Measuring impacts of extreme weather events using the life satisfaction approach

doi:10.1016/j.ecolecon.2015.11.013

Ecological Economics

Volume 121, January 2016, Pages 108-116

https://doi.org/10.1016/j.ecolecon.2015.11.013 Get rights and content

Highlights

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We estimate well-being effects of extreme weather events (floods and storm & hail events).
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We find a small but significant decline in life satisfaction due to an extreme weather event.
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While storms tend to have a short term effect on subjective well-being, the effect of floods persists much longer.
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The results indicate that insurances can at least partly offset well-being losses from floods.

Abstract

Extreme weather events cause harm among the aggrieved party that often goes beyond material damages. This paper studies the impact of extreme weather events on measures of self-reported life satisfaction. Focusing on Germany, we use representative panel data for 2000–2011 to study the effect of seven storm & hail events and five floods on subjective well-being in the affected NUTS 3 regions. Our results indicate that both weather experiences bear statistically significant negative externalities. Following an extreme weather event, life satisfaction is reduced by 0.020–0.027 on the 11-point scale. While the effect of storm & hail events is rather immediate in nature, the effect from floods persists much longer.

Introduction

In the past, we observed some destructive storms and floods that severely impacted on the population living in affected areas. With climate change, the magnitude and frequency of extreme weather events are expected to increase even further (Ciscar et al., 2009). The valuation of impacts imposed by extreme weather events usually focuses on economic aspects, such as damages on buildings, items and infrastructures and thereby neglects immaterial values such as mental distress, worries, health injuries or the loss of personal belongings (see e.g. Dehnhardt et al., 2008, Tapsell et al., 2002).

In this paper we study the impact of extreme weather events in Germany using evidence from subjective well-being data. Life satisfaction analysis has been increasingly used to evaluate environmental attributes and non-marketed goods (see e.g. Welsch and Ferreira, 2013 or Ferreira and Moro, 2010).

We analyse how life satisfaction changes in affected regions due to the occurrence of an extreme weather event using panel data from the German Socio-Economic Panel Study (SOEP, see Schupp et al., 2014). Using panel data permits to control for unobserved interpersonal heterogeneity. The importance of controlling for individual fixed effects in life satisfaction analysis has been emphasized by Ferrer-i Carbonell and Frijters, (2004). Our paper ties in with a small number of studies that analyse well-being effects of climate variables (Maddison and Rehdanz, 2011) and weather events like floods (Luechinger and Raschky, 2009), droughts (Carroll et al., 2009), hurricanes (Kimball et al., 2006) and forest fires (Kountouris and Remoundou, 2011). Luechinger and Raschky (2009) study the well-being effect of floods in Europe between 1973 and 2004 on NUTS 2 level and find a sizeable negative effect on life satisfaction. In a more recent analysis, Osberghaus and Kühling (2014) study indirect and direct effects of weather experiences in Germany – namely storms, floods, heavy rain and heat waves – on subjective well-being using a specifically designed and conducted one-time survey. They find a significant negative effect of climate-change induced damage expectations on subjective well-being while the direct effect is only significant in the case of heat waves.

In our analysis we focus on Germany using data from the SOEP for 2000–2011 which allows us to control for interpersonal heterogeneity and relevant socio-economic characteristics. We further use spatially disaggregated data (NUTS 3 level) from the German Insurance Association (GDV) on insured losses of five floods and seven storm & hail events. Hence, the main contribution of our paper is to study the well-being effects of different types of extreme weather events (floods and storm & hail) on a disaggregated level (NUTS 3) over a period of 12 years (2000–2011) using the rich dataset of the SOEP. Unlike earlier studies, we consider regional data on insurance density, distinguish different levels of regional impacts, analyse households in rented/owned property separately and control for movers/stayers. Our results indicate a significant negative effect of storm & hail events as well as floods on subjective well-being in affected regions, decreasing life satisfaction by about 0.02–0.027 on the 11-point scale. While the effect of storm & hail events dissipates after 6 months, floods affect life satisfaction much longer. Moreover, we find that the effect is particularly adhering to house owners and is lower in areas with high insurance rates.

The following sections are structured as follows: Section 2 presents the data and Section 3 describes the econometric approach. Section 4 reports and discusses the results while Section 5 concludes.

Section snippets

Data

The life satisfaction data along with the socio-economic control variables were made available by the German Socio-Economic Panel Study (SOEP) of the German Institute for Economic Research (DIW), Berlin. Since 1984, the SOEP conducts annual interviews surveying the socio-economic situation of German households. In each annual wave approximately 20,000 persons living in 11,000 households are surveyed (see Wagner et al., 2007). As for the panel structure of the survey study, the same set of

Econometric Framework

By conducting a longitudinal analysis, we study in a fixed effects modelling framework whether individual well-being changes due to the occurrence of an extreme weather event. An advantage of the fixed effects model is that it facilitates to capture unobserved factors like personality characteristics that were found to have an important influence on stated subjective well-being (Diener and Lucas, 1999). Thereby the risk of omitted variable bias is reduced though a bias can still arise due to

Estimation Results

In the following, we present the results for the different model specifications as defined in the previous section. Table 3 displays the corresponding outputs for flood events (Model I–III) and Table 4 for storm & hail events (Model IV and V) as well as for a common term of extreme events (Model VI).

