Published Papers
Published Papers
Paying for Expertise: The Effect of Experience on Reinsurance Demand with J. Tyler Leverty and Kenny Wunder, Journal of Risk and Insurance, Vol 88, Issue 3: 727-756, 2021.
Optimizing Forecast-based Actions for Extreme Rainfall Events with Jonathan Lala (lead author), Juan Bazo, and Paul Block. Climate Risk Management, Vol 34 (2021) 100374
Working Papers
Does Getting Forecasts Earlier Matter? Evidence from Advisory Lead Times and Vehicle Crashes
(Conditionally accepted at American Economic Journal: Economic Policy)
Abstract: Significant investments are directed toward improving the accuracy and early availability of forecasts. However, the value of longer lead times on forecasts is unclear. Using data on winter weather advisories and vehicle crashes in the US, I show that advisories with longer lead times reduce crashes, even when they are less accurate than advisories with shorter lead times. Further, marginal benefits do not decrease with lead time. The benefits come from individual and institutional responses. When advisories arrive earlier, people visit fewer places, and snowplow crews intensify the road maintenance operations. These results have policy implications for providing effective forecasts.
Abstract: Advances in forecasting technologies provide opportunities to develop forecast-contingent mechanisms to finance early actions. In this paper, I examine trigger-based mechanisms to take loss-reducing early actions before a disaster occurs. Using a theoretical model, I provide comparative statics results for the effects of exogenous economic factors on the optimal financing amount and forecast trigger. My analyses provide three key insights. First, when forecast skill is low, more risk aversion leads to higher financing and lower forecast trigger levels. However, as forecast skill improves, the effect of risk aversion on the optimal financing becomes negligible. Second, when forecast skill improves, it is optimal to choose higher levels of financing as well as higher levels of trigger, and vice versa. Third, using numerical analysis, I show that the benefits of a trigger-based FbF plan may be comparable to those of a fully-contingent scenario.
Weather Stations and Agricultural Productivity: Evidence from Historical Data in the US (with Honglin Li) (Working paper available on request)
Abstract: In this paper, we examine the effect of access to forecasts on local economic productivity in the context of agriculture and weather risk. We exploit the staggered establishment of weather stations across the US during 1870–1990 as a source of variation in access to weather forecasts. Using a stacked difference-in-difference design, our preliminary results show that access to a weather station increases the agricultural productivity in a county. As the distance of a county to the nearest station increases, the agricultural productivity decreases.
When does Forecast-based Insurance benefit? A Study on Drought Risk Mitigation with Leah Poole, Alexa Gozdiff, Biniam Bekele, and Erin Coughlan de Perez (Working paper available on request)
Upcoming Presentations: AERE-SEA Annual Meeting, November 2024, DC*
Abstract: Improvements in forecasting technologies provide an opportunity to take anticipatory actions before disasters occur. However, traditional ex-post financing and lack of operational capacity often discourage countries from taking early actions. This paper examines anticipatory index insurance, focusing on a pilot by African Risk Capacity in Malawi and Zambia for drought risk. The product offers early-action capacity development and provides forecast-contingent financing for predetermined actions. However, its benefits are unclear due to the trade-off between acting early on uncertain forecasts and providing relief after certain losses. Since imperfect forecasts increase basis risk, anticipatory index-insurance can significantly exacerbate this trade-off. Using a stylized economic model and numerical analysis, we unpack the sources of value from anticipatory insurance and identify the range of economic conditions under which the product is beneficial. The primary benefit of anticipatory insurance comes from developing a country’s operational capacity to take forecast-based actions. However, the insurance mechanism's incremental benefit may not always outweigh premium costs due to basis risk when forecasts are imperfect. Our results can guide aid agencies and governments in designing the optimal financing plan for forecast-based anticipatory actions.
Select Research in Progress
Implications of Forecast Improvements for Insurance Demand (Working paper coming soon!)
Upcoming Presentations: ARIA Annual Meeting, August 2024, Denver
Abstract:
Determinants of Risk Mitigation Actions: Evidence from Public Advisories and COVID-Induced Shocks with Mark Browne and Xiao (Joyce) Lin
Upcoming Presentations: ARIA Annual Meeting, August 2024, Denver; AERE-SEA Annual Meeting, November 2024, DC
Climate Change and Cost of Equity Capital for Property Liability Insurers with Yuluen Ma and Yayuan Ren
Upcoming Presentations: ARIA Annual Meeting, August 2024, Denver
Regulatory Reform and Resilience: The Effect of Certified Reinsurer Programs on U.S. Insurance Markets with Doug Bujakowski and Kyeonghee Kim
Upcoming Presentations: ARIA Annual Meeting, August 2024, Denver
Estimating Climate Change Damages: Accounting for Heterogeneous Beliefs in Forecast-Based Adaptation
Upcoming Presentations: AERE-SEA Annual Meeting, November 2024, DC
Hedging Climate Risk with Zhanbing Xiao and John C. Chu
Weather Forecasts and Industrial Profitability: Evidence from Monsoon Forecasts and Industry Survey in India (with Maulik Jagnani)