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Published: January 6, 2023
Author(s): Douglas Thomas, Juan Fung
Abstract Approximately 75 % of U.S. firms experience a major supply chain disruption annually, and the causes of many of these disruptions are not well understood. One potential source of disruption is power outages, which can disrupt production for firms without alternative sources of electricity. We examine the short-term losses that manufacturers experience as a result of power outages in their supplier network. The analysis uses regression in the form of a Cobb-Douglas production function to estimate GDP losses in the U.S. at the state level. Our findings suggest that the downstream supply chain may contain a large share of the economic impact when compared to other losses estimated in the literature. The results suggest that eliminating power outages increases manufacturing value added by 2.3 % ($49.0 billion in 2016). Loss estimates for other supply chain areas and/or time periods from the literature range from $19 billion to $255 billion. Our results suggest a large additional loss in GDP results from power outages in the supply chain. We also find that a $50 billion dollar investment in resilience is estimated to be cost-effective if it has a 5 % or higher reduction in the direct and indirect losses.
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