Overview of work WP4 Extreme events and Economic crisis : Overview of work WP4 Extreme events and Economic crisis Stéphane Hallegatte
Stanford University and CIRED
Plenary meeting
Perugia, September 2, 2006
Detection of and adaptation to climate change: Detection of and adaptation to climate change
Climate change detection and adaptation (Dumas, 2006): Climate change detection and adaptation (Dumas, 2006) Adapting to climate change requires to distinguish between long-term trends and natural variability: several methods are available
Climate change detection and adaptation (Dumas, 2006): Climate change detection and adaptation (Dumas, 2006) Depending on how one detects climate change, his adaptation process will be more or less efficient, impacting the amount of climate change damages he is affected by.
Macroeconomics of disasters: Macroeconomics of disasters
Macroeconomics of extreme events: Macroeconomics of extreme events Highlight a bifurcation in economic losses if reconstruction capacity is insufficient with respect to disaster probability distribution Hallegatte, Hourcade, Dumas (2006)
Slide7: Highlight the sensitivity of disaster costs to the pre-existing economic situation. The vulnerability paradox: an economy in the expansion phase of its business cycle is more vulnerable than an economy in recession or recovery
Macroeconomics of extreme events Hallegatte and Ghil (2006)
Slide8: Highlight the sensitivity of disaster costs to economic dynamics hypotheses: Some flexibility reduces disaster costs but too much flexibility increases disaster costs
Macroeconomics of extreme events Hallegatte and Ghil (2006)
Slide9: Interestingly, this feature is also observed in the model for exogenous productivity shocks…
Macroeconomics of extreme events Model with endogenous shocks plus response to exogenous productivity shocks The anomalies due to the exogenous shocks show:
Long-period oscillations
More variance during expansions than during recessions (factor 2.4)
Slide10: …and in U.S. data between 1947 and 2004, with a factor 2.6 (!) in the variance of “second-order fluctuations”. Macroeconomics of extreme events
Slide11: Calibration of the macroeconomic model
using a Kalman filter Model variables: production; consumption; investment But numerical problems after a few years…
Slide12: If embodied technical change is accounted for, there is a link between disaster and economic growth Macroeconomics of extreme events Hallegatte (2006) During reconstruction, the replacement of the old (destroyed) capital by new and more efficient capital improve growth This mechanism has a weak influence, but reduces significantly the duration of the production reduction.
Slide13: If there is a trade-off between speed and quality of the reconstruction, then a better reconstruction increase short-term costs but pays off over the long-term Macroeconomics of extreme events Hallegatte (2006) … but largely pays off over the long-term A slower but “smarter” reconstruction increases short-term adverse consequences…
Production networks and natural disasters: Production networks and natural disasters
From production networks to geographical economics (Weisbuch & Battiston, 2006): From production networks to geographical economics (Weisbuch & Battiston, 2006) Although standard economics textbooks are seldom interested in production networks, modern economies are more and more based upon suppliers/customers interactions. One can consider entire sectors of the economy as generalised supply chains.
Slide16: • Scale free distributions of wealth and production
• Regional organisation of wealth and production: a few active regions are responsible for most production.
• Avalanches of shortage and resulting bankruptcies occur for larger values of the time lag between bankruptcy and firm re-birth, but even when most firms are bankrupted, the global economy is little perturbed. From production networks to geographical economics (Weisbuch & Battiston, 2006) Wealth Production High production region Bankrupted region
Application of these concepts to natural disaster cost assessment: Application of these concepts to natural disaster cost assessment A disaster destroys some production units (8 percent)
Cascades of failures amongst the supply-chains work in progress….
Urban structures, transportation prices and building inertia: Urban structures, transportation prices and building inertia François Gusdorf
WP4 – Publications & Conferences: WP4 – Publications & Conferences PUBLICATIONS
Dumas P., 2006, L'évaluation des dommages du changement climatique en situation d'incertitude : l'apport de la modélisation des coûts de l'adaptation", PhD Thesis, Ecole des Hautes Etudes en Sciences Sociales, January 6th, 2006.
Hallegatte S., A Cost-Benefit Analysis of the New Orleans Flood Protection System. Regulatory Analysis 06-02. AEI-Brookings Joint Center. Mar 2006
Hallegatte, S., M. Ghil, P. Dumas, J.-C. Hourcade, Business Cycles, Bifurcations and Chaos in a Neo-Classical Model with Investment Dynamics, Journal of Economic Behavior and Organization, in press
Hallegatte S., J.-.C Hourcade, P. Dumas, Why economic dynamics matter in the assessment of climate change damages: illustration on extreme events, Ecological Economics, in press
Hallegatte S., 2006, Is there any link between climate change, hurricane destructiveness and economic damages?, the Bulletin of the American Meteorological Society, submitted
Hallegatte S., 2006, The use of synthetic hurricane tracks in risk analysis and climate change damage assessment, Journal of Applied Meteorology and Climatology, submitted
Hallegatte S. and M. Ghil, Endogenous business cycles and economic response to exogenous shocks, Journal of Economic Behavior and Organization, submitted
Gusdorf F. and S. Hallegatte, Behaviors and housing inertia are key factors in determining the consequences of a shock in transportation costs, Energy Policy, submitted
Hallegatte S., Can natural disasters have positive consequences? Investigating the effect of embodied technical change, Journal of Economic Growth, submitted
G. Weisbuch, S. Battiston, Production networks and failure avalanches, in preparation
CONFERENCES
WP4 workshop in Paris, January 30, 2006
Hallegatte S., 2006, Climate change damage: what is still to be done, Workshop "The economics of climate change: understanding transatlantic differences", Resources for the Future and the UK Department of Environment, Food and Rural Affairs, Washington, D.C., March 2-3
Hallegatte S., 2006, Climate change damages: why PDFs can be misleading, EPA workshop of probabilistic integrated assessment, Washington, D.C., May 2-4
Hallegatte S., 2006, Endogenous Business Cycles and the Economic Response to Exogenous Shocks, Third International Meeting on “Complex behavior in Economics : Modeling, Computing and Mastering Complexity", Aix en Provence, France, 17 - 21 May 2006
Hallegatte S., 2006, Why economic dynamics matter in the assessment of climate change damages: illustration on extreme events, Third World Congress of Resource and Environmental Economists, Kyoto, Japan, July 2006