Valuing the direct impact of climate change on households

Although significant research has sought to predict the wider impacts of climate change, noticeably less research has attempted to value the direct impacts of climate change on households. This PhD proposal intends to use economic analysis in order to value the impact of climate change on households using survey data from countries on the Development Assistance Committee (DAC) list. This PhD scholarship proposal therefore directly addresses the Global Challenges theme of climate change.

Economic theory explains why households living in locations characterised by different climates might purchase different patterns of commodities, even when enjoying the same income and confronted by the same prices. The same theory also explains why such households achieve very different levels of welfare; essentially, because particular climates are conducive to certain activities, households living in particular climates are can attain the same level of welfare but at lower cost.

To investigate the impact of climate on the household’s cost of living therefore we propose three alternative valuation techniques. These techniques include the household production function (HPF) technique, the subjective wellbeing (SWB) technique and the Income Evaluation Question (IEQ) technique. Each of these techniques involves combining pre-existing spatially-referenced survey data of a type widely disseminated by supranational organisations such as the World Bank and gridded climate data. Application of these three different techniques to three different DAC countries comprises the PhD. Attention is naturally focussed on those countries which are large, climatically diverse and populous, and where good data is available.

The HPF technique analyses how geographical variations in climate impacts the pattern of household expenditures and from this determines the monetary value to the household of variations in particular climate variables. Essentially the argument is that if a household inhabiting a particular climate displays a pattern of expenditure similar to a richer household elsewhere then the difference in income represents the welfare impact attributable to the climate. This technique makes use of information on household expenditures which are a central feature of many surveys undertaken for development purposes.

By contrast to HPF studies, SWB studies analyse the trade-off between climate and income holding SWB constant. The key assumption here is that different individuals use a common function to convert utility into SWB measured e.g. on a 1-10 scale. Information on SWB is now routinely collected alongside information on household expenditure patterns and information on the demographic composition of the household. One important advantage of the SWB technique is the fact that the estimates of SWB are provided by individuals already inhabiting particular climates. The individual has thus already experienced and presumably adapted themselves to the local climate.

Finally the IEQ approach invites households to evaluate the minimum the level of household income necessary to achieve a standard of living provided by verbal descriptors e.g. just good or very good. The technique clearly assumes individuals possess a shared understanding of the welfare levels implied by the verbal descriptors and attempts to explain differences in the responses by references to climate variables whilst controlling for demographic variables e.g. the number of people of particular ages present in the household. Once again such questions are frequently included in household surveys undertaken for development planning purposes.

The successful candidate will either already possess or must expect to possess prior to the start of the PhD an excellent MSc in economics or similar from a leading academic institution. The MSc should include non-market valuation and econometric components. Knowledge of GIS would be advantageous.