This text develops and applies a far-reaching account of the economic value of climate, derived from its amenity value or the benefits which a particular climate provides to the people of that region or country. As climate change moves higher on the economic and political agendas, reliable measures of the benefits and costs of specific climates and changes to them become ever-more critical. Detailed studies of a range of countries including Britain, the US, India and Russia, show that the mobility of the population is crucial. When individuals are able to move, the amenity value of the climate is reflected in land prices and wage rates. Without mobility, amenity values emerge in patterns of purchasing, either to compensate for the disadvantages of the climate or to make best use of it. Indices are generated for the cost of living as a function of climate variables, and optimal climates are identified to determine who wins and who loses from climate change.

This paper develops a theoretically consistent technique for valuing non-marketed local attributes using compensating income differentials in the absence of housing market data. The individual's indirect utility function is identified with aggregate data describing equilibrium location decisions, and this function is used in place of the unidentified equation describing how housing prices are determined. The model is used to value climate amenities in Brazil, where such data problems are prevalent. Similar problems arise in other developing countries, particularly when one looks outside of the largest cities.

Despite the importance of as comprehensive as possible damage cost estimates to cost benefit analyses of global attempts to reduce greenhouse gas emissions, few researchers have attempted to monetize the direct impact of climate change on households. This study uses the hedonic technique to measure the amenity value of the climate to German households. Evidence suggests that the amenity value of climate variables is capitalized mainly into hedonic house price differentials. Overall, German households appear to prefer warmer winters with less rainfall. Combining estimates of amenity values with the predicted changes in climate associated with the IPCC's A2 emissions scenario we find that the overall impact of climate change on German households, whilst negative, is typically not statistically different from zero. This occurs in part because the prediction is for warmer but wetter winters and also because the amenity value of some climate variables cannot be measured with sufficient precision.