Three essays on the adverse effects of weather extremes on local economic and health outcomes in Indonesia

<p>The weather-economy nexus has long had close attention from scholars and policy makers as weather hazards often have a significant impact on socioeconomic outcomes of populations around the world. A continuous understanding of this relationship is vital for societies to deal well with weather risk. This is particularly important in relation to climate change, which is likely to worsen the consequences of extreme weather as their frequencies and intensities increase. This thesis consists of three essays that demonstrate the adverse effects of extreme weather episodes on the local economy, using publicly available weather data and economic data sources. The essays use Indonesia setting as a case study, but the findings are likely to also be relevant for the situation in other developing countries located in the tropics that face similar socioeconomic challenges dealing with weather risk. The first essay, having identified the robust link between drought and variations of agricultural yield in the last decades, assesses the viability of weather-index insurance (WII) scheme against drought risk for rice farmers. The results suggest WII can play a cost-effective risk reduction role in drought sensitive regions, such as Sulawesi. The timing of drought as an exogenous shock to household economic outcomes is important as indicated in the results of the second essay. The estimated adverse effects to household monthly incomes and expenditures begin in the following year the drought occurs. Besides affecting economic outcomes, extreme weather also drives variations in health-related outcomes of adult individuals. This is empirically identified in the third essay that finds a robust connection between extreme rainfall and health outcomes. The results confirm earlier findings that people face higher probabilities of being affected by diseases during adverse events, especially during dry months. Estimations on coping mechanisms suggest heterogeneous effects with respect to, for example, the role of insurance. Lastly, the third essay finds that extreme weather episodes are negatively associated with non-quantifiable subjective well-being and life satisfaction.</p>

Three essays on the adverse effects of weather extremes on local economic and health outcomes in Indonesia

<p>The weather-economy nexus has long had close attention from scholars and policy makers as weather hazards often have a significant impact on socioeconomic outcomes of populations around the world. A continuous understanding of this relationship is vital for societies to deal well with weather risk. This is particularly important in relation to climate change, which is likely to worsen the consequences of extreme weather as their frequencies and intensities increase. This thesis consists of three essays that demonstrate the adverse effects of extreme weather episodes on the local economy, using publicly available weather data and economic data sources. The essays use Indonesia setting as a case study, but the findings are likely to also be relevant for the situation in other developing countries located in the tropics that face similar socioeconomic challenges dealing with weather risk. The first essay, having identified the robust link between drought and variations of agricultural yield in the last decades, assesses the viability of weather-index insurance (WII) scheme against drought risk for rice farmers. The results suggest WII can play a cost-effective risk reduction role in drought sensitive regions, such as Sulawesi. The timing of drought as an exogenous shock to household economic outcomes is important as indicated in the results of the second essay. The estimated adverse effects to household monthly incomes and expenditures begin in the following year the drought occurs. Besides affecting economic outcomes, extreme weather also drives variations in health-related outcomes of adult individuals. This is empirically identified in the third essay that finds a robust connection between extreme rainfall and health outcomes. The results confirm earlier findings that people face higher probabilities of being affected by diseases during adverse events, especially during dry months. Estimations on coping mechanisms suggest heterogeneous effects with respect to, for example, the role of insurance. Lastly, the third essay finds that extreme weather episodes are negatively associated with non-quantifiable subjective well-being and life satisfaction.</p>

Contracting with Controllable Risk

We examine how executives' ability to control their firm's exposure to risk affects the design of their incentive-compensation contracts. Our natural experimental evidence shows that exchange-traded weather derivatives allow executives to control their firm's exposure to weather risk. Once these derivatives became available those executives who use them to hedge experience relative reductions in their total compensation and equity incentives. The decline in compensation is consistent with a reduction in the risk premium that executives receive for exposure to weather risk. The decline in equity incentives is consistent with the relation between risk and incentives shifting in a complementary direction when executives can better control their firm's exposure to risk. Collectively, our findings provide evidence that executives' ability to control their firms' exposure, and by extension their own, to an important source of risk influences the design of their incentive-compensation contracts.

Attribution of the role of climate change in the forest fires in Sweden 2018

In this study, we analyse the role of climate change in the forest fires that raged through large parts of Sweden in the summer of 2018 from a meteorological perspective. This is done by studying the Canadian Fire Weather Index (FWI) based on sub-daily data, both in reanalysis data sets (ERA-Interim, ERA5, the Japanese 55 year Reanalysis, JRA-55, and Modern-Era Retrospective analysis for Research and Applications version 2, MERRA-2) and three large-ensemble climate models (EC-Earth, weather@home, W@H, and Community Earth System Model, CESM) simulations. The FWI, based on reanalysis, correlates well with the observed burnt area in summer (r=0.6 to 0.8). We find that the maximum FWI in July 2018 had return times of ∼24 years (90 % CI, confidence interval, > 10 years) for southern and northern Sweden. Furthermore, we find a negative trend of the FWI for southern Sweden over the 1979 to 2017 time period in the reanalyses, yielding a non-significant reduced probability of such an event. However, the short observational record, large uncertainty between the reanalysis products and large natural variability of the FWI give a large confidence interval around this number that easily includes no change, so we cannot draw robust conclusions from reanalysis data. The three large-ensembles with climate models point to a roughly 1.1 (0.9 to 1.4) times increased probability (non-significant) for such events in the current climate relative to preindustrial climate. For a future climate (2 ∘C warming), we find a roughly 2 (1.5 to 3) times increased probability for such events relative to the preindustrial climate. The increased fire weather risk is mainly attributed to the increase in temperature. The other main factor, i.e. precipitation during summer months, is projected to increase for northern Sweden and decrease for southern Sweden. We, however, do not find a clear change in prolonged dry periods in summer months that could explain the increased fire weather risk in the climate models. In summary, we find a (non-significant) reduced probability of such events based on reanalyses, a small (non-significant) increased probability due to global warming up to now and a more robust (significant) increase in the risk for such events in the future based on the climate models.

Weather Risk Assessment for Collective Water Supply and Sewerage Systems

The weather derivatives market as an instrument of effective weather risk management is still not flexible enough for many industries. The water supply and sewerage industry is sensitive primarily to heavy rainfalls and periods of high and low temperatures: days with heavy rainfall may cause a hydraulic overload of the sewerage systems; on hot days, the water demand increases significantly; on frost days, the risk of water pipe failure grows. The work aimed to summarise methods of weather risk management and propose indices that will help to protect the interests of the water supply and sewerage industry in Poland. Three indices were proposed: a daily precipitation index, frost day index, and hot day index. The frequency of reaching these indices in Poland was verified with the use of meteorological data from 1970–2019, for 19 locations. The non-parametric Mann-Kendall test was used to determine the climate change impact on the exceedance frequency of the proposed indicators. The results showed that the indexes were exceeded in the past once every 6 years, on average. The hot day index was exceeded the least often, but it was the only one with a clear (growing) trend observed.