The transcendent value of Valuation

“In the spring a young economist’s fancy lightly turns to thoughts of… valuation.”

 “Valuations are nothing, but Valuation is everything.”

(with apologies all around, but especially to Alfred Lord Tennyson and Dwight David Eisenhower.)

voi

We’re told that today is the first day of spring, and it certainly seems that valuation is in the air. A NASA research solicitation on the subject will close in the next few days. March 10-11, the GEOValue community held a workshop in Paris under OECD auspices on Data to Decisions: Valuing the Social benefits of Environmental Information. NOAA has also been active. NOAA held its own workshop on valuation on March 3. NOAA’s IOOS Program commissioned a report on the Ocean Enterprise: A study of U.S. business activity in ocean measurement, observation, and forecasting which came out last month. Some in the meteorological community, long interested in characterizing the size of the American weather enterprise, have been examining the report as a possible model for their industry.

We’re all constantly in the business of estimating or setting the value of people, products, services, actions, principles – ranging across the entirety of our work, play, and even worship. These estimates govern how and to whom and what we allocate our time, spend our money, devote our attention. For the most part – virtually all the time – we’re doing this so rapidly and with respect to so many dimensions of our lives simultaneously that the process is instinctive, unthinking, subconscious. Economists, of all the professional disciplines, have done the best job of identifying this process for what it is and showing that it can teased into the open and be targeted for formal study.

In my world, a lot of the attention is focused less on the value of externalities to us and more on our community’s value to others. What is the worth of Earth observations, science, and services to society? The worth of satellite platforms and instruments? Surface networks? Radar systems? Better numerical weather prediction? And so on. The motivations are several, and each would merit a book in itself. However, behind much of the effort is the idea that Earth observations, science, and services are fundamental to society’s well-being, but the world takes these services for granted, undervalues them, and so is failing to make the investments needed to sustain our forecasts for weather-sensitive sectors of the economy, or warnings of hazards, or early detection of degraded environmental and ecosystem services. We think – if only society realized how much it depended on us! Then we’d enjoy the financial support we need to maintain our observations and modeling, and build our capacity, keeping pace with growing societal demands. Our work would take its rightful place among worldwide efforts to eradicate poverty, improve public health and safety, and promote geopolitical stability. In fact, the world would see that we contribute fundamentally to all these goals.

This thought process has given rise to numerous studies over past decades. Unfortunately, they haven’t commanded much respect. Economists could give their own better list of reasons, but here are a few illustrations of the challenges.

  • Many of the studies are anecdotal, or focused on a single business – for example, farmers in a county or counties managing a single crop using forecasts in the context of a particular regional weather or climate event. It’s very difficult to meaningfully aggregate such studies to derive a larger picture. Critics say: they lack saliency.
  • Some of the studies make broad, sweeping assertions, such as “one third of the US economy is weather-sensitive.” This begs a number of questions: “how-sensitive?” or “what would be the economic impact of better forecasts?” or “aren’t all sectors of the economy weather sensitive, but to varying degrees?” Critics say: They lack credibility.
  • Some studies are conducted or funded by individuals or institutions who stand to gain from favorable conclusions. Critics say: They lack legitimacy.

Lurking in the background are other, more fundamental challenges.

1. Cost-studies are difficult enough. For example, to estimate the cost of weather forecasts when the satellite observing system (a major expense) is also used for oceanographic studies, or for monitoring land use and surface vegetation, is problematic. What fraction of the observing system cost should be allocated to each task, and why? But benefit studies are trickier still. The calculated benefits assume a given policy/regulatory framework. Changing that framework can produce sweeping changes in the total benefit, and the allocation of that benefit across society that dwarf any changes likely from incremental technology advance. A simple example, one of many: much of the watershed management across this country is based solely on reservoir water levels. In this circumstance, the value of several-day or week-long precipitation outlooks is zero, no matter what the forecast skill.

2. This is where the transcendent part comes in…. Again, just one example: take the value of the science and its role in bringing to light the recent water-quality tragedy in Flint, Michigan. Does the value extend to health and lives of those actually drinking the water? Most certainly. How to estimate stakes in the value of the lives represented? Such value is difficult to monetize – indeed it goes beyond the monetary. More difficult, but economists have done a lot of thinking about all that. But suppose Earth observations, science, and services been used in time and in a way to forestall the event completely. What would have been the additional value in removing one bone of contention in this year’s divisive political season? And suppose that a slightly more civil tone in US politics were to improve correspondingly the US standing in the world. What could have been the value of that over the 21st century? We won’t ever know.

Increasingly, however, that kind of wisdom needs to become part and parcel of our individual and corporate thinking.

And that’s why, in this spring season, and indeed in all seasons, there can never be enough of Tennyson’s love, Eisenhower’s planning, and … economists’ valuation.

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