The Impact of Climate Change on Household Welfare

This paper uses hedonic methods and variation in wages and housing costs to estimate households’ valuation of climate amenities. We find that, on the margin, household are willing to pay more to reduce extreme heat than to reduce extreme cold. Combining these estimates with climate forecasts for the United States, we find that an 8.3°F increase in the average U.S. temperature will result in welfare losses in most areas south of Chicago. On average, the cost of hotter summers exceeds the gain from warmer winters by 2 to 3 percent of income per year. These results account for taste heterogeneity and sorting; moreover, they are not substantially attenuated by allowing for migration.