We're hiring @Berkeley!

The Global Policy Lab at UC Berkeley is now hiring multiple positions for a major research project at the nexus of environmental resource management, economic development, and econometric modeling. 

All job postings are open and applications will be under review immediately.

Positions available:

1. Post doc - for applicants with a PhD

2. Project manager - for applicants with a Masters or PhD

3. Research analyst - for applicants with a Bachelor's degree 

All positions are full time, start date approx.: 5 or 6/2016

See job descriptions and application instructions at: http://globalpolicy.science/jobs

PROJECT: MEASURING SUSTAINABLE DEVELOPMENT

The Global Policy Lab is beginning a two year research program bringing rigorous quantitative analysis to bear on the empirical measurement of sustainable development at industrial scale in a real world setting.

Sustainable development is a well-established theoretical concept in environment and resource economics, requiring that a population invest new capital resources at least as rapidly as they are removed or damaged from a system, however it has yet to be determined if this condition is met in any real world scenarios.

Achieving sustainable development requires that we are able to quantitatively monitor economic and environmental conditions and decisions in real time, so that the costs and benefits of management choices can be evaluated as they arise.

Our team will design, develop, and deploy a system to quantify and monitor management decisions at a full-scale mixed agricultural-industrial site in New Zealand. Our findings and innovations will advance our understanding of how sustainable development can be effectively achieved at the firm level, with the goal of similar systems being developed and deployed around the world.

The five member team will be based at  UC Berkeley and will be led by Principle Investigator Solomon Hsiang.

Learn more and apply at: http://globalpolicy.science/jobs

"Four dozen papers on conflict and fragility in Africa in under 2,000 words"

David Evans' coverage of last month's Annual Bank Conference on Africa is a great overview of some fascinating recent applied research. Highlights:

Extreme rain and drought both boost livestock theft in Kenya: raids driven by resource scarcity but also by weather that makes it easy to carry out a raid (Ralston).

Drought leads to increased violence against women. When the shock affects income asymmetrically across partners, it is associated with violence for the first time in the marriage (Cools et al.). 

Axbard et al. use variation in international mineral prices and within-country time and geographic variation to show that when a mine opens in South Africa, crime doesn’t increase. But you may not want to be around when the mine closes. 

“Members of ethnic groups exposed to greater historical missionary activity [in 19th-century Nigeria] express significantly less trust today,” using Afrobarometer trust measures (Okoye).

Year of Reviews in Review: The New Environment and Development Literature

Amir Jina and I were recently discussing the multiple literature reviews that have come out on environment and development topics lately, and realized that there were so many we were starting to lose track. To that end, and as a service to those of you who aren't constantly trawling the working paper and journal lists, here's a quick rundown of the over ten (and counting) recent literature reviews that have come out in the newly emerging environment and development literature:

• Dell, Jones, and Olken's "What Do We Learn from the Weather? The New Climate-Economy Literature". Reviews the growing number of papers focusing on climate and weather impacts, and provides conceptual guidelines for using these results in IAMs and similar models.
• Greenstone and Jack's "Envirodevonomics". Explores low valuation of environmental quality in developing contexts, proposes four basic mechanisms through which this might occur, and reviews the environment and development literature in search of relevant evidence.
• Zivin and Neidell's "Environment, Health, and Human Capital". Highlights economists' main contributions to our understanding of the relationship between the environment and human health, and reviews the applied micro literature on pollution exposure.
• Kousky's "Informing climate adaptation: A review of the economic costs of natural disasters" (ungated RFF working paper here). Reviews the empirical literature on disaster impacts with an eye towards informing the adaptation literature.
• Hsiang, Burke, and Miguel's "Quantifying the Influence of Climate on Human Conflict" (ungated version here). Metanalysis of the climate and conflict literature documenting a general relationship between climate fluctuations and conflict across both spatial and temporal scales. Accompanying review article is Hsiang and Burke's "Climate, Conflict and Social Stability: what does the evidence say?"
• Currie, Zivin, Mullins, and Neidell's "What Do We Know About Short and Long Term Effects of Early Life Exposure to Pollution?". Provides a conceptual model and reviews the empirical literature on the effects of early life pollution exposure.
• Auffhammer and Mansur's "Measuring Climatic Impacts on Energy Expenditures: A Review of the Empirical Literature". Overview of the empirical literature on climate fluctuations as a driver of energy demand.
• Auffhammer and Schlenker's "Empirical Studies on Agricultural Impacts and Adaptation" (forthcoming). Reviews the growing ag-climate literature and the empirical adaptation literature that has come from it.
• Deschênes' "Temperature, Human Health, and Adaptation: A Review of the Empirical Literature". Outlines conceptual issues related to deducing empirical relationships between temperature and health and overviews relevant literature with an eye towards informing IAMs.
• Almond and Currie's "Killing Me Softly: The Fetal Origins Hypothesis". Provides an overview of the explosion of literature on fetal origins / in-utero impacts on latter life outcomes that has emerged in the last decade. 
• Auffhammer, Hsiang, Schlenker and Sobel's "Using Weather Data and Climate Model Output in Economic Analyses of Climate Change"provides a review of methods and issues associated with researching climate and its impact on social systems.
• Pattanyak and Pfaff's "Behavior, Environment, and Health in Developing Countries: Evaluation and  Valuation" surveys the literature on the interaction between household behavior and environmental health problems and comes up with four generalizable policy pathways

