Hongxiao Jin

Drought is a complex natural hazard increasing in frequency, duration, and severity worldwide. Although droughts cause both market and non-market impacts, the latter suffers from a dearth of economic studies quantifying their magnitude. In this paper, we investigated how droughts affect selected ecosystem services expected to result in welfare losses in Spain. This study is aimed at quantifying and simulating societal losses given the expected potential increase in drought severity in the coming decades. We estimated a Discrete Choice Latent Class Model by which we distinguished three broad classes of individuals. The common behavior across all classes is that people consistently choose to avoid the negative effects of droughts. However, there are substantial differences among the three classes; while class 1 chooses options regardless of cost, even when selecting the most expensive ones, the other two classes account for the size of the payment. Moreover, health and water use restrictions have been decisive factors in individuals' choices. We have also observed that the perception of climate change is related to individual decisions. We quantified the enormous damage drought causes to societal well-being. Policymakers should take this information into account when addressing the increasing likelihood of extreme weather events.