Association for Public Policy Analysis & Management

Understanding the channels by which climate change will affect the economy is required to estimate the costs of climate change. Extreme heat may result in direct costs such as increased mortality from heat stress and lower productivity. While economists have made clear that individuals engage in costly defensive activities to mitigate these outcomes, they have not examined situations where climate change generates costs that are, at least partially, explained by voluntary exposure to risk. Warmer weather facilitates spending time outdoors. Choosing to spend time outdoors provides many benefits, but it also exposes individuals to potential risks from air pollution, crime, UV radiation, and traffic. Where costs from these risks occur as part of a utility maximizing decision to spend time outside, these costs must be offset with the welfare gain from spending time outside. We define the resulting welfare effects of this offsetting behavior as ‘voluntary exposure benefits.’ Problematically, in many empirical settings the benefits of time spent outside are much harder to measure than the costs in terms of illness, injury, or death and are consequently omitted.

In this paper we analyze these issues in the context of the transportation sector by estimating the relationship between weather, traffic accidents, and travel demand. We choose to focus on the transportation sector because even small changes to traffic fatalities are likely to carry large costs. By exploiting plausibly random daily variation in temperature, rainfall, and snowfall, we are able to estimate the effect of weather on transportation outcomes.

We find a large and statistically significant relationship between weather and traffic fatalities. Unsurprisingly, we find precipitation plays a role in fatal car crashes. But we also find large effects for temperature. We find that for a day with temperature above 80°F there is a 9.5% increase in fatality rates compared with a day at 50-60°F.  We find that as temperatures rise, an increasing number of fatalities involve pedestrians, bicycles, and motorcycles, or ultra-light duty (ULD) accidents. As temperatures warm, we find that these fatalities are caused by drivers increasing their demand for modes of transport that offer less protection in the case of a crash.

We estimate that the discounted costs of additional traffic fatalities caused by climate change are $40 billion from 2015 to 2099. But we find that welfare gains from increased ULD travel reduces these costs by at least $34 billion. In sum, we find that omitting voluntary exposure behavior from welfare analysis may lead to a significant overestimate of climate change costs.

Methodologically, we also introduce quantile-mapping to correct modeling bias of future weather data used by economists from climate models for cost projections. We show that prior methods used to correct this bias may yield unintuitive results and remove the changes in weather variability predicted by climate models. Our method, inspired by techniques used in the climate science literature, corrects this bias but allows for changes in weather variability.