Economic Resilience of the Firm: A Production Theory Approach
43 Pages Posted: 27 Sep 2017 Last revised: 1 Apr 2018
Date Written: March 26, 2018
As a result of catastrophic events, firms and other organizations are faced with input shortages and price shocks. Firms can respond to these events using a variety of “resilience” actions, or tactics. Here we provide a microeconomic foundation for analyzing a comprehensive range of these tactics, incorporating both inherent and adaptive concepts of resilience. We classify these tactics and derive optimality conditions for production with the use of each class of resilience in the context of a nested Constant Elasticity of Substitution (CES) function consisting of aggregated Capital (K), Labor (L), Infrastructure (I), and Materials (M). The framework has broad applicability, including measurement and scoring of resilience, cost-effectiveness assessment of resilience tactics individually and as a group, calculation of resilience indices, and supply-chain management.
Keywords: Economic Resilience; Production Theory; Inherent and Adaptive Resilience; Disasters
JEL Classification: D2, L29, L39, M21, Q54
Suggested Citation: Suggested Citation