Blizzards will hit Heathrow again: How to prepare?
Blizzards like the storm that grounded most of British Airways' fleet are increasingly likely, say climate researchers. How will smart planners lessen the economic damage?
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CASE #2: The airport invests in the snow equipmentSo with probability 1 , it pays $1 million dollars but it has 0 probability of a public relations disaster.Since $1 million < $2 million, the firm will chose CASE #2 and climate shocks will cause less damage to our economy.Skip to next paragraph
Mathew is an economics professor at UCLA and has written three books: Green Cities (Brookings Institution Press); Heroes and Cowards (Princeton University Press, jointly with Dora L. Costa); and in fall 2010, Climatopolis: How Our Cities Will Thrive in the Hotter World (Basic Books).
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So, if airports hire climate scientists as consultants in planning investment strategies -- then expected future disasters will not nail the airports! As Mother Nature changes the rules of the game, we change our investment patterns. Because our climate scientists are good, they give us a leading indicator of where Mother Nature is trending and we invest and our ready for her. Now, if the climate scientists say that they know nothing about the future we will face --- then we face a challenge but in this case of complete anticipated ignorance we have an incentive to build in the "precautionary principle" into our investments to be ready for the possible unknowns.
This investment example is a key piece of the core logic of Climatopolis. Note that none of the critics of Climatopolis have discussed this point at all in which they link climate science to actual choices and choices to consequences for the real economy. But, this broad example is a crucial nexus between climate and the economy. The key assumption that critics have ignored in discussing my book is that we are forward looking adults who will adjust our subjective assessments of the future as new news (such as Moscow Heat Wave) or the London Snow of December 2010 take place.
Investment under uncertainty will become a hot topic again and Lucas and Prescott will generate more citations!
Note the key role for the climate scientists. Those nerds will do the basic research to help us foresee the consequences of climate change. If they can produce forecasts with spatial resolution, then this will greatly help investment planning in where to build infrastructure and how much slack capacity must be embodied in the infrastructure (such as San Francisco future airport flood concern) to minimize the probability of ugly events. We need options built into our investments because we know that we don’t know what climate change will actually do.
The Christian Science Monitor has assembled a diverse group of the best economy-related bloggers out there. Our guest bloggers are not employed or directed by the Monitor and the views expressed are the bloggers' own, as is responsibility for the content of their blogs. To contact us about a blogger, click here. This post originally ran on greeneconomics.blogspot.com.