Microclimate Risks and Consumer Adaptation

The economic consequences of climate change are typically studied at aggregate spatial scales, such as across countries or cities. This paper examines within-city climate variation, or microclimate, and shows that it has important economic effects. Using satellite temperature data at 1 km resolution matched to transaction records from over 150,000 restaurants in a major Chinese city, we estimate that a day of localized heat above 30°C reduces weekly restaurant revenue by roughly 7%, driven primarily by changes in consumer behavior rather than supply-side adjustments. To study how consumers adapt, we estimate a discrete choice model of restaurant demand incorporating microclimate amenities, travel costs, and prices. Consumers respond to local heat by shifting dining trips toward restaurants in cooler, greener areas, with an estimated willingness to pay of about 0.76 yuan per meal for a 1°C reduction in dining-location temperature. This behavioral adaptation accounts for roughly 60% of the reduced-form revenue losses. Counterfactual simulations show that existing urban green infrastructure contributes approximately 20 billion yuan in annual restaurant revenue citywide, implying a benefit–cost ratio of around 3 relative to the city’s green space investment. Our results demonstrate that microclimate is an economically important source of urban business risk and that ecological infrastructure provides substantial, measurable returns as a vehicle for climate adaptation.

Bio

Eric Zou is an Assistant Professor of Business Economics and Public Policy at the Stephen M. Ross School of Business at the University of Michigan and a Faculty Research Fellow at the National Bureau of Economic Research. He studies the impacts of environmental risks on human and ecosystem health, with a focus on regulatory and consumer technological solutions. Prior to joining Michigan, Zou was an Assistant Professor at the University of Oregon and a postdoctoral fellow at the Cornell Institute for China Economic Research. He received his Ph.D. in Economics from the University of Illinois at Urbana–Champaign and holds a B.S. in Economics from East China Normal University.