Hurricane Katrina may lead to some new regulations for FEMA. 9/11 changed more than a few government regulations. Unexpected shocks affect interest group politics. While this statement is easy to state and is intuitive and there are case studies to back it up, it is pretty difficult to formally test the hypothesis that disasters cause new regulations to be enacted.

In a new empirical history paper, Louis Cain and Elyce Rotella's paper titled Epidemics, Demonstration Effects and Municipal Investment in Sanitation Capital provide historical city level evidence supporting the "salience hypothesis". Over the period 1899 to 1929, they document that a mortality shock in a city was often closely followed by a notable expenditure increase on water supply improvements in that city. They define a mortality shock as a year in which the actual waterborne death rate was more than one standard error above its trend in that city over the period 1899 to 1929. In 69 of the 98 observed mortality episodes, city expenditure on water supply subsequently increased by more than one standard error above the city’s trend.

Do environmentalists need disasters to rally their diffused interest group? Could Katrina be such a disaster to convince "NASCAR dads and soccer moms" that if climate change causes more Katrinas then out of self interest we need to do someting about greenhouse gas production?

On October 10th 2005, somebody will win the Nobel Prize in economics. I hope my wife wins it this year. Excluding my immediate family, I'd like to take a look at the possibility set. I apologize if I excluded you from this elite list.

1. Nobel prize in environmental economics to Weitzman, Nordhaus

2. Nobel prize in trade theory to Bhagwatti and Dixit

3. Nobel prize in President Bush praising to Krugman and David Brooks

4. Nobel prize in behavioral stuff to Richard Thaler

5. Nobel prize in contracts to Hart, Holmstrom, and Oliver Williamson

6. Nobel prize in development economics to Dasgupta and Deaton

7. Nobel prize in finance to Fama

8. Nobel Price in mechanism design to Milgrom, Myerson and Maskin

9. Nobel prize in family economics to Mincer and Pollak

10. Prize in Political Economy to Alesina, Persson and Tabellini

11. Prize in Modern Macro to Barro and Sargent

Since last year's prize went to macro guys, I don't see how this field can be recognized again so soon. Personally my favorites in this list are 1,9,2.

Public health researchers are always looking for “natural experiments” to study how environmental quality impacts health. Researchers examined how much hospitalization rates fell by in the vicinity of a dirty steel plant when its unionized workers went on strike. Other researchers tested for how much did air pollution decline when the 1996 Atlanta Olympics started. This event led to a sharp decrease in driving and activity in this city and researchers tested for how much did smog related hospitalizations decline by.

Does New Orleans offer such a “natural experiment”? Will we learn new facts about how “sludge” and dust exposure affect human health? There would seem to be a huge self selection issue of who returns to this city to be “treated”.

Here are the facts about pollution exposure now.

1. The most immediate threat is bacteria which exceed health standards by a factor of 10.
2. Katrina flooded 25 major and 32 minor sewage-treatment facilities, releasing hundreds of millions of gallons of sewage into the city. Decaying animal and human remains also are contributing bacteria.
3. Health officials recommend that everyone in the city wear a respirator mask. As the city dries out, dust will be a problem. Breathing dust under any circumstances is unhealthy, but the dust in New Orleans may contain contaminants. Oil products are the most prevalent contaminant in the water and sludge, coming from refineries along with submerged cars and gas stations.
4. Testing also has found slightly elevated levels of lead, arsenic and other metals, as well as pesticides and herbicides. These come from flood runoff as well as household and industrial sources.
5. Cleanup efforts will have to reach the lowest layers of sediment and debris before long-term health threats can be determined, a process that will take weeks.
6. As untreated floodwater is pumped into Lake Pontchartrain, the lake has taken on a distinct septic smell, Mann said. Like the floodwater and sludge in New Orleans, the lake has lots of bacteria but doesn't have high levels of toxic chemicals.

A recent World Bank Study (see World Bank Policy Research Working Paper 3712, September 2005) has the ambitious goal of quantifying which cities around the world are “well run”. A revealed preference test might study whether home prices are high and whether net migration flows are positive. But such evidence would only be suggestive because the locality might be booming despite the public sector not because of the public sector.


Here is their approach “With these measures, we construct a vector of urban governance indicators which we use to test the impact of urban governance on city performance. The vector consists of measures of voice and participation and transparency and accountability which we take from the UN database. We also use measures like illegal financing, state capture, bribery in utility, and bribery in judiciary from the Kaufmann, Léautier, and Mastruzzi (KLM) database. Finally, we construct a dynamic indicator of city transparency which uses proxies like, whether a city has a web page, what information is included in the web page, whether the city budget is publicly available on the web or whether companies can register on the web.”

