Future Price Forecasting in the Wake of Large-Scale Disasters
Jun 17, 2022
The scale of Puerto Rico's recovery efforts after Hurricane María means that these efforts are likely to fundamentally change Puerto Rico's economy in terms of labor, materials, and equipment. Researchers aimed to develop estimates of future construction costs and build factors that cost estimators can apply to current costs to reflect the future cost of construction. This report documents their approach, data, findings, and recommendations.
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Alternative procedures for obtaining Public Assistance from the Federal Emergency Management Agency allow an applicant to bundle projects together and to not build back to the same state as predisaster. Cost overruns are the applicant's responsibility, and cost savings can be invested in other mitigation and risk reduction activities. In most cases, current construction costs are a good proxy for future costs, accounting for inflation. In the case of Puerto Rico's recovery from Hurricane María, the scale of the recovery efforts relative to the size of the economy means that these efforts are likely to fundamentally change the economy in terms of labor, materials, and equipment. As a result, in this project, the authors aimed to develop estimates of future construction costs and build multiplicative factors that cost estimators can apply to current costs to reflect the future cost of construction. To do this, they developed a disaster recovery expenditure simulator based on historical obligations; created a model to estimate expenditure scenarios' effect on prices of labor, materials, and equipment; devised an econometric approach to estimate substitutability of labor; and developed a labor demand estimator. This report documents their approach, data, findings, and recommendations.
Understanding the Labor Supply Constraints for Recovery
Estimating Expenditure Scenarios
The Computable General Equilibrium Model
Estimating Construction and Nonconstruction Labor Substitutability
Results of the Modeling Approach
Discussion and Limitations
This research was sponsored by FEMA and conducted within the Disaster Research and Analysis Program of the Homeland Security Operational Analysis Center (HSOAC).
This report is part of the RAND Corporation Research report series. RAND reports present research findings and objective analysis that address the challenges facing the public and private sectors. All RAND reports undergo rigorous peer review to ensure high standards for research quality and objectivity.
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