Uncertainty and the Economic Implications of Weather Modification – Integrating Hypothesis Testing into Benefit-Cost Analysis

The localised modification of weather, intended or inadvertent, is difficult to detect due high level of natural variation in weather conditions and the reliance on observational as opposed to controlled experimental data. As a consequence statistical analysis often generates inconclusive results when using standard scientific precedents with respect to hypothesis testing. In fact, most cloud seeding experiments still do not provide evidence sufficient to reject the null hypothesis of no enhancement, and usually produce data ‘not sufficient to reach statistical conclusions’ (NRC 2003). However these standard precedents are not always useful in an industry or public policy context when a decision to invest in a rainfall enhancement program or regulate emissions from a power plant is being considered. Weather modification technologies in general, are relatively low-cost and the prospective economic benefits of increased rainfall can be great. The economic costs of inadvertently caused reductions in rainfall may be equally high. Therefore, it seems appropriate to adopt a framework of decision-making under uncertainty when considering the testing and adoption of rainfall enhancing technologies or monitoring and evaluating the impacts of air pollution. Expected benefit-cost analysis is perhaps the most common method for decision making under uncertainty. However, this approach has shortcomings when levels of uncertainty are sufficiently high to question whether there is a weather modification effect. A more appropriate approach that integrates hypothesis testing into benefit-cost analysis is developed in this paper. The benefit-cost analysis framework is restructured to admit the distribution associated with the null hypothesis against the alternative associated with the observational data. The objective is to construct an economic measure of acceptable risk .The approach is placed into the context of weather modification trials.