Destruction, Disinvestment, and Death: Economic and Human Losses Following Environmental Disaster

Typhoon Haiyan as seen from space, Copyright 2013 JMA/EUMETSAT

Last spring Sol and I finished up the working paper version of our paper "Destruction, Disinvestment, and Death: Economic and Human Losses Following Environmental Disaster." Since the paper is long and fairly technical, we decided it would be worthwhile to do a shorter, more general-audience-appropriate piece for the blog, something that seems especially relevant given Typhoon Haiyan's devastating landfall this past weekend. If you'd like to take a look at the paper itself, you can find a copy of it here on SSRN; a copy of the supplemental appendix can be found here.

The motivation for "Destruction, Disinvestment, and Death" stems from the fact that we actually know surprisingly little about how people fare in the wake of natural disasters.

Envirodevonomics

There's a new working paper by Michael Greenstone and Kelsey Jack that's of obvious interest to FE readers:

Envirodevonomics: A Research Agenda for a Young Field
Environmental quality in many developing countries is poor and generates substantial health and productivity costs. However, existing measures of willingness to pay for environmental quality improvements indicate low valuations by affected households. This paper argues that this seeming paradox is the central puzzle at the intersection of environmental and development economics: Given poor environmental quality and high health burdens in developing countries, why is WTP so low? We develop a conceptual framework for understanding this puzzle and propose four potential explanations: (1) due to low income levels, individuals value increases in income more than marginal improvements in environmental quality, (2) the marginal costs of environmental quality improvements are high, (3) political economy factors undermine efficient policy-making, and (4) market failures such as weak property rights and missing capital markets drive a wedge between true and revealed willingness to pay for environmental quality. We review the available literature on each explanation and discuss how the framework also applies to climate change, which is perhaps the most important issue at the intersection of environment and development economics. The paper concludes with a list of promising and unanswered research questions for the emerging sub-field of “envirodevonomics.”

Urban bus pollution and infant health: how New York City's smog reduction program generates millions of dollars in benefits

Jesse and I both come from the Sustainable Development PhD Program at Columbia which has once again turned out a remarkable crop of job market candidates (see outcomes from 2012 and 2011). We both agreed that their job market papers were so innovative, diverse, rigorous and important that we wanted to feature them at FE.  Their results are striking and deserve dissemination (we would probably post them anyway even if the authors weren't on the market), but they also clearly illustrate what the what the Columbia program is all about. (Apply to it here, hire one of these candidates here.) Here is the second post.

Around the world, diesel-powered vehicles play a major role in moving people and goods. In particular, buses are heavily utilized in densely populated cities where large numbers of people are exposed to their exhaust. If bus exhaust has an impact on human health, then urban policy-makers would want to know this since it will affect whether or not it's worth it to invest in cleaner bus technologies. Upgrading the quality of public transport systems is usually expensive, but upgrading could have potentially large benefits since so many people live in dense urban centers and are exposed to their pollution. Deciding whether or not to invest in cleaner bus technologies is an important policy decision made by city officials, since buses aren't replaced very often and poor choices can affect city infrastructure for decades -- so its important that policy-makers know what the trade offs are when they make these decisions.

Unfortunately, to date, it has been extremely difficult to know if there are any effects of bus pollution on human health because cities are complex and bustling environments where people are constantly exposed to all sorts of rapidly changing environmental conditions. As one might imagine, looking at a city of ten-million people, each of whom is engaged daily in dozens of interacting activities, and trying to disentangle the web of factors that affect human health to isolate the effect of bus pollution is a daunting task. To tackle this problem, we would need to assemble a lot of data and conduct a careful analysis. This is exactly what Nicole Ngo has done.

