Assessing Climate Information Use in Agribusiness. Part II: Decision Experiments to Estimate Economic Value

Abstract

Difficulty in evaluating the economic effectiveness of climate information is a significant impediment to expanding the use of that information. An innovative approach, combining a decision experiment and an empirical economic analysis was implemented in this paper as a mans to conduct such an economic evaluation. The decision setting was that of planning the distribution of varieties and amounts of seed corn for a major seed corn producing firm in the midwestern United States. Actual managers, accustomed to making this decision, wore provided forecasts of July and August temperature and precipitation. Their responses to that information were evaluated in terms of cost savings for the firm. Across the range of relevant parameter values tested, savings from the use of perfect forecast information were estimated to be ?2% to 5% of production costs. Interestingly, imperfect forecasts of relatively adverse conditions were shown to have considerable value. For example, forecasts of adverse condition accurate only 50% of the time, wore shown to have about two-thirds of the value of perfect forecast information.