Working Paper

Valuing Nonmarket Impacts of Climate Change: From Reduced Form to Welfare

Feb 26, 2018 | Nathan W. Chan, Casey J. Wichman

Summary

We propose and evaluate a method to value nonmarket climate impacts with limited empirical information.

Key Findings

  • Willingness-to-pay for nonmarket climate amenities can be approximated using welfare estimates from primary studies.
  • Our approach can infer the value of climate amenities from reduced-form research relating demand for nonmarket goods to weather.
  • We apply our technique to outdoor recreation and find positive climate-induced net benefits by the end of the century.

Abstract

Nonmarket damages are largely missing from aggregate climate impacts, although reduced-form research is beginning to quantify these effects. We propose a general, theoretically consistent method for calculating welfare changes for nonmarket climate damages. This approach has minimal data requirements and provides a bridge between standard valuation techniques and reduced-form climate impact research. We elucidate the theoretical properties of our welfare measure, showing that it tends to produce exact or conservative estimates of surplus changes. We illustrate our approach by estimating impacts of climate change on outdoor recreation using nationally representative time- use survey data, which reveals substantial net welfare gains by the end of the century.