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This paper develops the methodology for consistent measurement of economic loss caused by natural hazards with a two sector economic growth model. Especially, cascade effect, which results from interdependency between industrial sectors after natural disaster events, is one of the important factors expanding the total economic loss. So this research focuses on the methodology for consistent measurement of economic loss including the effect. It is shown that, in the case that capital is damaged in industry sectors from natural disaster, sum of the differences of discounted cash-flow in industrial sectors is consistent measure as total economic loss.
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Nakano et al. (2008) studied this question.
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