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12. Assessing the Economic and Social Benefits of NOAA Data Online1 Rodney Weiher NOAA, United States Let me start with a brief description of the mission and organization of the National Oceanic and Atmospheric Administration (NOAA) in order to better explain our role in PSI. NOAA’s mission is two-fold. First, we seek to understand and predict changes in the Earth's environment, including weather, climate, oceans and the marine environment, and coastal resources. NOAA also manages the nation’s offshore commercial fisheries and works with the states as a partner in managing coastal marine resources. In that sense, NOAA is a two-sided agency—scientific and regulatory. There are five major operating units in NOAA. The National Weather Service, with which many people are familiar, issues basic forecast guidance in the United States and provides the observational infrastructure for atmospheric and weather information. It issues severe weather watches and warnings, which it is required to do by law, and it plays a major role in providing hydrological services, such as flood forecasts, to the country. The National Environmental Satellite Data and Information Service (NESDIS) is the part of NOAA that operates the meteorological satellites, which feed into the National Weather Service’s forecasts. NESDIS ensures that all of the atmospheric, climate, and ocean observation data is archived and available to the public. The National Ocean Service is heavily involved in ocean and coastal mapping and charting as well as geodesy, and it provides services to the maritime industry, such as tides and current information. It also produces scientific and social science information for use in coastal management in partnership with states and local agencies. The National Marine Fishery Service manages the commercial fisheries of the United States, including legislatively protected marine species, and collects scientific and social science data used in analysis aimed at improving management decisions in that area. Finally, there is a strong research component to NOAA with the Office of Ocean and Atmospheric Research, and it is this office that provides much of applied research to NOAA in support of the mission goals outlined above. NOAA is a major producer and user of digital networks. Observational data is intrinsic to the agency’s mission, and it plays a major role in virtually every one of its activities, from foundational research to operational forecasts and warnings and regulatory decisions. NOAA operates more than ninety operational and research observing systems, which are associated with more than one hundred real-time and near- real-time information systems. These systems and the forecasts derived from them inform decisions that are important in various areas throughout the economy, and they include satellite, in-situ, buoy, ship, and aircraft observations; weather forecasts; tide and ocean 1 Based on a presentation found at http://www.oecd.org/dataoecd/12/31/40066192.pdf 47
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48 SOCIOECONOMIC EFFECTS OF PSI ON DIGITAL NETWORKS currents information; climate predictions; spatial temporal references such as nautical charts, GPS augmentations, and marine populations; and other scientific and social science information. So NOAA is in the information business and is arguably the biggest user and producer of operational scientific data in the federal government. Regarding its policy towards the access and reuse of PSI, NOAA follows OMB Circular A-130, which is the guidance for the executive branch agencies in the federal government. As Nancy Weiss has described, Circular A-130 states that the open, efficient, and free exchange of federal government information is essential. Consequently, NOAA sets user fees at a level sufficient to recover the cost of dissemination but no higher, and, in particular, it does not charge prices to recover the capital costs. Thus, although there are some exceptions in such areas as national security, open access to data is the agency’s policy. What is the economic rationale for this policy? Kirsti Nilsen has already reviewed the professional literature. Basically, the underlying idea is that the information that NOAA generates has strong public good characteristics. First, it is difficult to exclude users, which makes it difficult to charge for the data in order to recoup the cost of the capital. Also, the marginal cost of producing additional information is essentially zero, so to charge for it would be non-optimal because it would exclude many users who value the data. While NOAA provides the capital infrastructure—satellites, observing stations, distribution systems, and the like—the agency’s policy calls generally for private industry to add value by generating and providing forecasts and other information for their customers, as appropriate. There is a whole body of literature that attempts to define “as appropriate,” but the bottom line is that NOAA operates the infrastructure, and the private sector does the value-added part of it. Of course, while public goods theory provides a rationale for publicly supplied information, it does not say how much publicly supplied information should be produced. So, consequently, NOAA has to make cost-benefit calculations in order to decide how much to produce. NOAA managers compare the net benefits of a particular system or data collection activity with other data systems and, ultimately, with other public investments, such as health or highways. The emphasis is on net benefits—the total lifetime system benefits less cost—rather than simple cost-benefit ratios, which can often be misleading as a guide to public investments. Cost-benefit analysis is essentially a social accounting structure, and it gives us an indication of whether the costs of a project are justified in terms of its benefits to society. Moreover, recent advances in technology and the economics of observing systems make it necessary to carry out a case-by-case examination of whether the public goods argument is in fact still valid and justifies government funding. For instance, with the advent of the Internet and other technological advances, the costs of disseminating observations have come down dramatically, so, with the exception of the big satellites, it makes sense to reexamine the public goods argument for many of the new observing systems. On the question of how to measure the benefits of NOAA’s data, or even PSI in general, it is important to note that raw data, in and of themselves, do not provide value.
