Why weather forecasts can affect your prosperity

27th June, 2009

Spare a thought for the weather forecasters. Taken for granted when they get it right, they are invariably whipping boys when they get things wrong – despite a far better forecasting record than we economists have. They probably have more to contribute to the economy, too.

A recent case in point: Bournemouth’s woes during the bank holiday at the end of May. The Met Office predicted storms, but the beach resort in fact enjoyed the sunniest day of the year. Bournemouth’s tourist office reckons the town missed out on at least 25,000 visitors and more than £1m of revenue as a result. Subtler losses and gains were registered by the would-be tourists, and the lucky ones who enjoyed both a sunny day and a quieter beach.

Tourists have always been vulnerable to the weather, but they may now be more vulnerable to weather forecasters. The internet has made it easy to check the forecast and easy, too, to make late bookings for short breaks – which are self-evidently more responsive to the weather.

Galvanised by Bournemouth’s woes, I did some research into the economics of weather forecasting for a short BBC documentary. What surprised me was the sheer range of industries that could save money if given a reliable forecast.

Electricity generators need temperature forecasts to gauge the demand for power, and electricity generation itself is weather-sensitive. It’s not just a case of windmills and solar panels: gas-fired power stations are more efficient at lower temperatures. Without a good forecast, both energy and money will be wasted.

Local governments are responsible for salting and gritting roads as they freeze. It’s a costly process, best avoided if the roads are not, in fact, going to freeze at all. Supermarkets consult detailed weather forecasts and adjust the local product mix accordingly. An extra day’s reliable warning of the local weather is a godsend.

The vulnerability to bad weather is even higher in developing countries, sometimes with tragic consequences. As I reported in a column last year, the economists Emily Oster and Ted Miguel have investigated the link between bad weather and “witch” killings. Miguel found that modern-day witch-killings in Tanzania are correlated with droughts and floods. Oster, building on research by historian Wolfgang Behringer, found a connection between cold decades and witch-trials in 16th- and 17th-century Europe.

MIT economist Michael Greenstone has studied the impact of local temperature surges on deaths in both India and the US. He calculates that a year with one extra “heatwave” day – temperatures above 32°C instead of 12°C-15°C – would raise the annual death rate by eight per million in the US. In India, the temperature vulnerability is more than five times higher, notably in rural areas where agriculture suffers and wages drop.

Weather forecasting cannot prevent heatwaves, but it can help in other ways. Accurate forecasts can allow farmers to sow seeds without fear that they will be washed or blown away. A study from the mid-1990s – admittedly, conducted by the World Meteorological Organization – concluded that every dollar invested in weather forecasting services would save $10 in economic losses.

The World Bank broadly agrees, and is supporting Russian efforts to reinvigorate forecasting systems that have been deteriorating since the collapse of the Soviet Union.

The World Bank’s researchers reckon that the benefits of such efforts outweigh the costs by five to one. If those numbers stack up, that suggests an unlikely development tactic for poor countries: hire more weather forecasters.

Also published at ft.com.

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