Investing in Absorptive Capacity in Interdependent Infrastructure and Industry Sectors

Abstract

Freight transportation infrastructure systems facilitate commodity flows across multiple industries. The closure of key infrastructures leads to an interruption of economic productivity that propagates through a system of interconnected industries. Investing in infrastructure and key industries can reduce the vulnerability of many industries by improving their ability to maintain functionality when shocked. This work investigates how a limited budget could be allocated to multiple industries to fortify them prior to a disruption to ultimately enhance the economic resilience across all industries by reducing the vulnerability of the underlying infrastructure. A risk-based economic interdependency model is used to implement a new measure of absorptive capacity to examine the propagation of a failure throughout the economy given the fortification of industry sectors. Sources of uncertainty in this data-driven model are considered, and a soft-robust optimization model is proposed to devise budget allocation under uncertainty. The approach is illustrated with an inland waterway port case study. The results can provide decision makers with managerial insights about how the economic interdependency affects the industries’ share of a budget to enhance absorptive capacity and how the level of budget affects the decision-making process for allocating resources.