Abstract
I analyze damage from hurricane strikes on the United States since 1955. Using machine learning methods to select the most important drivers for damage, I show that large errors in a hurricane’s predicted landfall location result in higher damage. This relationship holds across a wide range of model specifications and when controlling for ex-ante uncertainty and potential endogeneity. Using a counterfactual exercise I find that the cumulative reduction in damage from forecast improvements since 1970 is about $82 billion, which exceeds the U.S. government’s spending on the forecasts and private willingness to pay for them.
Highlights
Damage from natural disasters in the United States, driven in large part by Hurricane Harvey and Hurricane Irma, reached a record high of $313 billion in 2017 (NOAA NCEI 2018)
I decompose this measure into the ex-post forecast errors and its ex-ante standard deviation. This allows me to test whether errors in ex-ante beliefs about the storm or the strength of those beliefs play greater roles in altering damage from natural disasters
While the relationship between hurricane damage and forecast accuracy is the primary interest of the analysis, there are many other potential determinants of damage
Summary
Damage from natural disasters in the United States, driven in large part by Hurricane Harvey and Hurricane Irma, reached a record high of $313 billion in 2017 (NOAA NCEI 2018). Hurricane forecasts, despite dramatic improvements, are far from perfect and can exhibit large and unexpected errors These errors, even up to just a few hours ahead, can lead individuals in a disaster area to protect their property less than they would have otherwise and lead to higher damage. I find that a one standard deviation increase in the hurricane strike location forecast error is associated with up to $9000 in additional damage per household affected by a hurricane. I decompose this measure into the ex-post forecast errors and its ex-ante standard deviation This allows me to test whether errors in ex-ante beliefs about the storm or the strength of those beliefs play greater roles in altering damage from natural disasters.
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