The economics impacts of long-run droughts: Challenges, gaps, and way forward

Abstract

Quantifying drought's economic impacts has been key for decision-making to build future strategies and improve the development and implementation of proactive plans. However, climate change is changing drought frequency, intensity, and durability. These changes imply modifications of their economic impact, as longer droughts result in greater cumulative economic losses for water users. Though the longer the drought lasts, other factors also play a crucial role in its economic outcomes, such as Infrastructure capacity (IC), the Amount of Water in Storage (AWS) in reservoirs and aquifers, and short- and long-term responses to it. This study proposes and applies an analytical framework for the economic assessment of long-run droughts, assessing and explaining central Chile megadrought economic effects through the factors that begin to influence the economic impact level in this setting. High levels of both IC and the AWS, as well as short- and long-term responses of water users, allow for high resilience to long-run droughts, tolerating extraordinary water disruption in its society with relatively low total economic impacts. Despite this adaptability, long-term droughts bring places to a water-critical threshold where long-term adaptation strategies may be less flexible than short-term strategies, escalating the adverse economic effects. This fact suggests that the economic evaluation of megadrought needs to focus on future tipping points (substantial water scarcity). The tipping point depends on the IC, how water users manage the AWS, and adaptation strategies. Establishing the tipping point should be a priority for future interdisciplinary research.