Between 1990 and 2010,  New York City made major investments that transformed the city's bus fleet, reducing its emissions dramatically. To study the impact of this policy on human health, Ngo assembled a new massive data set that details exactly which bus drove on which route at what time every single day. Because the city's transition from dirty buses to clean buses occurred gradually over time, and because the dispatcher at the bus depot randomly assigns buses to different routes at different times, the people who live along bus routes were sometimes exposed to exhaust from dirtier buses and sometimes exposed to exhaust from clean buses.  By comparing health outcomes in households that are randomly exposed to the dirtier bus pollution with comparable households randomly exposed to cleaner bus pollution, Ngo can isolate the effect of the bus pollution on health.

In this paper, Ngo focuses on infant health (although I expect she will use this unique data set to study many more outcomes in the future) and measures the effect of a mother's exposure to bus pollution during pregnancy on a child's health at birth.  This is hard problem, since its impossible to know exactly all the different things that a mother does while she's pregnant and because Ngo has to use pollution data collected from air-quality monitors to model how pollution spreads from bus routes to nearby residences.  Despite these challenges, Ngo is able to detect the effect of in utero exposure to bus pollution on an infant's health at birth.  Fetuses that are exposed to higher levels of bus-generated Nitrous-Oxides (NOx) during their second and third trimester have a lower birthweight on average and fetuses exposed to more bus-generated particulate matter (PM) during those trimesters have a lower Apgar 5 score (a doctors subjective evaluation of newborn health).

The size of the effects that Ngo measures are relatively small for any individual child (so if you are pregnant and living near a bus route, you shouldn't panic).  But the aggregate effect of New York City's investment in clean buses is large, since there are many pregnant mothers who live near bus routes and who were exposed to less dangerous emissions because of these policies. Since its easiest to think about city-wide impacts using monetized measures, and because previous studies have demonstrated that higher birth weight causes an infants future income to be higher, Ngo aggregates these small impacts across many babies and estimates that the city's effort to upgrade buses increase total future earnings of these children by $66 million. Considering that the city upgraded roughly 4500 buses, this implies that each bus that was upgraded generated about $1,460 in value just through its influence on infant health and future earnings. Importantly however, Ngo notes:

This [benefit] is likely a lower bound since I do not consider increased hospitalizations costs from lower birth weights as discussed in Almond et al. (2005), nor could I find short-run or long-run costs associated with lower Apgar 5 scores.

and I expect that Ngo will uncover additional health benefits of New York City's bus program, which will likely increase estimates for the program's total benefits. Furthermore, I suspect that these estimates for the value of pollution control can be extrapolated to diesel trucks, although Ngo is appropriately cautious about doing so in her formal analysis.

These results are important for urban planners and policy-makers in cities around the world who must decide whether or not it is worth it to invest in cleaner public transit systems.  In addition, they are an excellent example of how great data and careful analysis can help us understand important human-environment relationships in complex urban systems.

The paper:

Transit buses and fetal health: An evaluation of bus pollution policies in New York City 

Nicole Ngo

Abstract The U.S. Environmental Protection Agency (EPA) reduced emission standards for transit buses by 98% between 1988 and 2010. I exploit the variation caused by these policy changes to evaluate the impacts of transit bus pollution policies on fetal health in New York City (NYC) by using bus vintage as a proxy for street-level bus emissions. I construct a novel panel data set for the NYC Transit bus fleet to assign maternal exposure to bus pollution at the census block level. Results show a 10% reduction in emission standards for particulate matter (PM) and nitrogen oxides (NOx) during pregnancy increased infant Apgar 5 scores by 0.003 points and birth weight by 6.6 grams. While the impacts on fetal health are modest, the sensitivity of later-life outcomes to prenatal conditions suggests improved emission standards between 1990 and 2009 have increased total earnings for the 2009 birth cohort who live near bus routes in NYC by at least $65.7 million.

In figures...

Bus routes in New York City, which Ngo links to residential exposure through geospatial analysis:

(click to enlarge)

Buses are upgraded throughout the two decades, with several large and abrupt changes in the fleet's composition:

(click to enlarge)

When dirtier buses are randomly assigned to travel a route, Ngo can detect this using air-monitoring stations near that route:

(click to enlarge)

Using her mathematical model of bus pollution (and its spatial diffusion) Ngo computes how New York City's investment in buses lead to a dramatic reduction in exposure to bus-generated pollutants:

(click to enlarge)

Exposure to bus-generated NOx during the second and third trimesters lowers birthweight, and exposure to bus-generated PM lowers Apgar5 scores:

(click to enlarge)

Were the cost estimates for Waxman-Markey overstated by 200-300%?

Jesse and I both come from the Sustainable Development PhD Program at Columbia, which has once again turned out a remarkable crop of job market candidates (see outcomes from 2012 and 2011). We both agreed that their job market papers were so innovative, diverse, rigorous and important that we wanted to feature them at FE.  Their results are striking and deserve dissemination (we would probably post them anyway even if the authors weren't on the market), but they also clearly illustrate what the what the Columbia program is all about. (Apply to it here, hire one of these candidates here.) This is the first post.

