Friday, December 30, 2005

Why is Crime Still Falling in New York City?

Major center cities around the United States have experienced a reduction in violent crimes over the last 15 years. There are some blips in the data. In 2003, there were 71 murders in the city of San Francisco while in 2004 there were 88 murders. The article below also notes that the murder count is up in other cities such as Boston and Houston.

Today the New York Times takes a closer look at the recent New York City numbers. Two points stand out in this article. First, the author does try to identify one natural experiment. Post 9/11, the city had a budget crisis and cut back on cops and due to Homeland Security mandates had to reassign police to other tasks away from basic safety.

I'm also surprised that no economists were interviewed for this article. I don't really understand how reporters choose who is an "expert" on any given topic but I wonder why Steve Levitt was not interviewed here. The abortion hypothesis might be relevant here. Another controversial but interesting hypothesis is that the decline of leaded gasoline use in cities is another cause of the crime decline. New York City is the densest city in the United States. The lead theory posits the logic chain that exposure to ambient lead lowers children's IQ and increases the probability that they will have ADD. Low IQ and ADD both predict becoming a criminal in later life.

So, my point is that the New York Times does a fine job of describing basic urban quality of life trends but it often wimps out in attempting to explain why the trends we see have taken place. Given the brain power of the typical Times reader, I'm surprised that this newspaper of record does not invest more resources in exploring causal explanations and helping readers "hypothesis test".

December 31, 2005
Crime Numbers Keep Dropping Across the City

Crime has fallen across New York City for the 17th consecutive year, with subway crime down by more than 5 percent from last year and the number of recorded murders virtually certain to be the fewest in any single year since 1963, new Police Department statistics show.

As of yesterday, there had been 537 killings in the city, according to the department's latest marking-period reports that are issued weekly. That is down from 566 in the same period last year. And it is down from 649 in all of 2001, when joblessness surged, anxiety from Sept. 11 was present and a budget crisis prompted a reduction in numbers of city police officers. In that year, some citizens and criminal justice experts predicted a bottoming out of the crime downturn as the police force took on new counterterrorism responsibilities.

New York reported its greatest number of murders in 1990, when 2,245 people lost their lives by violence.

In 2005, in addition to murders, numbers for rape, felony assault, burglary and grand larceny all fell, the department said.

Auto theft, which, like murder, is considered a reliable indicator of crime patterns because there is little discretion in how to classify it and little reluctance in reporting it, fell by nearly 12 percent.

"When you get eight million people together, you will have some crime," said Police Commissioner Raymond W. Kelly. "But is the city improving? And, is quality of life improving? Most believe that and believe that cops are doing a great job and crime is coming down."

New York's continuing decline is in contrast to some other cities across the nation. After years of falling crime, Boston is now experiencing a surge in homicides. Houston has seen more killings in 2005. In Philadelphia, murders are outpacing last year's rate. Some law enforcement officials have attributed rising murder rates outside of New York to use of the drug methamphetamine.

David M. Kennedy, the director of the Center for Crime Prevention and Control at the John Jay College of Criminal Justice in Manhattan, said, "Nobody else, anywhere, has been able to generate either the huge reductions in violent crime or sustain those reductions without reversal for 10 years, which is what New York has now done."

In the view of some critics, the overall numbers seem too good to be true. Officials in the Patrolmen's Benevolent Association, the main police union, charged last year that precinct commanders felt such pressure to drive down crime that they "cook the books," reducing the severity of crimes on paper to avoid recording them and reporting them to the F.B.I.

But the department has an internal auditing system, said Michael J. Farrell, the deputy commissioner for strategic initiatives. Since that system was put in place in the early 1990's, the error rate has gone to 1.5 percent from 4.4 percent, he said.

"The aspect of it that reassures us are the audits that we do, which are very substantial, in terms of the number," Mr. Farrell said. "Every precinct is audited randomly, twice a year."

Of course, on any given day in the city, the streets can feel dangerous.

Arrests for guns are up, heading into the last week of this year. Two police officers have been killed in the line of duty in recent weeks, and more officers were shot this year, 8, the highest number since 1997, when 10 were shot and one was killed. The 2005 murder tally could still increase by midnight tonight or when some 2005 deaths because of unknown causes are finally determined by the medical examiner.

Shootings, a crime statistic the department has tracked for the last 12 years, were up by 3.2 percent, to 1,508 from 1,461. And the number of victims wounded in those shootings rose to 1,808 from 1,755. The shootings, though, were concentrated in a handful of precincts, and they have now started to fall. This year could well wind up with the second-lowest number of shootings since 1993.

The precinct with the greatest number of incidents of gunfire in 2005 was the 75th Precinct, in East New York, Brooklyn, which recorded 92. The most gun arrests, 225, happened there, too.

The citywide dips in five of the major crime categories was followed by roughly proportional dips in arrests for those crimes. But the number of robberies increased, by 0.8 percent, and, consequently, robbery arrests mushroomed to nearly 11 percent as the police focused on the problem.

Or, as Mr. Farrell put it, to "re-inoculate" a new generation of criminals "who may not have gotten that vaccine."

Put in context, the rise in robberies, to 23,948 from 23,746, comes in a category of crime that is a mere shadow of its former self: their number peaked at 100,280 in 1990, said Thomas A. Reppetto, a police historian and executive director of the Citizens Crime Commission, a group that monitors police policies in New York.

In all, the numbers collected, computerized and crunched by the New York Police Department reveal all manner of trends and developments.

In 2005, eight precincts in the city recorded not a single murder - vast parts of the city that included Central Park and the 94th Precinct in Greenpoint, Brooklyn, where there were four murders last year, and in 1990 there were eight.

Five precincts, including one covering the Long Island City section of Queens and another, in the Fordham and Bedford Park sections of the Bronx, recorded some of the highest numbers of violent crimes this year. There were 229 robberies in the 108th Precinct in Queens, for instance. But even with those high numbers, it was those very precincts that recorded the greatest reductions when set against last year. For example, robberies in the 108th were down by 16 percent.

Perception can be as much a measure of crime as reported statistics. In 1963, as today, some sensational cases made headlines for weeks. Then, it was the so-called Career Girl murders, the double homicide of a Newsweek researcher and a teacher on the Upper East Side. There were a total of 548 homicides that year. Now, it is Peter Braunstein, a writer suspected of posing as a firefighter in an Oct. 31 sex assault in Chelsea.

Commissioner Kelly, for his part, said no floor for any crime is acceptable. The department tracks crime in "real time," he said, and maps it down to street corners.

The manpower for Operation Impact, a program started by Mr. Kelly to flood problem areas with Police Academy recruits accompanied by more experienced officers, will be doubled next month to include 1,200 officers. A strategy of splitting the most violent precincts into thirds, Operation Trident, will be put in place in the 44th and 46th Precincts, he said.