Table 1: Variable Legend and Data Sources

Access to Water UN Observatory, 1998
Access to Sewerage UN Observatory, 1998
Access to Electricity UN Observatory, 1998
Access to Telephone Lines 1 UN Observatory, 1998
Access to Telephone Lines 2 EOS, 2003 1 Quality of Infrastructure EOS, 2003 1 Quality of Electricity EOS, 2003 1 Access to Cell Phones EOS, 2003 1 Access to Internet in schools EOS, 2003 1 Bribery in Utility EOS, 2003 1 State Capture EOS, 2003 1 Informal Money Laundering EOS, 2003 1 Street Crime EOS, 2003 1
Red Tape Cost of Imports EOS, 2003 1 Bribery to Affect Laws EOS, 2003 1
Diversion Public Funds EOS, 2003 1 Illegal Party Financing EOS, 2003 1 Bribery in Permits EOS, 2003 1 Bribery in Tax EOS, 2003 1 (
Soundness of Banks EOS, 2003 1
Trust in Politicians EOS, 2003 1 Organized Crime EOS, 2003 1
Quality of Postal System EOS, 2003 1 Health Access Gap EOS, 2003 1 Offices of major advertising,
Global City financial & accounting firms Hundreds 114 261
City Population Logs 134 410
2001

Website Dummy City has a website (KLM 2003) City website has info on how to
Business Dummy City website has info on city Budget Dummy
City has port facilities (KLM
Port Dummy 0 - 1 (yes) 134 411
2003)
Capital Dummy City is the capital (KLM 2003) 0 - 1 (yes) 134 411


I would think that these researchers would want some measure of whether the citizens of the city actually get to vote in a kosher election. Does democracy improve urban governance? I hope it does! Iraq may soon offer an interesting test of this hypothesis. Singapore would suggest that I am wrong that the Arrow Impossibility theorem pops up as heterogeneous interest groups within a city cannot agree on urban priorities and problems fester.

I would also be interested in competition between cities within the same nation. If Detroit gets a reputation for being a low governance city, do businesses move to the suburbs of Detroit or to another center city? Is there a “race to the top” such that urban competition puts a check on the ability of politicians to steal from the tax base?

The New York Times has been doing some high frequency econometrics to study how Americans have responded to higher gasoline prices. “For three straight weeks, Americans have been buying less gasoline than they did a year ago. Consumption is dropping at a rate not seen since drivers were waiting in gas lines back in the early 1980's. And people are turning to mass transit in record numbers in some cities.” (Go Ahead and Drive Less, if You Can By DANNY HAKIM and JEREMY W. PETERS)

But Americans consumed an average of 8.8 million barrels of gas a day for the week ending Sept. 16, down from 9.4 million the week before Hurricane Katrina struck New Orleans and roughly 200,000 fewer barrels per day than in mid-September last year. (Nice Double Difference by the Times!)

The article continues: “So how much can Americans cut back on their driving? How much time behind the wheel is discretionary? Consider that the average American household used its cars and trucks for 496 shopping trips in 2001, according to an exhaustive survey of 160,000 Americans conducted by the Transportation Department. Trips were 7.02 miles in length, on average, for a total of 3,482 miles per household per year. That much driving could almost get you from New York to Juneau, Alaska, give or take a few hundred miles.
That's a lot farther than in 1990, when the average household's shopping trips could only get you from New York to Denver. Part of the difference stems from the fact that the length of an average shopping trip was 5.1 miles in 1990. Blame greater suburban sprawl for longer trips these days.”

SUBSTITUTION MARGINS

1. How have drivers ages 16 to 30 and 65+ responded to the oil price increase? I would predict that they reduced their driving trips by more than people ages 31 to 65.
2. The article argues that cities with good public transit systems such as Boston, San Francisco and Washington DC have seen increased public transit use
3. Food can be stored. People may be purchasing more food at the supermarket and making fewer trips there.
4. Many households have more than one car. To economize, households may actually be driving together and doing chores together that they used to do separately when gas was cheaper.
5. It will be interesting to see if other discretionary margins like restaurants and movies in suburban malls report lower sales revenue as “cheap” suburbanites stop driving there.
6. I would hope that some public health official is doing a study on whether people in medium density cities are now walking more. Has obesity increased because oil prices fell?

Environmental economists have convinced themselves of the benefits of raising gasoline taxes. Politicians seem to be slow to embrace this proposal. Why? New Yorker magazine’s James Surowiecki has a good explanation. The New Yorker has better cartoons and sometimes better analysis than the American Economic Review!

PUMP PRESSURE James Surowiecki on why the gas tax won’t budge.
Issue of 2005-09-26

“Of course, in political terms the gas tax’s virtues—simplicity, transparency, immediacy—are vices. Politicians prefer complex systems that allow them to satisfy particular constituencies, reward supporters, and disguise the true costs of things. And, strangely enough, voters implicitly prefer indirect taxes to direct ones. So it may be that the gas tax will remain one of those economically sensible ideas that are doomed to fail.”

