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Hurry up or wait: The effect of climate change and variability on the timing of water infrastructure investments

Charles Sims
Faculty Fellow & Associate Professor
Department of Economics, UTK
Friday, April 20, 2018   2:30-3:30pm
JDT 410

Abstract: Climate-induced changes in precipitation and temperature trends will increase induce certain types of adaptation.  However, climate change in many areas will be characterized by temperature and precipitation that is more variable than historic conditions.  This variability makes the future benefits of adaptation more uncertain.  When adaptation comes in the form of new investments in infrastructure, this uncertainty creates an economic value (an option value) to delaying adaptation to collect more information.  This option value explains seemingly slow responses to climate change and suggests benefit-cost analyses of infrastructure investments will be biased in favor of inefficient projects.  This presentation will discuss how climate change and variability create opposing economic incentives to invest in water infrastructure.  Following a brief description of option values, the presentation will illustrate how changes in long-term trends and variability in streamflow create opposing incentives for two water infrastructure investments in California’s Central Valley.

 Bio: Charles Sims is a Faculty Fellow at the Howard H. Baker Jr. Center for Public Policy and an Associate Professor in the Department of Economics at the University of Tennessee – Knoxville.  His research interests center on environmental and natural resource economics with a specific emphasis on the role of risk and uncertainty in natural resource, environmental, and energy policy.  His past research has investigated issues related to invasive and endangered species, forest management, infectious diseases, and green energy.  Sims’s work has been published in refereed journals including the Proceedings of the National Academy of Sciences, Journal of Economic Dynamics and Control, Journal of Economic Behavior and Organization, and Journal of the Association of Environmental and Resource Economists.  His work has been funded by the National Science Foundation, the Department of Energy, and the USDA Forest Service.