Many people, however, including Andrew Karmen, a criminologist who has analyzed the factors affecting the city's crime, have wondered just how long this trend - what Dr. Karmen calls a "crime crash" - can last.

"I think there is room for even further progress because in other large cities around the world, such as London and Tokyo, people get along even better with each other than we do," said Dr. Karmen, who wrote the book, "New York Murder Mystery" (N.Y.U. Press, 2000), about declining crime rates in the 1990's.

Dr. Karmen said that most criminologists attribute New York's falling crime rate to both criminal justice and broader societal factors, including smarter police work, tougher sentencing, improved job opportunities and the perception of an improved economy.

Mr. Kennedy said: "The controversy remains. Is it something that law enforcement did, or isn't it? My thought is, you can't explain it without a very large contribution from law enforcement."

Heading into his second term, Mayor Michael R. Bloomberg said the record bodes well for the future.

"Every year, experts say we can't drive crime down any further, but happily the N.Y.P.D. proves them wrong and breaks another record," Mr. Bloomberg said.

Wednesday, December 28, 2005

Rewarding Economic Inefficiency: Kyoto at Work

The New York Times on wednesday had a great article on Russia's newest export to the West --- carbon credits. There is clear evidence that there are gains to trade between Russia's electric utilities and Western nations.

After reading this article, I'm still puzzling over what are the unintended consequences from these anticipated transfers to Russia? Is this rewarding "bad behavior"? Is this similar to North Korea case where we seem to always be sending $ to its leader in return for his delaying his nuclear program?

Could this Russian case be an example of rewarding "bad behavior" without any dynamic incentives problems? In the case of the North Korean leader, once he recognizes that we pay blackmail he has an incentive to continue developing nuclear weapons to be paid again in the future. Is there an analogous situation here with Russia? I can't see it but I'm an old man!

December 28, 2005
In Russia, Pollution Is Good for Business

MOSCOW, Dec. 24 - By its own admission, Russia's electricity monopoly is the world's largest corporate producer of greenhouse gases, accounting - by itself - for nearly as much carbon dioxide as is emitted by Britain.

From smokestacks across Russia's 11 time zones, the company, Unified Energy Systems, spews out 2 percent of all human-generated carbon dioxide accumulating in the atmosphere.

What will the utility get for being the world's largest greenhouse gas polluter? It is hoping for $1 billion.

It is one of the paradoxes of the Kyoto Protocol on climate change that companies in Russia and other Eastern European countries, which are among the world's largest producers of greenhouse gases, are poised to earn hundreds of millions of dollars through trading their rights to release carbon dioxide into the air.

The Kyoto treaty, negotiated in 1997 and adopted by 36 industrial nations, established a mechanism aimed at finding the cheapest way to curb emissions of gases that contribute to global warming. The idea was that countries that produced more than their treaty-imposed limits could reach their goals by buying rights from producers in other countries where controlling output is easier and less expensive.

It is not clear how successful that approach will turn out to be. But because Russia's companies operate such outdated and inefficient equipment, they can easily and cheaply upgrade. As a result, the Kyoto process has already emerged as a potential source of earnings for the country's big energy and manufacturing companies, according to company executives and analysts. They have hired consultants, inventoried pollution sources to earn credits, and opened carbon-trading divisions.

Unified Energy and Gazprom, Russia's natural gas monopoly, which together release more than 50 percent of greenhouse gas emissions in Russia, both have such trading units.

"We're intensely interested in the carbon-trading market," Andrey V. Gorkov, the head of the carbon-trading division at Unified Energy, said earlier this month in Montreal, where he was attending the United Nations climate conference. Member countries formally approved emissions-trading rules at the meeting.

The protocol requires the 36 industrial nations - with varying targets - to reduce their emissions of greenhouse gases below their 1990 levels, in the five years from 2008 to 2012.

For the European Union, the target is to reduce emissions to 8 percent below 1990 levels. In an indication of how robust the demand for emissions credits may be, this year the European Union is 6 percent above its 1990 levels. The United States, which generates a fifth of greenhouse gases but has not joined the Kyoto Protocol, is 19 percent above its theoretical limits.

Russia, in contrast, suffered an economic collapse in the 1990's, and is 43 percent below its 1990 baseline in the Kyoto agreement. In fact, Russia does not expect to reach 1990's emissions levels until around 2020 - attesting to the severity of the economic setback from which it is still recovering.

At the same time, Russian industry is generally wasteful with energy, so that a few cheap upgrades go a long way to reducing emissions. Thus, with both outdated equipment and a surplus of carbon emissions, Russian companies have become attractive to European, Canadian and Japanese companies that need emissions credits.

The pace is increasing at Mr. Gorkov's cluttered office in Unified Energy headquarters, a drab concrete building on the outskirts of Moscow. Analysts give credit to the company's forward-looking chief executive, Anatoly B. Chubais, for recognizing the potential for profits under Kyoto. Mr. Chubais, a former deputy prime minister, had helped negotiate the pact while in government.

Mr. Gorkov's 16 employees at the division, which is called the Energy Carbon Fund, scan the Internet for companies or countries in need of carbon dioxide emissions credits. They also study their own company to identify areas where they can reduce pollution. The company signed its first deal in June, with the environmental protection agency of Denmark.

Denmark will pay an undisclosed sum for Unified Energy to replace coal-fired boilers at the Amurskaya power plant in Khabarovsk, near China in eastern Siberia, so that units will burn more efficient natural gas. It will also pay to upgrade an existing natural gas plant in the Orenburg region, in southern Russia near Kazakhstan, with a more efficient model.

The conversion to gas at the Amurskaya plant will cut carbon dioxide emissions by a million tons a year, according to Unified Energy. The upgrading of the natural gas generator at the Mednogorskaya power plant in Orenburg will save 210,000 tons.

Under the deal, the Danish government will receive 1.2 million carbon credits (one carbon credit being equal to reducing one ton of carbon dioxide), to be applied toward meeting its emissions goal in 2012.

This fall, six other clients from Europe and Japan also lined up to buy emissions credits from Unified Energy, Mr. Gorkov said. The Toyota Corporation of Japan is co-financing studies at one plant, and may pay for upgrades, according to a Unified Energy Systems statement.

Gazprom, Russia's largest company, is studying ways to attract Kyoto financing to upgrade other pipelines, said Bogdan Budzulyak, director of the company's transportation and underground storage department.

Midsize Russian companies are also eyeing the emissions market.

The Arkhangelsk Pulp and Paper Mill, with revenues of about $250 million a year, has said it will monitor emissions, according to an article in the August 2005 issue of Carbon Finance, a trade publication.