Good policy requires good cost-benefit analysis. But when we are developing innovative policies, like those used to curb greenhouse gas emissions, it's notoriously difficult to estimate both costs and benefits since no analogous policies have ever been implemented before.  The uncertainty associated with costs and benefits tends to make many forms of environmental policy difficult to implement in part because the imagined costs (when policy-makers are considering a policy) tend to exceed actual costs (what we observe after policies are actually implemented). Kyle Meng develops an innovative approach, linking Intrade predictions about the success of Waxman-Markey with stock-market returns and abrupt political events, to measure the cost of the bill to firms as predicted by the market. This is very different from standard technocratic approaches used by the government to assess the cost of future policies, which rely on parameterized models of technology and econometric models of behavior ("structural models").

By relying on the market, Meng infers what players in affected industries actually expect to happen in their own industry. The result is a bit surprising: Meng estimates that standard costs-estimates for WM (produced before it failed to pass) are 200-300% larger than what players in the industry actually expected it to cost them.  But this still didn't stop industry players from fighting the bill -- one of the ways that Meng validates his approach is to use lobby records to show that firms which expect to suffer more from the bill (as recovered using his approach) spend more money to fight it.

It's tough to tell whether Meng's approach or the structural models are more accurate predictors of firm-level costs since WM was never brought into law, so the outcomes will remain forever unobserved. But he does show that for several similar laws (eg. the Montreal Protocol), the structural predictions tended to overestimate the actual costs of implementation (which were observed after the law was implemented and outcomes observed) by roughly a factor of two. This doesn't prove that Meng's approach is more accurate, but it shows that his estimate for the bias of the structural approach (with regard to WM) is consistant with the historical biases of these models.

The paper:

The Cost of Potential Cap-and-Trade Policy: An Event Study using Prediction Markets and Lobbying Records
Kyle Meng

Abstract: Efforts to understand the cost of climate policy have been constrained by the limited number of policies available for evaluation. This paper develops an empirical method for forecasting the expected cost to firms of a proposed climate policy that was never realized. I combine prediction market prices, which reflect market beliefs over regulatory prospects, with stock returns in order to estimate the expected cost to firms of the Waxman-Markey cap-and-trade bill, had it been implemented. I find that Waxman-Markey would have reduced the market value of a listed firm by an average of 2.0%, resulting in a total cost of $165 billion for all listed firms. The strongest effects are found in sectors with greater carbon and energy intensity, import penetration, and exposure to U.S. product markets, and in sectors granted free allowances. Because the values of unlisted firms are not observed, I use firm-level lobbying expenditures within a partial identification framework to obtain bounds for the costs borne by unlisted firms. This procedure recovers a total cost to all firms between $110 and $260 billion. I conclude by comparing estimates from this method with Waxman-Markey forecasts by prevailing computable general equilibrium models of climate policy.

In figures...

Abrupt political events that affect the expected success of WM are quantified by looking at expectations in Intrade markets:

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When WM appears more likely, the stock prices of CO2 intensive firms falls on average:

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Firms that are more CO2 intensive are affected more strongly:

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Firms whose stock prices are more responsive to WM lobby harder against it:

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How these cost estimates compare with structural cost estimates, and similar statistics for historical regulations that actually passed into law.

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Take home summary: Cap and trade in the USA probably would have been cheaper to implement than we thought, according to the firms it was going to regulate. 

This is a paper about pollution and the environment and public investment in economic development...

... you just might not realize it from the title. Or the text...

The Free Rider Problem: a Dynamic Analysis
Marco Battaglini, Salvatore Nunnari, Thomas Palfrey

Abstract: We present a dynamic model of free riding in which n infinitely lived agents choose between private consumption and contributions to a durable public good g.  We characterize the set of continuous Markov equilibria in economies with reversibility, where investments can be positive or negative; and in economies with irreversibility, where investments are non negative and g can only be reduced by depreciation.  With reversibility, there is a continuum of equilibrium steady states:  the highest equilibrium steady state of g is increasing in n, and the lowest is decreasing.  With irreversibility, the set of equilibrium steady states converges to a unique point as depreciation converges to zero:  the highest steady state possible with reversibility.  In both cases, the highest steady state converges to the efficient steady state as agents become increasingly patient.  In economies with reversibility there are always non-monotonic equilibria in which g converges to the steady state with damped oscillations; and there can be equilibria with no stable steady state, but a unique persistent limit cycle.

