Revealing indirect risks in complex socioeconomic systems: A highly detailed multi‐model analysis of flood events in Austria

Bachner, G., Knittel, N., Poledna, S., Hochrainer-Stigler, S., & Reiter, K. (2023). Revealing indirect risks in complex socioeconomic systems: A highly detailed multi‐model analysis of flood events in Austria. Risk Analysis 44 229-243. 10.1111/risa.14144.

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Abstract

Cascading risks that can spread through complex systems have recently gained attention. As it is crucial for decision-makers to put figures on such risks and their interactions, models that explicitly capture such interactions in a realistic manner are needed. Climate related hazards often cascade through different systems, from physical to economic and social systems, causing direct but also indirect risks and losses. Despite their growing importance in the light of ongoing climate change and increasing global connections, such indirect risks are not well understood. Applying two fundamentally different economic models—a computable general equilibrium model and an agent-based model—we reveal indirect risks of flood events. The models are fed with sector-specific capital stock damages, which constitutes a major methodological improvement. We apply these models for Austria, a highly flood exposed country with strong economic linkages. A key finding is that flood damages pose very different indirect risks to different sectors and household groups (distributional effects) in the short and long-term. Our results imply that risk management should focus on specific societal subgroups and sectors. We provide a simple metric for indirect risk, showing how direct and indirect losses are related. This can provide new ways forward in risk management, for example, focusing on interconnectedness of sectors and agents within different risk-layers of indirect risk. Although we offer highly relevant leverage points for indirect risk management in Austria, the methodology of analyzing indirect risks can be transferred to other regions.

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