In total, Russia could potentially reduce emissions by two billion to three billion tons of carbon dioxide by 2012, said Alexander A. Golub, a senior economist at Environmental Defense, a nonprofit group based in New York. The potential value for Russia ranges from $20 billion to $60 billion, he said. Or it could be worth nothing, if future climate talks collapse. The United States, the world's largest economy, is already sitting out the process.

President Bush rejected the Kyoto Protocol in 2001, citing the high cost to American industry. Now, without the support of the world's largest economy, there is less chance other countries will agree to extend the treaty beyond 2012. Companies must decide if it is worth investing millions of dollars to comply with an international regulatory regime that may not be enforced after 2012 - and may collapse before then.

"Discussions over the future of the Kyoto Protocol are affecting our market," Mr. Gorkov said.

Even so, emissions trading has been slowed in Russia more by the sluggish pace of government bureaucracy than by uncertainty over the Kyoto Protocol.

The Danish deal was signed in June. It hinged on the Russian government passing a decree to endorse Kyoto trading. That was due in late November, but delayed until February, according to an e-mail message from Hans J. Eriksen, the program coordinator at the Danish environmental ministry.

Annie Petsonk, international counsel for Environmental Defense, said: "This is quite a new commodity for Russia. Maybe they don't understand that Russia has tremendous potential."

Both Gazprom and Unified Energy have issued statements urging the Russian government to enforce Kyoto as quickly as possible. In the United States, in contrast, Exxon Mobil led corporate opposition to Kyoto.

In Russia, the Ministry of Trade and Economic Development has formed a working group to study the decree. It needs to clear various agencies and committees. Russian officials sent a letter of apology to the Danish ministry in November.

Meanwhile, at Unified Energy, where the order book for pollution credit projects is stacking up, Mr. Gorkov is getting impatient. "We needed this document signed yesterday," he said.

Tuesday, December 27, 2005

Predictions for 2006

I was taught that good social science explains and predicts human behavior. I figure that this time of year we bloggers are expected to make some predictions for the next year.

My problem is that I can't claim to have any deep insights into where oil prices, interest rates or home prices will go over the next year.


1. The 2006 AEA meetings in Boston will be cold but will be a lot of fun. Its a shame that the economics bloggers have been too lazy to co-ordinate planning a group meeting. It is possible that there is such a meeting but that I wasn't invited!

2. I see that Tom Sargent is in charge of the 2007 program for the Chicago AEA meetings. I predict that his program will be filled with cambridge "double difference" natural experiments sessions.

3. Congress will gridlock in 2006 as Democrats prepare for the midterm elections and try to argue that the world is ending under Republican rule. I wish I could make a prediction over what signature issue senator Clinton will choose to stake out a leadership position.

4. My guess is that oil prices will be lower a year from now than they are today. It is an empirical question whether the short recent price spike was enough of a wake up call to encourage a serious increase in exploration for new sources of oil and the development of alternatives.

5. Paul Krugman will be named President Bush's Secretary of the Treasury.

Thursday, December 22, 2005

Building Credibility Through Battling Public Sector Unions: The Case of NYC’s Mayor

It appears to me that the NYC public transit union has lost this strike. How does this outcome affect other NYC public sector unions such as teachers, cops, firemen, and sanitation? Has the Mayor of NYC gained a reputation for playing "hardball" and will this help lower New York City's taxes per dollar of public services?

There is an old Seinfeld episode where George loses the "Upper Hand" in a relationship with some girlfriend. In a similar spirit, the Mayor of NYC now has the "Upper Hand". How will he use this power? Earlier this year, the sanitation crews implemented new "productivity" tactics of reducing the number of guys who ride on the back of garbage trucks. This raised their average product of labor by reducing L in the fraction Y/L.

Clearly, there are other examples of public sector inefficiencies that lead to big city tax payers paying too much in taxes relative to the quality of services they receive. It will be interesting to see if this Mayor who made billions in the private sector is successful in "re-inventing" the public sector into being a lean mean fighting machine. I will also be interested to see if the elite newsmedia such as the New York Times supports such attempts.

Wednesday, December 21, 2005

New York City's Quality of Life During the Public Transit Strike

After interviewing an embedded reporter (my father) about how New York City’s Public Transit Strike has affected this city's quality of life, I would like to ask some questions and make a few observations.

1. What is the marginal increase in worker's commute times? How does this increase vary as a function of a person's income and commute schedule? My father is a doctor. His day starts at 8AM and usually ends at 9PM. After the first day of the strike, he is not having trouble finding a cab. But, the cabs now have multiple people in them and this slows him down. In addition, since the subways are not operating there is more traffic on his route and this increases his commute time.

2. During this time of high demand, how could the taxi market be made more efficient? The current problem is that holding commute zone constant, everyone is paying the same price for a taxi ride. If high value of time people could signal that they are willing to pay more for a cab ride, how much would this reduce the deadweight loss of this strike? I'm making the obvious point that there is not enough price discrimination taking place right now and this introduces inefficient queing for cabs. Sticky prices might have excited Keynes but I'm Kahn, not Keynes. To reduce search costs for cabs perhaps a co-ordination device is needed. Permit me to suggest one. If you are willing to pay a premium for a cab, you should wear a Krugman mask and beard. This would differentiate you from other ordinary buyers of this product.

Tuesday, December 20, 2005

Explaining Environmentalism: The Young are Green

A couple of years ago I published a paper in the Journal of Policy Analysis and Management titled "Demographic Change and the Demand for Environmental Regulation". I was interested in what observable attributes of a person such as his education level predict environmentalism. I used a variety of different micro data sets to measure environmentalism.

Here is a new survey based paper on this subject. The ususal issue arises concerning whether the answers people give to this survey are "cheap talk". Putting that point to the side, this does look like an interesting paper. I would have been interested to see if the authors test whether there is a "U" shaped relation between environmentalism and age. Do the young and old support costly green policies while the middle aged (tax payers) oppose them? The old may be trying to leave a legacy for their grandkids.

One issue that this study faces is separating age from "birth cohort" effects. In the year 2005, a 55 year old was born in 1950. He was at Woodstock! Such an "older guy" might be pro-environment because of the era when he grew up. With a single cross-section of data, the authors can't separate out age from birth cohort effects.

The Generational Divide in Support for Environmental Policies: European Evidence

Joni Hersch, W. Kip Viscusi

NBER Working Paper No. 11859
Issued in December 2005
NBER Program(s): HC

---- Abstract -----

This article examines age variations in support for environmental protection policies that affect climate change using a sample of over 14,000 respondents to a 1999 Eurobarometer survey. There is a steady decline with age in whether respondents are willing to incur higher gasoline prices to protect the environment. This relationship remains after controlling for socioeconomic characteristics. There are age-related differences in information about environmental risks, information sources about the environment, perceived health risks from climate change, and degree of worry about climate change. However, taking these factors into account does not eliminate the age variation in willingness to pay more for gasoline to protect the environment.