Ask an economist

Or, more aptly, ask 40 of the top economists alive what they think about a given policy statement. I found out about the IGM Forum's Economic Experts Panel from Luke Stein while at the American Economic Association meeting last weekend. The responses are best for yielding insight into what is and is not considered an open question from the point of view of economics. It's only been going on for a little while as far as the website seems to indicate, but the responses are illuminating. A sampling:

• "In general, using more congestion charges in crowded transportation networks — such as higher tolls during peak travel times in cities, and peak fees for airplane takeoff and landing slots — and using the proceeds to lower other taxes would make citizens on average better off."
• "A tax on the carbon content of fuels would be a less expensive way to reduce carbon-dioxide emissions than would a collection of policies such as “corporate average fuel economy” requirements for automobiles."
• "Public school students would receive a higher quality education if they all had the option of taking the government money (local, state, federal) currently being spent on their own education and turning that money into vouchers that they could use towards covering the costs of any private school or public school of their choice (e.g. charter schools)."

The diversity of opinions on that last one make it particularly worthwhile.

Annual Review of Resource Economics

The Annual Reviews have come out with a new journal (a few issues old) that will be extremely useful resource for many FE readers: Annual Review of Resource Economics.

ABOUT THIS JOURNAL: The Annual Review of Resource Economics, provides authoritative critical reviews evaluating the most significant research developments in resource economics, focusing on agricultural economics, environmental economics, renewable resources, and exhaustible resources.

To get a sense of the journal, I just cut and pasted the most recent table of contents below (authors aren't listed, but many of them are quite distinguished).

Plowing Through the Data
Methods for Performance Evaluations and Impact Measurement
Green National Income and Green National Product
Behavior, Robustness, and Sufficient Statistics in Welfare Measurement
The Challenges of Improving the Economic Analysis of Pending Regulations: The Experience of OMB Circular
Commodity Booms and Busts
Food Quality: The Design of Incentive Contracts
Nutritional Labeling and Consumer Choices
Efficiency Advantages of Grandfathering in Rights-Based Fisheries Management
Game Theory and Fisheries
Natural Resource Management: Challenges and Policy Options
The New Economics of Evaluating Water Projects
Management of Hazardous Waste and Contaminated Land
The Economics of Infection Control
The Economics of Natural Disasters
Valuing Mortality Risk Reductions: Progress and Challenges
Pricing Nature
The Economics of Non-Point-Source Pollution
Microeconometric Strategies for Dealing with Unobservables and Endogenous Variables in Recreation Demand Models
The Environment and Trade
The Social Cost of Carbon
Corporate Average Fuel Economy Standards and the Market for New Vehicles 

Social Impacts of Climate Change and Climate Variability

We had an excellent session at AGU last week, thanks to everyone who contributed. Here's a video of the talks, which are succinct, interesting and nicely delivered.



U53F : AGU Fall Meeting 2011 from American Geophysical Union on Vimeo.

Are we producing negative wealth?

Environmental Accounting for Pollution in the United States Economy
Nicholas Z. Muller, Robert Mendelsohn and William Nordhaus

Abstract: This study presents a framework to include environmental externalities into a system of national accounts. The paper estimates the air pollution damages for each industry in the United States. An integrated-assessment model quantifies the marginal damages of air pollution emissions for the US which are multiplied times the quantity of emissions by industry to compute gross damages. Solid waste combustion, sewage treatment, stone quarrying, marinas, and oil and coal-fired power plants have air pollution damages larger than their value added. The largest industrial contributor to external costs is coal-fired electric generation, whose damages range from 0.8 to 5.6 times value added.

Increasing income increases deforestation in Mexico

Over a year ago, I pointed readers to this paper after seeing it at WCERE and thinking it was important, so I'm happy to hear that its now forthcoming in ReStat.  It is also is also an excellent example of individuals increasing their resource consumption, when they becoming richer, by increasing their trophic level (described two posts ago).  The paper finds that when households receive cash transfers, they consume more meat, which requires more rangeland, which induces additional deforestation.

The Ecological Footprint of Poverty Alleviation: Evidence from Mexico's Oportunidades Program

Jennifer Alix-Garcia, Craig McIntosh, Jarrod R. Welch, Katharine R. E. Sims 

Abstract: We study the consequences of poverty alleviation programs for environmental degradation. We exploit the community-level eligibility discontinuity for a conditional cash transfer program in Mexico to identify the impacts of income increases on deforestation, and use the program’s initial randomized rollout to explore household responses. We find that additional income raises consumption of land-intensive goods and increases deforestation. The observed production response and deforestation increase are larger in communities with poor road infrastructure. This suggests that better access to markets disperses environmental harm and that the full effects of poverty alleviation can be observed only where poor infrastructure localizes them.