This quote highlights a point that pro-economists do not devote enough attention to. When is transparency bad for policy implementation? In the sense that building coalitions to support a particular public policy may be more difficult if people directly see the costs and benefits of the proposal. Another example is social security. This program redistributes money across income groups but people do not know this.

My Tufts colleague Bill Moomaw is pursuing an unusual goal. He wants his total net annual energy consumption for his home to equal zero. This distinctive business week article tells you about Bill's plan but I couldn't find any discussion in the article concering how costly it is to make your house so "productive".

As usual, I'm interested in the question of heterogeneity. How many Bill Moomaws are there in the world? Are they 15% of the population? How many people would invest in such green homes? Is there learning by doing on the supply side? If home builders had more practice building "green homes" would they become much more productive at making them and the cost of production would fall? Are there economies of scale in producing inputs to such homes such that the average cost would fall as more Bill Moomaws invest in such homes?

Here is this very interesting article.

Business Week 9/20/2005

Meet the Moomaws. Their goal is to build a retirement home in New England that will produce as much electricity as it consumes

Ask the average person to describe their dream retirement home, and what will you hear? Visions of high ceilings, gourmet kitchens, an expansive yard, maybe even a Jacuzzi. Bill and Margot Moomaw, a couple from Massachusetts, have a totally different kind of dream: They want a retirement home so efficient that it actually produces as much electricity as it consumes.

Now, three-or-so years away from retirement, Bill, a 67-year-old professor of international environmental policy at Tufts University, and his wife, 64, are about to break ground on a painstakingly planned low-energy dream home in Williamstown, in Western Massachusetts (see "The Moomaw's Model Home"). While the house will employ a lot of special technology, ranging from solar panels to a geothermal heat pump, the first rule is that their future residence house must look and feel "normal."

MODERN LIVING. The architecture will match turn-of-the-century New England-style houses in the area. And the home will have a TV, computers, a washer/dryer, and other typical amenities.

"We're not going into a cave and using candles," says Bill. "We want to show that you can [be energy-efficient] by buying common brands" adds Margot. "You just have to do careful shopping."

The Moomaws couldn't have picked a better time to reduce the amount of outside energy they consume. Heating oil and natural gas prices have reached record highs in recent weeks, as supply lines and refineries have been shut down by Hurricane Katrina and increasing global demand continues to put a pinch on supply. No less a consideration, U.S. power grids are increasingly coming under strain.

"THE LEARNING CURVE." Building the home will be no small task. The couple, who have two children in their thirties, have spent the past year calculating all of the details, translating each and every component of their home life into a complex energy-arithmetic problem.

Starting with how much power they can create with the 63 solar panels they'll be installing on the roof, they've examined exactly what level of insulation the house will need, the precise position where it must sit on the lot to get optimal heat from sunlight in the winter, and even the right model of dishwasher and brand of light bulbs.

Energy-efficient living isn't a new interest for the Moomaws. The couple's first venture into the area was during another period of skyrocketing oil prices, in 1973. Back then, with Bill a young member of the chemistry faculty at Williams College in Williamstown, Mass., the couple started making adjustments to their house to make it less dependent on oil in order to both help the environment and save money.

Their project started with window replacements and new insulation. Four years later, they bought a solar-powered water heater. "We've been on the learning curve since then" says Margot, "and have always made incremental improvements" on subsequent homes.

STILL ON THE GRID. This time they want a real challenge. When they met with a local engineer and architect to talk about their plans, the first proposal was to make their new home an Energy Star house -- a special classification awarded by the U.S. Environmental Protection Agency for homes that use 30% less energy than the average for similar size residences.

That classification can entitle homeowners to special perks and rebates from their utility, but the Moomaws weren't satisfied. "We said, 'Well, that's pretty good,'" recalls Margot. "But we thought we could easily get to just 50% to 70% of normal energy use. [So we made] the stretch goal a 100% reduction."

To realize this won't be as easy as just installing a bunch of solar panels and cutting themselves off from the power grid. New England isn't sunny enough for that, and batteries used to store solar power can be expensive and inefficient, says Bill.

BUYING -- AND SELLING. So the couple plans to engage in a seasonal give-and-take with the local utility. During the winter months, when days are short and direct sunlight is scarce, they'll get most of their energy from the local power grid.

In the sunny summer, the Moomaw's 63 solar panels will collect and store more than enough energy for their needs, and the couple will sell the excess back to the local utility. At the end of the year, they hope, the total net energy consumption will add up to zero.

Below I report a Figure showing how the Murder Count has evolved over the last 20 years in center city Chicago. Why did murder soar in the late 1980s and fall so fast in the 1990s? Can legalized abortion explain these wild dynamics? Unleaded gasoline? Crack Cocaine? The 1990s economic boom? Michael Jordan and the Bulls winning those NBA titles? This picture is hard to read but the murder count peaks in the low 900s in 1991.