Monday, December 19, 2005

Green Product: Milk and Methane

When he lives in Berkeley CA, my son drinks organic milk made by the Strauss Family Creamery. Until I looked at the bottle, I didn't appreciate how green a product this stuff is. Ecological economists should be impressed by the "closed loop" nature of this firm's production process. Waste from Cows (an output) is used as an input in the production of electricity. To use a more technical term, this firm transforms "poop into power". I wish that my son could do the same!

The only thing I don't like about the article I reproduce below is that there is no information concerning the cost of setting up this "green power" plant. If it is such a great idea, why have adoption rates been low? Do we need to subsidize this activity to make it happen?

Is Strauss able to charge a "green price" premium because of their production techniques or does the typical consumer view this product as having perfect substitutes?

Press Release
May 13, 2004
Contact: Vivien Straus
(415) 663-5464 x110

From POOP to Power
Straus Powers Dairy With Methane

MARSHALL, CA - Completing a 5 year process, Straus Family Creamery, California's cutting-edge organic dairy, created electricity today from its new methane digester. The digester captures naturally occurring gas from manure and converts it into electricity.

With this new system, Straus is expected to generate up to 600,000 kWh per year, saving about 6,000 dollars in monthly energy costs.

This process will also eliminate methane, a natural by-product of manure. According to the 2003 U.S. Department of Energy Report on Greenhouse Gases, agricultural sources, primarily animal waste, account for approximately 3% of greenhouse gas emissions.

Funded by California's SB5X alternative energy grant program, this is the first system to take advantage of regulations of net metering law which effectively allows the entire Straus operation to run meters in reverse as excess electricity is sent back into the grid.

Managing manure in a way that protects the environment has always been a goal of Albert Straus, farmer and owner of Straus Family Creamery. A cow can generate 120 lbs of waste per day, which translates to 40,000 lbs. per year per animal. While all waste at Straus dairy is composted and reused as fertilizer, this system provides additional and far-reaching benefits.

The project was funded in part with grants from California's Energy Commission (CEC), Marin County Resource Conservation District (RCD), California Regional Water Quality Control Board, the U.S. EPA and USDA Natural Resources Conservation Service. Other support came from Sustainable Conservation, a non-profit environmental group, which was instrumental in helping farmers get credit for the electricity they send to the grid. Western United Resource Development helped make the grant money available to buy the generator. Williams Engineering Associates designed and managed the project.

"This is one more step towards my goal of having our farm become completely self-sufficient in energy, with minimal environmental impact," Albert Straus stated.

This methane digester is a model solution for one of the greater challenges of the dairy industry.

"The Straus Dairy has again demonstrated leadership to the rest of the dairy community by adopting one of the most environmentally beneficial renewable energy technologies," according Allen Dusault of Sustainable Conservation. "It provides a triple win producing cleaner air and water and a new source of renewable energy."

The Straus dairy has been in operation since 1941. Straus Family Creamery just celebrated 10 years of processing and recently introduced their all organic ingredient Super Premium Ice Creams which are available in natural food and specialty stores throughout the western U.S.

Saturday, December 17, 2005

The Perils of Relying on Public Transit

Will a public transit strike in NYC cripple this town? Perhaps Newman from Seinfeld will offer commuters rides on his rikshaw? How would this City adjust to this surprise?

Relative to their next best employment opportunities, public transit workers seem to have a pretty good deal; namely elatively high pay, early retirement (age 55!) and health insurance.

Alberto Alesina has done some interesting work examining how public employment varies by city. It would interest me what city level characteristics predict whether a city has a "lean and mean" public sector versus a bloated payroll. I would predict that in pro-union states that do not have Right to Work Laws that we are more likely to see the bloated urban public sector. So What? Cities have to run balanced budgets so somebody's taxes have to be raised to pay for these large expenditures. What is the deadweight loss in this case? Clearly urban land owners implicitly pay for inefficient local government.

December 17, 2005
New Yorkers Wait for Word on How They'll Get to Work
The day after the strike deadline came and went, the day after the city went to bed not knowing what to expect, it seemed yesterday that New Yorkers had finally started to take the threat of a transit strike seriously. And they were not happy.
After serenely assuring themselves earlier this week that brinkmanship would not give way to an actual strike that would shut down subways and buses, people around the city sounded decidedly more pessimistic yesterday.
"Businesses are going to suffer like mad if there's a strike," said Keith West, 38, who makes deliveries for a linen supply company. "There's going to be a lot of hostile drivers because of the car pooling. It's going to be impossible to drive on the roads. Yesterday our company had to do a double shift just in case there was a strike today.
"Personally, I think they're both being stubborn," he added. "It makes me angry. At Christmas, it's not fair to us."
The union announced yesterday that if no agreement was reached, it would strike on Monday at two bus companies in Queens that have been taken over by the Metropolitan Transportation Authority. And it set a new strike deadline for the entire transit system: 12:01 a.m. Tuesday.
Paul Shatraw, 50, a stay-at-home father from Carroll Gardens, Brooklyn, said the union should work for a time without a contract, if that is what it takes to make a deal. And he warned that whatever good will the public has for the workers could evaporate quickly.
Yet most of the dozens of people interviewed yesterday still sounded more sympathetic to Transport Workers Union Local 100 than to a transportation authority whose actions and officials it has long been civic sport to mistrust.
"I think the T.W.U. has legitimate grievances," said Chris Gordon, 52, a manager with Verizon who lives on Staten Island and works in Manhattan. "I think the M.T.A. was ham-handed in their negotiations strategy. How in the name of God with a billion-dollar surplus they could cry poverty, I'll never know."
Dan Kinckiner, 42, who lives on Long Island, said he did not look forward to getting around the city to visit the clients of his security company without public transport.
"I think both parties are wrong," and the union is asking for too much, he said. But moments later, he added, "I'm not opposed to the strike if they need to in order to get people to listen." As for the transportation authority, he said, "If you have a big surplus, give some back."
Several riders mentioned the holiday fare discounts that the authority is giving, and said they show how well the authority is doing - or show, at least, an insensitivity to the workers during contract negotiations.
What was perhaps most striking was how little the authority's arguments have gotten through to its customers - about deficits looming in future years, enormous debts, mounting pension and benefit costs, and the notion of some rough parity with the great mass of American workers who have had to make concessions on health care, wages and productivity.
Ben Carver, a financial consultant who lives in Bay Ridge, Brooklyn, was one of the few people interviewed who focused his ire squarely on labor. Then again, he is a newcomer to the city, not yet steeped in the culture of bashing transit-system management.
Mr. Carver, 23, says he thinks unions are outdated. "Cutting off everyone's transportation as leverage is ridiculous," he said. "I don't think it's an ethical thing to do."
He would get no argument from Greg Wirth, an actor who lives in Battery Park City and commutes daily by subway. "I almost feel like the threat of a strike is a shakedown."
Far more common was the view of Oscar Lopez, 30, a driver who works with Mr. West for the linen supply company. A strike, he said, "is going to hurt everything," including his ability to navigate the city's streets. But when he argued against a strike, it seemed as much out of concern for the transit workers as anything else.
"I hope they get what they expect to get, but if they go on strike, I don't think that's the way to do it," he said. "Their job is on the line. They'll have to pay fines. It's something they have to think about."
Tamara Powell, 40, who works as a security guard in Astoria, Queens, ordinarily rides the Triboro bus line, one of those the union has threatened to strike on Monday. Yesterday, she was thinking less about the right and wrong of the contract dispute than about the $7 to $9 she would have to pay for a cab to work, and again to get home, if there is a strike.
"It's going to tap into the money I have for Christmas," she said. "I have no benefits, so if I lose a day I don't get paid."
Ann Farmer, Janon Fisher and Colin Moynihan contributed reporting for this article.

