An email from Dr. Kerry Emanuel reproduced with permission from him and George Bryan. It took a little while to get permission, but this is what I was receiving behind the scenes during the recent wind scuffle. It sent me down another multi-hour adventure of reading.
All: The neglect of the mass sink owing to condensation has a long history. There are a great many approximations made in models, some of which are less justifiable than others, and after they were first introduced (often in the early days of modeling), people tend to forget about them. (The neglect of the internal heat of condensed water is another, and one of my own pet peeves is the almost ubiquitous neglect of dissipative heating, which is really important to such phenomena as hurricanes.) There are two papers that I know about in the meteorological literature that examine this particular approximation:
Qiu C.-J., J.-W. Bao, and Q. Xu, 1993: Is the mass sink due to precipitation negligible?Mon. Wea. Rev, 121, 853857 and Lackmann, G. M., and R. M. Yablonsky, 2004: The importance of the precipitation mass sink in tropical cyclones and other heavily precipitating systems. J. Atmos. Sci., 61, 1674-1692
George Bryan at NCAR did some hurricane simulations for me in which he examined the effect of the condensation mass sink. On the attached plot, compare the blue curve, which uses the full equation set, with the green, which neglects the mass sink owing to condensation. (The other two curves are the same comparison but for a model in which approximations are also made to the thermodynamic equation.) All quantities are graphed as a function of the specified terminal fall speed of precipitation (realistic values of which are in the 5-10 m/s range). Also bear in mind that there are small amplitude chaotic fluctuations in the solutions, so the differences between the curves may in part reflect these.
The bottom line is that while the effect should be included in any model that claims to conserve mass, it is not quantitatively large.