tropical cyclones, caribbean economics and rethinking the cost of climatic change solomon hsiang...
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Tropical Cyclones, Caribbean Economics
and Rethinking the Cost of Climatic Change
Solomon Hsiang
Ph.D. student in Sustainable Development
the question
• How will climatic change affect Caribbean economies (through the mechanism of tropical cyclones)?
the result
• History suggests that populations will adapt, coping with (small) changes in income and consumption following additional storm events by expanding government, leading to (large) reductions in consumption and income growth.
this talk
• prior work• estimating historical storm incidence• theoretical framework• responses to events• responses to risk• comparison• is the response dynamic?• discussion
attribution & public literature
• During 2005, the Jamaican economy recorded real Gross Domestic Product growth of an estimated 1.4 per cent, however, the targets established under the Medium Term Socio-Economic Policy Framework were not fully realized.... During the year, growth performance was adversely impacted by a number of challenges, which included:
-the residual impact of Hurricane Ivan;
-drought conditions and bush fires during the first half of the year;
-the impact of Hurricanes Dennis and Emily which caused damage to infrastructure and productive assets amounting to approximately $6.0 billion; and
-record high international crude oil prices.
[Planning Institute of Jamaica, 2005]
economic literature
• Economic damage (Nordhaus, Pielke et al.)
• Hurricanes and development (Barker, Mulcahy)
• Income smoothing after storms (Bluedorn)
• Projecting long run influence on economic trajectories (Freeman)
• Environment and indirect effect - Institutions (Acemoglu et al.)
“Adaptation to climate change has the potential to substantially reduce many of the adverse impacts of climate change and enhance beneficial impacts, though neither without cost nor without leaving residual damage.”
- IPCC, 2001, Working Group 2, Technical Summary
the “we’ll adapt” assumption
land surface data NOAA NGDC GLOBE Digital Elevation Model
44 km longSt. Kitts and
Nevis
1 km x 1 kmresolution
socially relevant storm incidence
distance at closest approach
250 km
integrate storm measure
stormmotion
defining terms
• technical damages– the “event effect”– “technical adaptation”
• behavioral damages– the “risk effect”– “behavioral adaptation”– eg. u(GPO) - u(Nash)
X
X
pdf(x)
X(t)
example: biking in Boston and New York City
• biking risk: get hit by a car
• technical effect: hospitalization
• technical adaptation: helmet
• behavioral adaptation: bike less
• behavioral effect: fewer bikers in NYC
than Boston
climate change
• current focus: events– cyclones, drought,
floods, sea level rise, etc.
• is a change in the set of possible outcomes (and risk)
pdf( x | climate_1 )
X(t)
X
pdf( x | climate_2 )
data• Penn World Tables
– GDP (PPP/c), consumption, investment, govt
• 1967 - 2004• 16 nations• 44M people• Controls:
– Precipitation, Surface Temperature– Year– Country fixed effects
• Area, GDP in 1970, population
is the response dynamic?
• Acemoglu et al: t = 0: environment produces institutions
t > 0: institutions produce outcomes
• Or dynamic adjustment?t > 0: environment to institutions to outcomes
results
• direct temp effect: +1 degree C = -3.1 % growth
• storm event effect:ATE = [-4, +4] % growth
ATE = [-0.5, +1.5] % income consumption
• storm risk effect: ATE = +16.0 % government spending
ATE = -17.6 % income consumption
ATE = -1.9 % growth
possible stories
• Durkheim’s “social effervescence”• liability transfer to government (requires
good credit markets)• inefficient mechanisms for public good
provision– risk in cooperation games
• Mulcahy’s inequality and income transfers• high taxation and incentives to invest (low
growth)
take home messages
• no evidence of frequently cited “technical
adaptation”
• strong “behavioral adaptation”
• a focus on observed “events” and
damages underestimates the impact of
climate (i.e. risk) change in general
equilibrium by 1-2 orders of magnitude
Thanks to Leigh Linden, Wolfram Schlenker, Jeffrey Sachs, Josh Graff Zivin, John Mutter, Bernard Salanie, Scott Barrett, Adam Sobel, Jennifer Hill, Wojciech Kopczuk, Bentley MacLeod, Kerry Emanuel, Mark Cane, Suzana Camargo, Alessandra Giannini, Jim Kossin, John Bluedorn, Dennis Shea, Ram Fishman, Jesse Antilla-Houghs, Tobias Sigfried, Matthew Notowidigdo and Adam Sachs; and NSF-IGERT and EPA-STAR for support.
Main Development Region
Sun
‘Eye’Storm
Velocity
Surface winds
Radiation to space
Earth’s rotation
Prevailing winds
integrated energy = a + b x SST + c x ENSO3.4 + error
OLS -2.3210e6 0.0892e6 -0.0478e6tstat (-3.2277)*** (3.4027)*** (-4.3322)***heteroskedastic spherical disturbance
GLM -1.9842e6 0.0769e6 -0.0433e6tstat (-3.8047)*** (4.0376)*** (-5.9367)***gamma (exp) errors
SST ENSO
TotalBasinEnergy