AEA session for the winter meeting

Sponsored by Fight-Entropy! (not really...) The full preliminary program is here.


Jan 07, 2012 2:30 pm, Swissotel, Vevey 1 
Association of Environmental & Resource Economists

Environmental Constraints and Land-Use Decisions(Q1)

Presiding: MAXIMILIAN AUFFHAMMER (University of California-Berkeley)

When the Levee Breaks: Land, Labor, and Capital in the Deep South

SURESH NAIDU (Columbia University)

RICHARD HORNBECK (Havard University)

The Impact of Climate Change on Crop Choice in the United States

ROBERT MENDELSOHN (Yale University)

ZHIMIN LI (Yale University)

NAMRATA KALA (Yale University)

Climate and the Locations of Crops

SOLOMON HSIANG (Columbia University)

DAVID LOBELL (Stanford University)

MICHAEL J. ROBERTS (North Carolina State University)

WOLFRAM SCHLENKER (Columbia University)

JARROD WELCH (University of California San Diego)

Economic Impacts of Climate Variability and Climate Change: Evidence from a Quasi-Experiment with Great Lakes Water Levels

MICHAEL MOORE (University of Michigan-Ann Arbor)

HSING-HSIANG HUANG (University of Michigan-Ann Arbor)

Discussants:

JEFFREY VINCENT (Duke University)

JARROD WELCH (University of California-San Diego)

MAXIMILIAN AUFFHAMMER (University of California-Berkeley)

OLIVIER DESCHENES (University of California-Santa Barbara)

"Adaptation and the envelope theorem"

Here's a simple, elegant and important point about the economics of climate change, but it applies to other environmental changes equally well. (I was recently at an entire conference dedicated to the economics of adaptation, and nobody mentioned this idea.)

William Nordhaus writes in a 2010 paper published in the journal Climate Change Economics (emphasis added):

Adaptation and the envelope theorem 

Including potential adaptation is beyond the scope of the current study. However, if changes in the means and higher moments of environmental parameters are small or gradual, and if agents make decisions on the basis of appropriate expectations, then omitting adaptation will have, to a first approximation, no effect on correctly measured damages. The reason is due to the “envelope theorem” of decision making. Under this result, the first-order cost of changing environmental conditions is equal to the first-order cost of adapting to those conditions. Of course, if environmental conditions change very rapidly, expectations are wildly inaccurate, or the cost of adapting is very non-linear, then second-order effects come into play. We would then need to consider adaptation costs explicitly.

What he's saying is that in the current equilibrium, individual's investment in adaptation to the current climate should be optimal (or close, given constraints/distortions).  And if it's optimal, this means the marginal benefits of additional adaptation are equal to the marginal costs.  So if we introduce a small change to the current climate such that it becomes optimal to adapt a little more, we will adapt slightly more at the current marginal cost and only reap exactly the same amount in marginal benefits (since the two are equal).  This means, we don't "win" by adapting. Instead, we just adapt slightly more at zero net benefit, so the overall social cost of the climatic shift remains unchanged.

Now, if only I could remember where I left my copy of MWG...

Are Temperature and Incentives Compliments or Substitutes? Evidence from 1947

Here's another gem from the lab of Norman Mackworth (which in my head is looking increasingly like the Dharma Initiative): "High Incentives Versus Hot and Humid Atmospheres in a Physical Effort Task" N. H. Mackworth (British Journal of Psychology, 1947).  The setup is very similar to my last post, except this time the workers are doing arm curls until complete exhaustion:

But Mackworth varied whether the worker was encouraged to push themselves to do more (verbally and visually).  In all cases, the workers with encouragement did more arm curls.  But at high temperatures, this margin dropped substantially (see fig). In this case, it seems like moderate temperatures and incentives are compliments.  This sounds like unfortunate news for hot developing countries...

[For a review of what's happened since 1947 in this field of ergonomics, see the book chapter here.]

Are Temperature and Human Capital Compliments or Substitutes? Evidence from 1946

My own work has focused on whether economic productivity can be influence by temperature through its impact on worker productivity. I recently dug up "Effects of Heat on Wireless Telegraphy Operators Hearing and Recording Morse Messages" by N. H. Mackworth (British Journal of Industrial Medicine, 1946) and have decided its one of my favorite papers. The British military asked Norman Mackworth to put Morse code operators in rooms of varying temperature and humidity and recorded the number of errors they made. These guys were put to work in 3 hour stretches, decoding random sequences of letters and numbers for 5-7 weeks (see fig).  

