WWA-07. Assessing the Economic Value of Weather and Climate Forecasts: A Decision-Analytic Approach

Abstract
It is widely recognized that weather, climate, water and ocean observations and forecasts are relied on by decision-makers in all sectors, and that use results in large economic value to the U.S. economy, but measuring that use and value remains a challenge. We apply formal decision analysis to assess the economic benefit of an experimental bi-weekly forecast of grassland productivity, Grass-Cast, as used by a ranch enterprise to make decisions about grazing and feeding livestock. The decision is complicated, as in many forecast applications (ranging from POPs to hurricane strikes), by the relationships among skill, lead-time, and decision timing. The value of the forecast is also affected by several social science dimensions, especially the user’s risk aversion. We simulate a typical cow-calf ranch in northeastern Colorado over several years of different forecasts. We find that given strong risk aversion in agricultural decision-making, the forecast is especially valuable in “normal” years for convincing the rancher to forego unnecessary adaptation (e.g. purchasing extra feed), and in the worst drought years when purchasing the feed as early in the season as possible---just as the forecast reaches a threshold skill level, reduces the inevitable expense. The economic value of the forecast for a single, 650-head ranch in Colorado that nets on average about $55,000 from cattle sales, runs up to $11,000 in normal years for the most risk-averse operator, and provides an average of $2,800 benefits a year.