Impacts of Water Variability: Benefits and Challenges
14th Symposium on Global Change and Climate Variations


What Are Weather Forecasts Worth?

Jeffrey K. Lazo, Stratus Consulting Inc., Boulder, CO

With an annual budget of about $1.3 billion, the average U.S. household pays about $13 a year for the weather forecasting services of the federal government. There is little if any reliable economic information indicating whether these services are worth this $13 a year to households, although it is widely assumed that the benefits far exceed the costs. Because weather forecasts are generally treated as public goods, markets have not developed for the provision of weather forecasts for the general public. There is thus little or no market data on households’ values for weather information.

To elicit these values we surveyed 381 individuals in nine cities across the United States in October 2002. The survey used stated preference nonmarket valuation approaches to elicit household values for current weather forecasting services.

There are two basic approaches that economists use to estimate the economic value of nonmarket goods: revealed preference methods (RP) and stated preference (SP) methods. Revealed preference methods are applied to actual behavior and market transactions that may reveal the values implicitly placed on a nonmarket good in the context of choices made regarding market goods. In stated preference studies, value is estimated using surveys in which a representative sample of the relevant population expresses a stated preference that can be directly or indirectly used to determine willingness to pay for a good or service. The value obtained for the good or service is contingent on the nature of the constructed market described in the survey scenario. Stated preference methods include stated value methods (SV) and stated choice (SC) methods, both of which are used in the study.

The study found a median willingness to pay for current weather forecast services of about $110 a year per household. The study also found that people are willing to pay even more for improvements in forecast technology to get more accurate and reliable weather forecasts. The value for a program that would significantly improve day-to-day weather forecasts was about $16 a year per household. This is a value for improvements in day-to-day forecasts and does not include the potential value of improvements in severe weather warnings such as for hurricanes and tornadoes. With 105 million households in the United States, the total value to society of improving day-to-day weather forecasts may exceed $1.5 billion.

Joint Session 2, Weather Derivatives and the Value of Forecasts(Joint with the Symposium on Impacts of Water Variability: Benefits and Challenges and 14th Symposium on Global Change and Climate Variations)
Thursday, 13 February 2003, 8:30 AM-9:45 AM

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