The main result is stark.  The operators who were considered "exceptionally skilled" (based on their error rates at low temperatures) were hardly affected by the heat. But the less skilled operators had error rates that went through the roof when temperatures rose (see below). Apparently, moderate temperatures and human capital are substitutes (at least in this situation). This is good news for many of the hot, developing countries around the world...

Does Daylight Saving Time Save Energy?

While reflecting on my loss of sleep this past weekend, I found this working paper from a few years ago:

Does Daylight Saving Time Save Energy? Evidence from a Natural Experiment in Indiana

Matthew J. Kotchen, Laura E. Grant
NBER Working Paper No. 14429

Abstract: The history of Daylight Saving Time (DST) has been long and controversial. Throughout its implementation during World Wars I and II, the oil embargo of the 1970s, consistent practice today, and recent extensions, the primary rationale for DST has always been to promote energy conservation. Nevertheless, there is surprisingly little evidence that DST actually saves energy. This paper takes advantage of a natural experiment in the state of Indiana to provide the first empirical estimates of DST effects on electricity consumption in the United States since the mid-1970s. Focusing on residential electricity demand, we conduct the first-ever study that uses micro-data on households to estimate an overall DST effect. The dataset consists of more than 7 million observations on monthly billing data for the vast majority of households in southern Indiana for three years. Our main finding is that -- contrary to the policy's intent -- DST increases residential electricity demand. Estimates of the overall increase are approximately 1 percent, but we find that the effect is not constant throughout the DST period. DST causes the greatest increase in electricity consumption in the fall, when estimates range between 2 and 4 percent. These findings are consistent with simulation results that point to a tradeoff between reducing demand for lighting and increasing demand for heating and cooling. We estimate a cost of increased electricity bills to Indiana households of $9 million per year. We also estimate social costs of increased pollution emissions that range from $1.7 to $5.5 million per year. Finally, we argue that the effect is likely to be even stronger in other regions of the United States.

Madagascar

Jesse and I have been working hard and haven't posted anything in a while. I don't have much time to offer comments, but this is a really interesting piece in last month's NGM.  It follows groups of loggers and others in Madagascar and I think it does a good job capturing some of the challenges of development and the political economy of resource extraction.

For anyone who's interested in commitment problems of political economy, this is a good quote:

In September 2009, after months during which up to 460,000 dollars' worth of rosewood was being illegally harvested every day, the cash-strapped new government reversed a 2000 ban on the export of rosewood and released a decree legalizing the sale of stockpiled logs. Pressured by an alarmed international community, the government reinstated the ban in April. 

And I also liked this breakdown of who gets to keep what from the forest:

For weeks they camp out in small groups beside the trees they've singled out for cutting, subsisting on rice and coffee, until the boss shows up. He inspects the rosewood, gives the order. They chop away with axes. Within hours a tree that first took root perhaps 500 years ago has fallen to the ground. The cutters hack away at its white exterior until all that remains is its telltale violet heart. The rosewood is cut into logs about seven feet long. Another team of two men tie ropes around each log and proceed to drag it out of the forest to the river's edge, a feat that will take them two days and earn them $10 to $20 a log, depending on the distance. While staggering through the forest myself, from time to time I come upon the jarring apparition of two stoic figures tugging a 400-pound log up some impossible gradient or down a waterfall or across quicksand-like bogs—a hard labor of biblical scale, except that these men are doing this for money. As is the man the pair would meet up with at the river, waiting to tie the log to a handcrafted radeau, or raft, to help it float down the rapids ($25 a log). As is the pirogueman awaiting the radeau where the rapids subside ($12 a log). As is the park ranger whom the timber bosses have bribed to stay away ($200 for two weeks). As are police at checkpoints along the road to Antalaha ($20 an officer). The damage to the forest is far more than the loss of the precious hardwoods: For each dense rosewood log, four or five lighter trees are cut down to create the raft that will transport it down the river.

At a bend in the river, the pirogues pull up to shore. A man with a mustache squats in a tent, smoking a hand-rolled cigarette. His name is Dieudonne. He works with the middleman, the boss on the ground, entrusted by the timber baron to select the trees for cutting and oversee the logs from the riverbank to the transport trucks. There have been 18 trucks this morning. Thirty or so rosewood logs lie scattered around Dieudonne's tent. His cut is $12 a log.

A new mechanism to consider when measuring climate impacts on economies

[A shorter (and more heavily copy-edited) version of this post was published in EARTH Magazine, read it here.]

My paper Temperatures and tropical cyclones strongly associated with economic production in the Caribbean and Central America was recently published in the Proceedings of the National Academy of Sciences. Because the paper is a little technical, here is a presentation of the results that everyone should be able to understand.

