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W
EATHER HAS SIGNIFICANT
and increasing societal and
economic impacts in every country and in almost
every human activity. Weather forecasts allow deci-
sion makers to mitigate some of the impacts of weather and thus
create significant economic value. Understanding the economic
impacts of weather and weather forecasts is critical to National
Meteorological and Hydrological Services (NMHS) efforts to
serve society. It is important therefore to understand the
economic aspects of weather impacts and weather forecasts, in
order to gain a better understanding of several key perspectives:
• The distinction between weather impacts and weather
forecasts
• How to value weather impacts and weather forecasts
• How economic information is important in the decision
making that supports NMHS.
Weather impacts and forecasts
The term, ‘economics of weather
impacts
’ relates to the way in
which different weather conditions change or affect economic
activity and decision making. Weather impacts include the loss
of crops to freezing temperatures, or energy demands that
increase with higher temperatures. The economics of weather
forecasts
relates to how decision makers respond to weather
predictions – for example, protective action in response to
freeze warnings to reduce crop losses, or an investigation into
the extent of energy-cost savings that can be realized with better
one-day temperature forecasts.
The relationship between the economic impact of weather
and the economic value of weather forecasts is neither direct
nor clear. In general though, if weather forecasts are to have
value, decision makers must be able to change their behaviour
in response to weather information. If they cannot make
changes, the forecasts can have no direct value.
Valuing impacts and forecasts
To assess the value of forecasts then, it is necessary to under-
stand the relationships between the impacts of weather, and
the information given in weather forecasts. In addition, it is
important to be aware of how decision makers use that infor-
mation, how decisions change with different forecast
information, and how economic impacts alter with changes in
decision making and behaviour. This leads to the question:
what exactly should be taken into account when we talk about
the value of weather forecasts?
The process of valuation always entails the comparison of
the value in one situation to that in another situation. The valu-
ation of weather forecasts involves comparing two different
levels, qualities or types of weather information, based on the
assumption that all other factors are equal. The diagram below
shows a continuum of weather-information value, beginning
with ‘no information’ and ending with ‘perfect information’.
When speaking of the value of weather information, it is neces-
sary to specify which components of the continuum are being
compared.
Other aspects of the valuation problem include:
• Who is receiving the value (e.g. the users of the infor-
mation)
• The temporal and spatial scales of the valuation study
• The type of information being valued (e.g. all weather
information or just temperature information).
In order to make it possible to estimate economic value, it is
also important to understand the weather forecast and impact
‘value chain’, (represented in the second diagram below).
Although NMHS focus mainly on activities in the ‘weather fore-
cast enterprise’ box, much of the value added or lost occurs in
the ‘communication’ and ‘users and decision making’ boxes.
Economics of weather impacts
and weather forecasts
Jeffrey K. Lazo, National Center for Atmospheric Research, US
Source: Jeffrey K. Lazo
No Information
Climatology
Persistence
1
Current
Information
Improved
Information
Perfect
Information
1
The value of climatology may be higher or lower than persistence but is shown as lower for the current purposes
Continuum of weather-information value