I don't think that I can answer those questions. Dan McMillen and I are starting a project where we examine another question. We know that murder is more likely to take place in poor minority communities. As the murder count has fallen, how much has quality of life in these communities improved? How much have home prices increased by in these communities? Have employers increased their hiring in these communities because of this increase in perceived safety?

Urban economists are well aware that urban safety is a key part of achieving an urban revival. But I don't think that we've done enough work fleshing out the core facts for major cities.

In response to rising gasoline prices, Ford Motor Company is greening its fleet. If gas prices stay high, even Dick Chaney may buy a fuel efficient car. But, there is a second social incentive that could encourage people to buy green cars. As the quote below highlights, CEO Ford believes that his company can distinguish itself from other car makers by "going green". Economists are always interested in cases when competition leads to a "race to the top". Environmentalists often argue that competition leads to a "race to the bottom" as companies ignore environmental impacts of their products to minimize the cost of production. The reason why this pessimistic logic is wrong in this case is that vehicle purchasers may feel some social "warm glow" by purchasing a vehicle that does not contribute to climate change. They can drive this green car in public to showoff that they are "good people". I recognize that free rider theory would say that each person is too small to make a difference but the New York Times keeps quoting people who want to experience the "warm glow" effect. The proof will be whether this new generation of vehicles sells.


September 22, 2005
Ford Plans to Build a Lot More Hybrids
By DANNY HAKIM (New York Times)

DEARBORN, Mich., Sept. 21 - The Ford Motor Company plans to increase production of hybrid electric vehicles tenfold, to 250,000 vehicles annually, by the end of the decade, executives said Wednesday.

By 2010, the company said that more than half of its Ford, Lincoln and Mercury models would offer the technology as an option, accounting for roughly 8 percent of the three brands' current sales.

Ford said that it would also increase the number of models that can run on ethanol, a corn-based fuel, and also took a small but unusual step, for an automaker, to counteract global warming.

Ford and other automakers are challenging in court a much more ambitious effort in California to cut car and truck emissions of gases linked to global warming. William Clay Ford Jr., Ford's chairman and chief executive, has long been outspoken on environmental issues but has also been constrained by his company's financial distress. At a news conference Wednesday, he said an environmental strategy would be part of a two-pronged approach to restoring Ford's North American profitability.

Both Ford and General Motors are losing billions of dollars at home, though Ford remains profitable globally. While Mr. Ford is developing a traditional turnaround strategy that will include job and cost cuts, he said his company had to be known for more than that.

"Our road to recovery will really be built on two things," Mr. Ford said. "One will be a cost-cutting, capacity action, which you would consider hard-nosed business decisions. But that also is not enough. Today was about what's going to take us in the future, what's going to differentiate us from other companies and what are we going to be known for."

We all know that over the last 100 years, people and jobs have suburbanized as transportation costs have declined and household incomes have increased. How has this trend affected center city governance in the United States? In an editorial in the 9/21/2005 New York Times, Joel Kotkin points out “Democrats have long drawn their moral, economic and electoral strength from the cities. Yet this urban dominance has its negative side. Despite all the self-congratulatory hoopla about an urban renaissance, prevailing demographic and economic trends show a persistent shift from cities toward the ever-expanding suburbs and exurbs.

And the political result? While cities go overwhelmingly Democratic, the party loses national and state elections. In 1952, for example, New York City accounted for almost half of the voters of New York State; today it accounts for less than a third. It doesn't help that most liberal cities now aspire to become "cool cities" - playgrounds for the ultrarich, nomadic singles and childless couples. By focusing on Wi-Fi zones and loft conversions while schools crumble, liberal cities are essentially ignoring middle- and working-class strivers, particularly those with children.”

Kotkin does not delve into another theme that interests me. How would center city urban governance evolve if the middle class also lived there rather than the suburbs? In the center cities, the rich send their children to private schools, play at private clubs, use private vehicles rather than public transit. While this group pays taxes (if their accountants are mediocre), they have little stake in the quality of urban local public goods with the exception of police protection. Since the rich demand very few public services, they have little incentive to monitor urban politicians. Also, there are not that many rich people even in major cities. A mayor who knows that he needs the median voter to vote for him may not mind alienating the 5% of the city who are rich.

The key counter-factual here is if the middle class had a greater presence in cities how would this affect urban governance? Would there be less corruption and more competence? The middle class are large in number, educated, and they use public services thus they would represent a disciplinary force on a mayor who might pursue his own agenda if the knows that he can get away with it.

If the median voter in a city such as Detroit is a poor person rather than a middle class person, how does this change the set of services and taxes that the center city Mayor enacts?