Friday, December 16, 2005

Socially Responsible Investing: Estimating Selection and Treatment Effects

Apparently there are investors who care about more than risk and return. Such investors intentionally constrain their asset choice set avoiding companies who pollute or do other evils. Finance researchers have examined how much expected return SRI investors sacrifice (see

I'm interested in a different set of questions focused on environmental issues and socially responsible investing. Permit me to list them:

1. Why should we trust the environmental certifiers such as KLD to do a good job in figuring out who are the top 100 firms in terms of "greenness"? If SRI is about more than simply "warm glow" for the investors, if the true goal of SRI is to "change the world", then investors need credible signals indicating which firms are green and which are brown. Is there enough competition in the system of certification to guarantee that "brown" firms can't hide as "green firms"? Does KLD invest enough in updating its records? If a past green company goes "brown", how many years pass before KLD downgrades them and throws them out of the SRI set of green companies? Below I report KLD's methodology for ranking firms.

2. Is it profitable for firms to take costly actions such that they make KLD's top Green 100 list and attract more SRI investment? To answer this question, ideally we would conduct a discontinuity analysis where we would compare the performance of KLD certified "Green Companies" to a control group that would represent similar companies who just missed being assigned the "Gold Star" of being a Green company by the KLD certifier. More formally, I want to know: "is there a treatment effect on a firm's stock performance if it is placed on the SRI buy list?"

3. Selection --- It could be the case that SRI highly ranked companies perform better than other companies for reasons unrelated to being assigned a high rank by KLD on their green index. These companies may have special CEOs or other factors.

My BIG POINT in this blog entry is to make an analogy. After Enron and Arthur Anderson, we learned that accounting firms "cook the books". It is difficult to know a firm's profit levels from seeing its accounting statements. Is a similar point true about environmental accounting? I view KLD and other environmental certifiers as a type of accounting firm. What data do they collect on each company? Do they have the right incentives to create up to date honest rankings of which companies are Greenest versus Brownest? If such firms are "dirty", then the SRI movement will have little impact on bringing about environmental sustainability. To vote their pocket book, investors need correct information. Does the current market structure supply this?

Here is what KLD has to say about itself.


Index Construction

The Global Climate 100 Index includes a mix of 100 global companies that will provide near-term solutions to global warming while offsetting the longer-term impacts of climate change through renewable energy, alternative fuels, clean technology and efficiency.
Constituents are selected from the global universe of companies for their involvement in the following themes: Renewable Energies, Future Fuels, and Clean Technology and Efficiency. In addition to activities in these areas, KLD evaluates each company’s eligibility for the Index based upon its specific climate-related efforts, market influence, geographic distribution, and offsetting negative climate impacts. The leading companies in each category are included on the Index.
The Index seeks companies representing a range of corporate responses to climate change, including a group of large-, mid-, and small-cap companies representing sectors ranging from energy and utilities to industrials and consumer products. As a result, the Index is more broadly diversified than a traditional energy sector index.
The KLD Global Climate 100 Index allocates a 1% weight to each of the 100 constituents to provide higher exposure to small-cap companies and lower exposure to large-cap companies than a cap-weighted index. The weights will vary between quarterly rebalancing, depending on market conditions.
Index Maintenance
KLD continuously monitors constituents on the Index to ensure they meet standards for involvement themes, liquidity and financial viability. KLD may remove companies due to corporate actions resulting in mergers, acquisitions and bankruptcies. KLD may also remove companies at rebalancing if their climate rating falls below an acceptable level. KLD rebalances the Index each quarter to bring each holding back to 1%.

Thursday, December 15, 2005

Dynamic Incentives, Time Consistency and Bolivia's Water Supply

Time consistency is an important idea in dynamics economics. The 2004 Nobel Prize in Economics was partially awarded for macro research on this topic
( see
But, is time consistency an important idea in environmental economics? The Bolivian poor will soon learn that the answer is “yes” as their water supply’s quality will suffer.

Roger Noll and co-authors wrote a very interesting paper focusing on irreversible investment under uncertainty in the case of large water projects (

Water projects require enormous upfront sunk cost investments. Once these systems are built, the marginal cost of providing water is quite low. The interesting dynamic issue is whether a LDC nation can pre-commit to a Multinational Corporation and say the following: “If you invest in our nation and build a water delivery system, we will allow you to ex-post “price gouge” (i.e charge price > marginal cost) to allow you to earn a risk adjusted rate of return on your investment.” The problem is that LDC nations cannot pre-commit to do this. What happens is that the poor revolt like in this example below and capitalists anticipate this ex-post effect and get scared off. In this case, the “people” end up being denied quality water even though there are gains to trade possible between the Bolivian people and the capitalists in the developed nation. How could this problem be solved? Perhaps a deep pockets such as the World Bank could offer some form of insurance to the lender. Would this create a moral hazard effect?

