No. 2026-06 - The Convexity of Hurricane Damages

Abstract:

Most economic studies of environmental disasters focus on event occurrence, typically using difference-in-differences methods. However, intensity is often the more relevant margin. We study hurricanes, whose intensity is projected to increase with climate change while changes in frequency remain uncertain. We exploit spatial asymmetries in storm dynamics to causally identify how damages vary with intensity. In the Northern Hemisphere, translational and rotational winds reinforce each other on the right side of storms, creating a natural fuzzy discontinuity. In addition, short-run fluctuations in the position of the Bermuda High, a large high-pressure system over the Atlantic, influence hurricane trajectories near the U.S. coast, generating quasi-random variation in regional exposure. In this preliminary draft, we show how these physical mechanisms can be used to identify exogenous variation in hurricane intensity at the local level, laying the groundwork for estimating how damages scale with intensity in future iterations of this working paper.