Determinants of the Economic Vulnerability of Businesses to Pandemics and Similar Events

Clement Tisdell

JRFM, 2021, vol. 14, issue 11, 1-13

Abstract: After providing a general overview of factors that make businesses economically vulnerable to pandemics (such as COVID-19), this article identifies specific elements that increase the vulnerability of businesses to pandemics. These specifics include the extent to which the demand for their production declines, how easy it is for them to reduce the costs of their production (cost escapability), the importance of disruptions or breaks in the supply chains of inputs utilized by businesses, and their ability to sustain their liquidity. Businesses that rely on personal contacts for sales are especially threatened, for example, those in the hospitality and tourism sector. However, others are also vulnerable for the reasons given. Nevertheless, some businesses do gain as a result of pandemics and similar events. Their economic gain adds to GDP. However, it could be more appropriate to regard their gains as a part of the cost of a pandemic rather than a benefit of it. The effect on the vulnerability of businesses if government policies designed to control pandemics is also considered. The main original contribution of this article is to show how the microeconomic theory of the firm can be adapted to conceptualize the vulnerability of individual businesses to pandemics, particularly COVID-19, while also noting the limitations of this approach.

Keywords: COVID-19; demand volatility; epidemics; inescapable costs; insolvency; labour problems; product chains; public policy and pandemics (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2021
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