Here is the New York Times' reporting on the issue:

December 15, 2005
Who Will Bring Water to the Bolivian Poor?
COCHABAMBA, Bolivia - The people of this high Andean city were ecstatic when they won the "water war."
After days of protests and martial law, Bechtel - the American multinational that had increased rates when it began running the waterworks - was forced out. As its executives fled the city, protest leaders pledged to improve service and a surging leftist political movement in Latin America celebrated the ouster as a major victory, to be repeated in country after country.
Today, five years later, water is again as cheap as ever, and a group of community leaders runs the water utility, Semapa.
But half of Cochabamba's 600,000 people remain without water, and those who do have service have it only intermittently - for some, as little as two hours a day, for the fortunate, no more than 14.
"I would have to say we were not ready to build new alternatives," said Oscar Olivera, who led the movement that forced Bechtel out.
Bolivia is just days away from an election that could put one of Latin America's most strident antiglobalization leaders in the presidency. The water war experience shows that while a potent left has won many battles in Latin America in recent years, it still struggles to come up with practical, realistic solutions to resolve the deep discontent that gave the movement force in the first place.
That discontent may have found its most striking incarnation in Bolivia. Here, protests against the introduction of stronger market forces have toppled two presidents since 2003. And the discontent has given Evo Morales, a charismatic Aymara Indian and nationalistic congressman who has channeled much of the anger of his poverty-stricken country, a slight lead in the polls ahead of the Dec. 18 elections.
Frustrated that the economic restructuring prescribed by the World Bank and International Monetary Fund failed to translate into sustained growth and reduced poverty, country after country in Latin America has either discarded or is questioning much of the conventional wisdom about relying more on market forces - known as the "Washington consensus" - from the privatization of utilities to the slashing of social spending to unfettered trade.
Much of the policy turn has come under pressure from the streets and the results have varied wildly.
Argentina, for instance, has bounced back from economic collapse by ignoring crucial aspects of I.M.F. orthodoxy the last four years, while accepting others. Ecuador is tottering on the brink of political tumult even as the eight-month-old government of President Alfredo Palacio tries ramping up social spending. In Venezuela, President Hugo Chávez is forming state companies and spending lavishly - some say recklessly - on social programs, pleasing the poor, but failing to generate much foreign investment or business not linked to the overarching oil industry.
Bolivia's back-tracking, more a product of roiling protests than government policy, began after the country became among the first in Latin America to apply market prescriptions wholeheartedly in the mid-1980's. The I.M.F. later asked for far-reaching measures in exchange for loans and other aid, and promised steady growth, up to 6 percent a year, that would cut into poverty.
Bolivia's economy, though, grew at a dismal pace. Even the fund, in a 2003 memo, noted that a fall in per capita income and employment contributed to "rising social tensions that erupted recently."
The fund and other institutions that helped guide Bolivia's economy blame grinding corruption, poor infrastructure and high pension costs. Officials at the I.M.F. also note that Bolivia, like other countries that seek help, come only when they are wracked by economic troubles that require tough choices.
"If you're spending more than you're earning, for a while that's fine," said Caroline Atkinson, deputy director of Western Hemisphere operations for the fund. "But if your borrowing gets too huge, then no one wants to fund you anymore, and you have to cut back."
But to Bolivians, the experiment was marked by failure. Privatized companies like the railroads went bust, while the energy industry is generating $100 million less in taxes and royalties than it did when it was state-run, budget officials said. "They did everything right," said Joseph Stiglitz, a Nobel-winning economist at Columbia University who has been critical of the I.M.F. formula. "They liberalized, they privatized and they felt the pain. Now it's 20 years later and they're saying, 'When is the gain?' "
In the end, market changes pushed by the I.M.F., the World Bank and American-educated Bolivian economists fueled anger that severely weakened governments and gave rise to Mr. Morales. Making his name leading Bolivia's powerful coca growers' federation, Mr. Morales has in the last four years used his outsider status, his "up by the bootstraps" journey from very poor origins on Bolivia's high plains and his Indian roots to rail against market changes he says favor foreigners, not Bolivians.
That is why Mr. Morales is pushing for a "nationalization" of the gas industry that, while not leading to expropriation, will increase taxes and royalties on foreign energy companies; those combined levies were raised earlier this year to 50 percent. He also wants to tighten borders to keep out cheap products and focus the government's attention on cooperatives, a loose mix of indigenous and socialist business practices.
"We will have an economy based on solidarity and reciprocity," Mr. Morales said in an interview. "We do not dismiss the presence of foreign investment, but we want it to be real, fresh investment to industrialize our hydrocarbons, all under state control."
The proposals, to be sure, are vague. Mr. Morales, who did not finish high school, is guided on economic matters by Carlos Villegas, a left-leaning economist, and by his running mate, Álvaro García, a socialist intellectual, professor of sociology and former guerrilla who articulates the party's position.
Much of the anger that has given Mr. Morales momentum began here in his home city, Cochabamba. The arrival of Bechtel quickly prompted heated protests when the water company increased rates, arguing that it needed more money to finance investment and expand service. In some cases, poor people ended up paying double their previous costs. It also became clear that Bechtel would not expand service to the impoverished south, where the company had no profits to gain from an expensive expansion.
The ouster of the company meant the return of Semapa - but this time with more community control. Semapa has expanded service in fits and starts, with those receiving piped water and sewage service increasing to 303,000 people, from 248,000. The company also managed to lower costs and, oddly for a government company, reduce the work force.
But Semapa still grapples with petty graft and inefficiencies, managers at the company said. Its most serious problem, though, is a lack of money. The company cannot secure big international loans, and it cannot raise rates, since few here could pay them.
For a wide-scale expansion that would include a new dam and aqueducts, $300 million is needed, an enormous amount for a company whose capital budget is just shy of $5 million.
"I don't think you'll find people in Cochabamba who will say they're happy with service," said Franz Taquichiri, one of the community-elected directors of Semapa and a veteran of the water war. "No one will be happy unless they get service 24 hours a day."
On a tour of Semapa's facilities, Luis Camargo, the operations manager, explained that the water filtration installation is split into an obsolete series of 80-year-old tanks and a 29-year-old section that uses gravity to move mountain water from one tank to another. It is fine for a smaller city, he said, but what is needed now is to develop high-altitude reservoirs, a hugely expensive undertaking.
"We're trying to be realistic, and we're looking for aid from Canada and other countries," explained Mr. Camargo, who has worked at Semapa 20 years.
Thousands of people have given up on ever getting Semapa's water. At Rafael Rodríguez's home and small restaurant, a spigot in the yard provides water three hours a day from a community well. He has little good to say about Bechtel, but he noted that Semapa's pipes were far from reaching the neighborhood.
"I was hoping water would get here, but it just has not happened," Mr. Rodríguez, 43, said.
Community organizations, each with an average of 200 families, pool money to drill 200 feet into dry, soft dirt, searching for water that is then delivered through small, cheap pipes to homes in the vicinity of each well.
Still, there are many people who cannot even depend on wells. Edwin Villa, 35, lives in a neighborhood that gets its water through deliveries made two or three times a week by freelance water dealers.
The deliveries are sporadic, he said, and sometimes the water contains tiny worms. His children ask for piped water, but there is not much he can tell them.
"Our hope is that someday Semapa will reach this far," he said. "It would just be magnificent."