Following countries over time, years with higher than

normal temperatures during the hottest season 

(Sep-Oct-Nov) exhibit large reductions in output across  

several non-agricultural industries.

Central finding:
Economic output across a range of industries previous thought of as "not vulnerable to climate change" respond strongly to changes in temperature.  The data suggest that the response is driven by the direct human response to high temperatures: people generally are less productive and tire faster when it's hot.  This impact, which appears to be quite large, has not been factored into any previous estimates for the global cost of climate change.

Background
Governments and organizations around the world are trying to figure out how much money we should spend to avoid climate change.  The answer isn't obvious.  On the one hand, climate change seems ominous and we'd like to spend lots of money to avoid it. But on the other hand, if we spend money on avoiding climate change, we can't spend it on other important things. For example, imagine that the United Nations has a million dollars it can spend. Should it spend it on building solar panels or building schools?  Both are clearly important. But if we want to get the most "bang for our buck," we need to figure out what the benefits of these two types of investments are.

A whole research industry has sprung up around the cost-benefit analysis of preventing climate change.  How much money should be spent to prevent climate change by investing in more expensive low-carbon technologies? Who should pay for it and when should they pay for it?  A tremendous amount of intellectual machinery has been applied to this problem by many extremely smart people.  The basic approach is to build models of the world economy-climate system and try to see what happens to the climate and the economy under different global policies.  These models are used by governments around the world to determine what they think the best climate policies are and how much they should spend on the problem.

However, there is something of a dark secret to this approach: we don't really know what will happen to us if the climate changes.  We have a fairly good grasp of how much it might cost to implement different energy policies. And we've learned a lot about how different energy policies will translate into global climate changes.  But when it comes to figuring out how those climate changes translate into costs to society (both financial and non-monetary), we end up having to do a lot of guesswork.

It's unfair to say we know nothing about the costs of climate change, but what we understand well is limited to certain types of impacts.  For example, we have been doing extensive research on the possible agricultural impacts for years. We've also done studies for a lot of the health impacts.  But most research stops there.  For example, we only are beginning to learn about the effect of climate on people's recreation and perceived happiness.  We're also only beginning to learn about the effect of climate on violence and crime.  We know a lot (but not nearly everything) about the effect of climate on ecosystems, but we don't really understand how ecosystems affect us, so we still can't estimate this impact on society. The list goes on.

Now we know a lot about climate impacts on health and agriculture because people have studied those impacts a lot.  Why did we study those kinds of impacts so much? I'm not sure. Maybe because the importance of climate on health and agriculture is obvious (eg. my plants on the windowsill died after just two days of this summer's heat wave).

The fact that we only really understand agricultural and health impacts of climate change is very important in the cost benefit analyses I mentioned earlier.  When governments are trying to figure out the best policies, they add up the known costs of preventing climate change and they add up the known benefits of preventing climate change.   If the costs outweigh the benefits, then that suggests we shouldn't spend much money to stop climate change.  But there is a natural asymmetry in this comparison between costs and benefits: we know all (or most of) the costs but only know the health and agricultural benefits.  So when we add up the costs of energy policies, the numbers tend to look very big.  But when we add up the known benefits of those policies, we add up the health benefit and the agricultural benefits, but we have to stop there because we don't know what else will be affected by climate change.  Maybe it shouldn't be surprising that many cost-benefit analyses find that climate change is not worth spending a lot of money on.

But what we know about climate impacts in non-health and non-agricultural sectors is slowly improving.  In a 2009 working paper, Dell, Jones and Olken did something very simple and got very surprising results.  They compared the economic output of countries over time with year-to-year changes in the weather of those countries.  They found that in poor countries, small increases in the annual average temperature of a country lead to large drops in economic output of that country.  The approach sounds simple, right? It is.  But the results are startling because they found such a large effect of temperature. They estimate that a 1C increase in average temperatures decreases a poor country's gross domestic product (GDP) by 1.1% in the same year. To get a sense of how big this effect is, recall that the economy of the Unites States shrank by 2.4% in 2009 and people are upset about the state of the economy.

Because the effect found by Dell et al. is so large, many people have been skeptical that it represents something real (note from my own unpublished work: I can corroborate their results using different data sets from the ones they used).  To check these results further, in 2010, Jones and Olken tried to looking for a similar effect in the exports of these countries and found that they also responded strongly to temperature changes.  Do people believe the general result yet? I'm not sure.  But part the skepticism seems to persist because its hard to know why poor countries should be so strongly affected by temperature.  One reason for this is that it's very hard to know what mechanisms are at work when one is only looking at macro-economic data.  Further, thinking of ways in which temperature affects economics this strongly and systematically across countries seems to be hitting the limits of many peoples' imaginations. This is where my study comes in.