Irene has passed and the cleanup has begun up and down the East Coast. While the storm did not bring the damage many feared it might, it will still cost billions to clean up.
At Real Time Economics, Conor Dougherty points us to a paper by Yale economics professor William Nordhaus, in which Nordhaus examined the economic impact of hurricanes. Nordhaus wrote the paper in 2005, a record year for hurricanes--both in terms of quantity and economic damage. He updated the paper in 2008. The key finding: hurricanes have become more costly, and the costs rise fast with each increase of wind speed above 74 mph. Here is an excerpt:
The economic impacts of hurricanes in a year depend upon several factors: total output, the capital-intensity of output, the location of economic activity, the number of storms, the intensity of storms, and the geographical features of the affected areas.
The analysis here considers three primary factors: the number of storms, maximum wind speed at landfall, and GDP. The impact of the number of storms is obvious, and we take damages to be linear in frequency. For the analysis, we assume that damages per storm over time conditional on wind speed are proportional to nominal GDP. This is an appropriate normalization to correct for economic growth, assuming no adaptation and neutral changes in technology and the location and structure of economic activity. However, several factors might lead the damage function to shift over time. These “drift factors” include coastal migration, rising housing values, sea-level rise, measurement errors, building codes, and adaptation to storms. An assessment suggests that drift factors may have raised the ratio of hurricane damages to GDP in the order of 1.5% per year in the last half-century.7 However, many of these trends are likely to abate, and we project no further drift for the future.
The third factor affecting damage is wind speed. It was conventional in the past to assume that damages are a function of wind speed to either the second or third power. However, as we see below, this presumption is based on an energy–wind speed relationship, which is probably not applicable to the impact of wind and water on designed structures. Hence, we treat this power as an important parameter to be estimated.
We have gathered data on the storm characteristics and economic damages for 233 hurricanes that have made landfall in the United States between 1900 and 2008. These include all storms since 1933 and 30 storms before 1933.9 Figure 2 shows the trend in normalized hurricane damages since 1900. 2005 stands out from the crowd. 2005 was an economic outlier primarily because Katrina was by a wide margin the most costly hurricane in recent history. In turn, Katrina was so costly not because of its intensity but because it hit the most vulnerable high-value spot in the United States...
Here is Figure 2 from the paper:
Read The Economics of Hurricanes and Implications of Global Warming here.