare effects are also dramatically altered. Domestic consumers may lose in the long run from an FMD outbreak because domestic supply contracts. On the other hand, farmers able to resist this event may ultimately gain. Our analysis also shows that these effects are not monotone, making any efficient policy response to this catastrophic event quite challenging.