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Research Seminar: Stephie Fried
April 20, 2018 @ 2:15 pm - 4:00 pm
The Division of Economics and Business presents:
Research Seminar: Stephie Fried, Assistant Professor, Arizona State University
Seawalls and Stilts: A Quantitative Macro Study of Climate Adaptation
We develop a structural macroeconomic model to quantify the existing level of extreme weather adaptation and its contribution to the reduction in damage from an event. The framework modifies the Aiyagari-style model to apply in a new setting in which a continuum of heterogeneous localities experience idiosyncratic extreme weather shocks. Localities can invest in adaptation capital to reduce the damage from extreme weather and they can purchase insurance to smooth consumption. A federal government taxes localities and provides partial disaster relief. We calibrate the model to match variation in FEMA aid per event across US counties with different risks of extreme weather. We use the calibrated model to quantify the amount and effectiveness of adaptation capital and the role of adaptation in response to climate change. We find that flood-related adaptation capital is 0.52 percent of the US capital stock and reduces the damage from extreme weather by 29 percent. Finally, we introduce climate change into the model as a permanent 50 percent increase in the severity of extreme weather. We find that adaptation reduces the welfare cost of this climate change by 16 percent.