When comparing the different columns, it becomes obvious that the socio-economic covariates are stable with regard to the various model specifications. In line with other findings, the results

Conclusion

Despite compensation through insurances and public post-hoc disaster relief funds, life satisfaction is significantly negatively affected by extreme weather events. In our analysis, we found that floods and storm & hail events decrease life satisfaction by about 0.02 on the 11-point scale. Due to the study design it may well be that we underestimate the effect of extreme events on well-being because we cannot distinguish respondents which have been personally affected from those who lived in a

Acknowledgments

This article gives an account of results from the project Economics of Climate Change Adaptation (econCCadapt) funded by the German Federal Ministry of Education and Research (FKZ 01LA1137A). Furthermore, we would like to thank Heinz Welsch, Eugen Pissarskoi and two anonymous referees for their helpful comments.

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How does subjective well-being depend on the fate of others when a covariate shock strikes? We address this question by providing novel evidence on the impact of shock-induced damages experienced by individuals and their reference group on life satisfaction. We do so by examining the case of pastoralists in Mongolia, who faced a once-in-50-years winter disaster. Our identification strategy exploits the quasi-experimental nature of the extreme event. The empirical analysis builds on a detailed household panel survey, complemented with aggregated climate data and historic livestock census data. Results show that exposure to the extreme event significantly and strongly reduces subjective well-being even 4–5 years after the event occurred. The negative shock impact is amplified by observing peers doing economically worse. Similarly, exposure to the extreme event increases the perceived inequality among households with assets at risk. We argue that the event increased sectoral disparities between pastoralists and those households not engaged in agriculture.
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Citation Excerpt :
However, the effect is quite short-lived and vanishes completely two years after the flood events occurred. Von Möllendorff and Hirschfeld (2016) study the impact of five flood events on life satisfaction which occurred in between 2000 and 2011 in Germany. While the reported effects are somewhat smaller than those reported in Luechinger and Raschky (2009), they turn out to be significantly negative for up to 18 months.
Although natural hazard risk is expected to rise throughout the process of global warming, surprisingly little empirical research has been conducted on the question how hazard risk affects individual well-being. We contribute to closing this gap in the literature by combining geo-referenced survey data from the Gallup Tracking Poll and hurricane data for the United States. Using a wind field model we construct time-varying hurricane risk indicators for 2010 to 2018. We find that individuals from high risk regions report significantly lower levels of life satisfaction than their counterparts living in less risky areas, even after controlling for zip-code-specific effects and for socio-demographic differences between respondents. Thus, when considering the effects of natural disasters on measures of subjective well-being, the effects of disaster risk should be considered explicitly.

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Ecological Economics

Highlights

Abstract

Introduction

Section snippets

Data

Econometric Framework

Estimation Results

Conclusion

Acknowledgments

References (25)

Valuing flood disasters using the life satisfaction approach

J. Public Econ.

The impact of climate on life satisfaction

Ecol. Econ.

Applied Panel Data Analysis for Economic and Social Surveys

Consistent estimation of the fixed effects ordered logit model.

J. R. Stat. Soc. A. Stat. Soc.

Quantifying the costs of drought: new evidence from life satisfaction data

J. Popul. Econ.

Climate change impacts in Europe

Kosten-Nutzen-Analyse von Hochwasserschutzmaβnahmen

Preferences over inflation and unemployment: evidence from surveys of happiness

Am. Econ. Rev.

Personality and subjective well-being.

On the use of subjective well-being data for environmental valuation

Environ. Resour. Econ.

How important is methodology for the estimates of the determinants of happiness?

Econ. J.

Money does matter! Evidence from increasing real income and life satisfaction in east Germany following reunification

Am. Econ. Rev.

Cited by (43)

Dust storms and human well-being

Changing seasonal temperature offers a window of opportunity for stricter climate policy

Income and extratropical cyclones in New Zealand

Sitting in the same boat: Subjective well-being and social comparison after an extreme weather event

Evaluating wildfire exposure: Using wellbeing data to estimate and value the impacts of wildfire

Natural hazard risk and life satisfaction – Empirical evidence for hurricanes

AnalysisMeasuring impacts of extreme weather events using the life satisfaction approach

Highlights

Abstract

Introduction

Section snippets

Data

Econometric Framework

Estimation Results

Conclusion

Acknowledgments

J. Public Econ.

Ecol. Econ.

Applied Panel Data Analysis for Economic and Social Surveys

Consistent estimation of the fixed effects ordered logit model.

J. R. Stat. Soc. A. Stat. Soc.

Quantifying the costs of drought: new evidence from life satisfaction data

J. Popul. Econ.

Climate change impacts in Europe

Kosten-Nutzen-Analyse von Hochwasserschutzmaβnahmen

Preferences over inflation and unemployment: evidence from surveys of happiness

Am. Econ. Rev.

Personality and subjective well-being.

On the use of subjective well-being data for environmental valuation

Environ. Resour. Econ.

How important is methodology for the estimates of the determinants of happiness?

Econ. J.

Money does matter! Evidence from increasing real income and life satisfaction in east Germany following reunification

Am. Econ. Rev.

Analysis
Measuring impacts of extreme weather events using the life satisfaction approach