The Economics Of Snow

Jan 30 2012 @ 9:33am

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Emily Badger researched how various cities determine how many snow plows they need:

Here is the challenge: People in Nashville freak out when there are two inches of snow. People in Buffalo freak out when there are two feet. Washington, D.C. gets about 16 inches a year on average, but once every seven years or so, something really wild happens. Seattle averages only about 7 inches, but Spokane – at the same longitude but on the other side of the mountains – gets nearly 50.

Weather is unpredictable, and so is how people react to it. A public works official steps into this world and has to weigh the factors that are unknowable (freak storms) against the ones that are (city budgets) and then hope for the best.

On a related note, Stephen Gandel reports on the bizarre history of weather derivatives and how the lack of snow this year could provide a windfall for financial firms:

Financial contracts based on the weather have been around since at least the late 1990s. The contracts, many of which trade like stocks, are typically pegged to such things as rainfall and temperatures. But in the past few years, contracts specifically tied to snowfall have started to take off in popularity. The contacts essentially act like insurance, allowing, say, retailers or ski mountains to insure against too much snow or too little. Wall Street sells the contracts, matching buyers and sellers and pocketing a small commission. Typically, it’s a good business, but this year it could be a real moneymaker.