Tropical Cyclones, Caribbean Economics and Rethinking the Cost of Climatic Change

1. Tropical Cyclones, Caribbean Economics and Rethinking the Cost of Climatic Change • Solomon Hsiang • Ph.D. student in Sustainable Development

2. NASA

3. Neumann

8. the question • How will climatic change affect Caribbean economies (through the mechanism of tropical cyclones)?

9. 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.

10. this talk • prior work • estimating historical storm incidence • theoretical framework • responses to events • responses to risk • comparison • is the response dynamic? • discussion

11. prior work

12. 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]

13. 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.)

14. climate change context Emanuel, 2005 Knutson & Tuleya, 2004

15. the “we’ll adapt” assumption • “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

16. storm incidence Tartaglione et al., Journal of Climate, 2003

17. estimating a storm incidence reconstruction

19. 44 million people

20. (Suzana Camargo, IRI)

21. land surface data NOAA NGDC GLOBE Digital Elevation Model 1 km x 1 km resolution 44 km long St. Kitts and Nevis

22. RMW = a + b x Vmax + c x LAT (Kossin et al 2007)

23. socially relevant storm incidence storm motion integrate storm measure 250 km distance at closest approach

30. nice pictures.where’s the economics?

31. defining terms X(t) • technical damages • the “event effect” • “technical adaptation” • behavioral damages • the “risk effect” • “behavioral adaptation” • eg. u(GPO) - u(Nash) X pdf(x) X

32. theoretical framework

33. 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

34. climate change X(t) • current focus: events • cyclones, drought, floods, sea level rise, etc. • is a change in the set of possible outcomes (and risk) X pdf( x | climate_1 ) pdf( x | climate_2 )

36. 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

37. the simplest cut • is there any effect (event or risk) of cyclones on outcomes?

38. ‘low risk’ ‘high risk’

42. There is a clear effect, but cannot identify event from risk.

43. quick aside: short-run response to surface temperature events

46. the “event effect”&“technical adaptation”

47. short-run response to tropical cyclone events