Economic Value of Weather and Climate Forecasts

Abstract

AbstractThis article, which deals with methods for quantifying the economic value of weather and climate forecasts, is organized as follows. Section 2 provides some background on methods used to produce weather and climate forecasts, including the distinction between “weather” and “climate.” Section 3 introduces the concept of the economic value of imperfect information, based on the framework of decision theory and expected utility maximization. Section 4 reviews specific decision-analytic studies of the economic value of weather and climate forecasts. As a complement to the decision-theoretic approach, nonmarket valuation of weather and climate forecasts based on stated preference methods are described in Section 5. As an example, a recent survey of the public to obtain willingness-to-pay estimates for the economic value of improved hurricane forecasts is treated in detail. Finally, Section 6 consists of a discussion focusing on future research directions that could result in improved assessment of the economic value of weather and climate forecasts.