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ECONOMIC AND SOCIAL BENEFITS OF NOAA DATA ONLINE 49 The data are input to a process that produces information that itself does have economic value. The benefits are thus derived from the resulting final product, and the value of the data is an imbedded good in that final product. An economist, thinking of the data from the point of view of a production function, will measure the marginal value of the data input in terms of the improvement it makes in the final output—say a forecast—and the value of that improvement to the forecast. NOAA’s products and services are used in both the public and the private sector. Much of the data goes directly to the private sector, where they lead both to productivity gains and to the creation of new products, services, and other business lines. It has led, for example, to better weather forecasts and advances in GPS, which in turn have led to efficiency gains and spawned a number of value-added industries in the United States. Furthermore, much of the data that NOAA collects is deemed essential for meeting NOAA’s mission and legislative mandates, such as the protection of life and property. Thus NOAA data both help the agency meet important public mandates and also improve economic performance in the private sector, supporting applications in such areas as maritime commerce, energy, and transportation. In this way, PSI products affect economic decisions, and the way in which these decisions improve economic outcomes offers a measure of the value of the information. According to the value of information theory in economics, information products and services have value if they affect decisions and change consequences. The value of that information is the increase in the expected benefits or the reduction in cost resulting from the information being available and being used versus not being available. For the information to have value, it must be used, and the value is determined by how much it improves decisions versus the situation where the information was not available. There are several ways that the value of information theory has been used to value NOAA products and services. The first has been in modeling decisions made with and without the information and then asking what the expected consequences of those decisions are. One of the ways this approach has been used has been to estimate the benefits of seasonal data and forecasts in the agriculture sector. For example, a model can be made of how a farm would operate with the data that are presently available versus operations with an improved set of data. A second approach is to use self-assessment surveys to estimate what people would be willing to pay for information, which can lead to estimates of what economists call “consumer surplus,” a measure of the benefits to society. A third approach is to use data from an “experiment”—looking at actual events and trying to estimate what the prior and the subsequent values of having the information were in that particular event. This was done, for example, in estimating the value of installing the NEXRAD system, the next-generation weather radars that the United States developed in the late 1980s and early 1990s. Weather-related fatalities and injuries were examined for the periods before and after NEXRAD was introduced, and a difference was found: a reduction in fatalities and injuries of about 40 percent. In another case, NOAA had a major initiative to develop coastal and ocean observing systems, and a study2 was done in 1977 to estimate the economic benefits of 2 National Research Council. The Ocean Observing System - Users, Benfits, and Priorities, Committee on the Global Ocean Observing System. Ocean Studies Board. Commission on Geosciences, Environment,
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50 SOCIOECONOMIC EFFECTS OF PSI ON DIGITAL NETWORKS these information systems. The benefits were estimated at more than $700 million annually, based on calculations of the value of information for a group of coastal and ocean-related industries—oil and gas, fishing, recreation, tourism, and two or three other large sectors. There was also a series of studies done at NOAA on the benefits of real-time oceanographic data, i.e., tides and currents for different ports in the United States. In the Houston-Galveston Bay port—a large port in the Gulf of Mexico, used mainly for oil and gas imports—the benefits of such data are about $15 million a year annually. Compared to a $700 million benefit that is not a lot, but this is a much smaller system serving one location. If the benefits are added up across all the ports in the United States, a fairly good-sized number emerges. As a final example of the value of NOAA data and information, consider an estimate of the value of daily weather forecasts in the United States. These benefits are called non-market use benefits; they do not have a market per se because forecasts are freely available on TVs, radio, newspapers, and the Internet. Thus the benefits cannot be measured by multiplying prices times the quantities sold because the goods are not exchanged in a market. Instead, by using state-of-the-art survey techniques and econometrics, it was estimated that there is a willingness to pay of about $103.64 per household for the approximately 110 million households in the United States, which leads to an estimated total of $11.4 billion in annual value (including $3 billion in a typical hurricane season alone). Because of this large value, the NOAA real-time weather data supplies a rapidly growing private weather service industry with sales, at last estimate, of well over $700 million annually, but this number is probably much larger now. In the United States and Europe, there is a growing weather derivatives financial industry, due primarily to the fact that the risk models have gotten so much better, and the industry uses the publicly supplied data to settle those derivatives. Essentially, utilities are hedging their bets on what the temperatures will be over the next three months in order to improve fuel buying and other decisions. In summary, NOAA is a major producer and user of PSI in the United States, and NOAA’s data is used throughout the economy. NOAA practices an open and free exchange of data and uses economic analysis, including calculating the benefits and costs of new and improved data in observing systems, to decide on the agency’s investments and also to determine the appropriate public and private roles. and Resources. National Academy Press, Washington, D.C. 1997. http://fermat.nap.edu/openbook.php?isbn=0309056950