Wednesday, December 14, 2005

Credible Threats and Environmental Compliance

For a big company such as DuPont, is a $17 million dollar environmental fine serious? Is such a company more concerned about the public relations issue that the media may cover the story because the fine is viewed as "big"? From the EPA's perspective does it seek out high profile polluters and try to "make an example" out of them to scare other firms into regulatory compliance?

From an economic perspective, how does the EPA go about calculating what is the "optimal fine". This task would be much more straightforward if the EPA knew what chemicals DuPont released into the environment and had credible estimates of how a person's health is affected by such chemicals and if it knew how many people were affected. The article below suggests that the released chemical only affected the DuPont workplace. If true then this raises an interesting asymmetric information issue. Workers would have demanded higher wages (combat pay) if they knew that they were being exposed to something nasty as they made Teflon. By hiding this information, DuPont was able to "lure" workers at a lower wage to work at their plant. If DuPont is a rational profit maximizing firm, they would choose to not release this information to the public if the wage savings was larger than the expected regulatory fine = probability of being caught * Fine plus the loss from bad publicity plus perhaps having to pay a larger wage compensating differential because workers may now be more suspicious about what they are being exposed to at such factories.

A harder to quantify issue is the role of political cycles. Did Dupont think that a Bush Administration EPA would be less likely to enforce these laws?

December 14, 2005
E.P.A. Deals $16.5 Million Penalty to DuPont

Washington, Dec. 14 - The Environmental Protection Agency said today that it had agreed to a $16.5 million settlement with the chemical giant DuPont regarding accusations that the company had concealed information about the dangers of a chemical used to make Teflon.

The agreement - $10.25 million in fines and an additional $6.25 million for two supplemental environmental projects - represents the largest civil administrative penalty reached under federal environmental laws, the E.P.A. said.

The settlement exceeded the previous largest penalty by more than $10 million.

The E.P.A. had said DuPont had withheld information about perfluorooctanoic acid, also called PFOA, under provisions of both the Toxic Substances Control Act and the Resource Conservation and Recovery Act. The acid is used in the manufacture of Teflon.

DuPont agreed to the settlement without admitting liability.

"Our interpretation of the reporting requirements differed from the agency's," the company's general counsel, Stacey Mobley, said in a statement on DuPont's Web site. "The settlement allows us to put this matter behind us and move forward. We have already cut PFOA emissions from U.S. plant sites by 98 percent, and we are committed to reducing those emissions 99% by 2007."

The E.P.A. said the agreement sends a "strong message" to companies about warning the public about the potential dangers of chemicals.

"E.P.A. takes violations of toxic substances laws seriously, and is committed to enforcing those laws," said Granta Y. Nakayama, the agency's assistant administrator for the Office of Enforcements and Compliance Assurance. "This settlement sends a strong message that companies are responsible for promptly informing E.P.A. about risk information associated with their chemicals."

The settlement agreement still requires final approval by the agency's Environmental Appeals Board.

DuPont, which said no human health effects are known to be related to PFOAs, said that the two supplemental environmental projects include financing for a research program to evaluate the potential for fluorotelomer biodegradation; and financing for microchemistry and green chemistry programs in certain West Virginia schools.

Tuesday, December 13, 2005

Shame and International Environmental Negotiations

When can shame and ostracism be harnessed to achieve social goals? Environmentalists argue that such public information as the Toxic Release Inventory create a "Day of Shame" such that manufacturers take steps to avoid being called "The Top Polluter" in news media accounts. I've always been interested in whether such companies take "real" steps to reduce their pollution or whether they take "accounting" steps of reporting their emissions in ways that make the company look greener.

The New York Times must know that its tough rhetoric is unlikely to move the Bush Administration to be more of an international "team player'. If this is the case, why is the New York Times running this editorial below today? I wonder if it is trying to encourage Senator Clinton and other Democrats gearing up for the next wave of elections to make "Internationalism" a prime issue in their upcoming campaigns.

The New York Times must recognize that despite Hurricane Katrina, climate change is not a salient event for most U.S citizens. Can the media focus people on issues that they are not thinking about?

December 13, 2005
America's Shame in Montreal

The best that can be said of the recently concluded meeting on climate change in Montreal is that the countries that care about global warming did not allow the United States delegation to blow the whole conference to smithereens. Washington was intent on making sure that the conferees required no more of the United States than what it is already doing to restrain greenhouse gas emissions, which amounts to virtually nothing.

At least the Americans' shameful foot-dragging did not bring the entire process to a complete halt, and for this the other industrialized countries, chiefly Britain and Canada, deserve considerable praise. It cannot be easy for America's competitors to move forward with costly steps to reduce greenhouse gas emissions while the United States refuses to carry its share of the load. Nevertheless, the Europeans and other signatories to the 1997 treaty limiting greenhouse gas emissions - a treaty the Bush administration has rejected - promised to work toward new and more ambitious targets and timetables when the agreement lapses in 2012.

For its part, the Bush administration deserves only censure. No one expected a miraculous conversion. But given the steadily mounting evidence of the present and potential consequences of climate change - disappearing glaciers, melting Arctic ice caps, dying coral reefs, threatened coastlines, increasingly violent hurricanes - one would surely have expected America's negotiators to arrive in Montreal willing to discuss alternatives.

They did not. Instead, the principal negotiators, Paula Dobriansky and Harlan Watson, continued to tout the benefits of an approach that combines voluntary reductions by individual companies with further research into "breakthrough" technologies.

That will not work. While a few companies may decide to proceed on their own, the private sector as a whole will neither create new technologies nor broadly deploy them unless all countries are required to do their share under a regime that combines agreed-upon targets with strong financial incentives for reaching them. To believe that companies will spend heavily to reduce emissions while their competitors are not doing the same is to believe in the tooth fairy.

The Europeans are finding solace in the fact that the Americans - after much kicking and screaming, and after public rebukes by Canada's prime minister and a surprise visitor named Bill Clinton - finally agreed to join informal "nonbinding" discussions that will try to entice developing countries like China and India into the process. It's certainly true that without the developing nations on board, any effort to keep greenhouses gases at manageable levels will be for naught. China, for example, is building coal-fired power plants at a rapid clip and is expected to overtake the United States as the biggest producer of greenhouse gases in 20 years.

But talk is cheap, and nonbinding talk is even cheaper. And talk alone will not get the developing world into the game. Why should India and China make major sacrifices while the United States, in effect, gets a free ride? The battle against global warming will never be won unless America joins it, urgently and enthusiastically. Our grandchildren will look back with anger and astonishment if we fail to do so.

Sunday, December 11, 2005

Cleaning Up Superfund Sites in "Hot" Real Estate Markets

A recent NBER Working Paper conducted an extensive Census Based analysis of how home prices change in a vacinity of recently cleaned up Superfund sites. The study nicely constructed a credible control group (see The authors of this study "cannot reject that the clean-ups had no effect on local housing price growth, nearly two decades after these sites became eligible for them."

The article below highlights the importance of considering the possibility of "heterogeneous" treatment effects. Clean up a superfund site in a declining Northeast center city such as downtown Detroit and I predict that there will be little effect on local prices.

Alternatively, cleanup a zinc mine's debris in a potential ski community for the wealthy in Colorado and prices can soar in a vacinity around the polluted site.

After reading this New York Times article, I would like to know more about the spatial distribution of Superfund sites. How many are in cold Northeast older cities? Versus, how many are in possible tourist magnet locations such as this Colorado Site. The Greenstone/Gallagher paper measures an average effect. Across the whole nation, how have home prices changed on average near Superfund sites up to the year 2000. But, what is the distribution of these effects? In what types of areas have the appreciation rates been highest? I would predict that the greatest price appreciation would occur in high quality of life areas or in areas that had low quality of life and where quality of life has improved. For example, in the Bronx in New York City as crime has sharply declined past Superfund sites may now be desirable middle class housing locations for those who work in Manhattan.

December 11, 2005
National Perspectives
From 'Superfund' Town to Pristine Ski Resort

TO many who drive along Colorado's Highway 24 toward the Rocky Mountains, the town of Gilman sticks out like a sore thumb: a cluster of boarded-up shacks, dilapidated buildings and heaps of rusting mining debris accumulated over a century when the town sat atop the Eagle Mine, once the world's largest zinc mine.

Bright orange streaks of rusty mine tailings containing toxic lead, zinc, arsenic and cadmium stretch down its vertiginous slopes toward the Eagle River, the most visible of eight million tons of contamination so poisonous that the town was abandoned in 1983 and the area downstream declared a Superfund hazardous waste site by the Environmental Protection Agency.

Yet in the hopeful eyes of Edward R. Ginn, a real estate developer, the otherwise scenic location nestled among granite peaks and pine forests just a few miles from the Vail ski resort is a trophy property ideal for building a private ski resort community.

"It'll offer the perfect, pristine mountain experience," said Mr. Ginn, 56, of his planned $4 billion development, which is expected to include up to 1,700 homes, a gondola connecting Gilman to the ski slopes and a castlelike hotel-and-golf-course complex built on the mining tailings.

A risk taker whose bets in Florida and the Southeast have paid off handsomely in recent years, Mr. Ginn has successfully invested in other sullied properties, including $450 million in recent sales of home sites at Bella Collina, a resort development on the shores of Florida's pesticide-contaminated Lake Apopka. As in Florida, Mr. Ginn is convinced his upscale clientele will jump at the chance to buy homes on the Gilman site.

Last year, his development company, the Ginn Company, paid more than $32 million to buy Gilman and more than 5,300 acres on the surrounding mountainsides and valleys.

Mr. Ginn has invested millions more in nearby Minturn, a town with a population of 1,100 on Vail's backside that borders the Gilman property. He has also donated to local charities and hired Minturn's former mayor and a local newspaper reporter to help persuade residents to support a venture that could quadruple their town's population, as well as its vehicle traffic.

At a time when skyrocketing land prices have tempted builders to develop so-called brownfield sites once considered too contaminated to build on, Mr. Ginn is a prime example of a new breed of developers. "They find land that's value has been written down because of past contamination, then they clean it up and redevelop it," said Stephen D. Villavaso, a land use expert who is co-director of the Center for Brownfield Initiatives at the University of New Orleans.

It is increasingly profitable to do so, thanks, in part, to federal legislation signed by President Bush in 2002 that limits the legal liability for "innocent landowners" who develop sites polluted by their former owners. The law also provides for federal grants and loans, sweetening the pot with millions in incentives for anyone willing to transform the eyesores into clean, useful properties. States and local governments, too, have offered a variety of tax breaks.

Still, the costs of cleanup can be immense. In Gilman, the price tag stands at more than $80 million, not to mention a trail of lawsuits and distress for the string of past owners saddled with paying to clean it up.

The problems began in 1984, after the mine was closed and engineers responsible for sealing it allowed its shafts to fill with water. Samples taken from the Eagle River soon showed that toxic metals from the mine were seeping into the watershed, prompting legal claims against its owners under the Superfund law.

In 1989, snowmakers at the nearby Beaver Creek ski resort noticed a strange tinge to the snowflakes made with water pumped from the Eagle River. A surge of toxic sludge from the mine had turned a seven-mile stretch bright orange, tainting the water supply.

"Everything was dead," said Caroline Bradford, a longtime resident who is executive director of the Eagle River Watershed Council, a nonprofit group working to revive the river. "No fish, no bugs, nothing."

A water treatment plant was built to remove the contaminants, and over the next decade, millions of tons of toxic debris were moved to a huge tailings pile along the river, which sits inside the large tract of land Mr. Ginn plans to develop. The E.P.A. planned to declare the cleanup complete, based, in part, on studies showing that the fish and insect populations in the river had rebounded. But recent tests indicating a stall in the recovery forced the agency to postpone its rescinding of the site's Superfund designation.

Mr. Ginn plans to use some of the proceeds from land sales to continue the cleanup effort. He also noted that most of the land set for development sits upstream of the contamination and outside the boundary of the E.P.A. cleanup. "We could not develop on the Superfund site and still have a 5,000-acre community," Mr. Ginn said.

Although several approaches are under consideration, Mr. Ginn and his associates are eager to include the contaminated areas, which sit on some of the flattest, low-lying portions of the rugged property, for their hotel complex.

"It's our icon building," William H. Weber, senior vice president of the Ginn Company, said recently as he pointed to an artist's rendering of a Scottish baronial-style hotel complex that would include a golf course on what is now the Superfund site. "Then we'll also have an upper village with ski-in/ski-out homes and condos," he said.

All that will be possible only if he and Mr. Ginn can persuade the town of Minturn to annex the property, which is on unincorporated county land. If it becomes part of Minturn, it can be rezoned for development denser than the 35-acre parcels to which Ginn is now legally entitled. Last month, a proposal was submitted to the town council and so far the response has been positive. "It gives us the chance to control our own destiny," said Tom Sullivan, a member of the Minturn town council. He said he was confident Mr. Ginn would develop the property, "so the question is, do we want a say in it or not?"

Property prices in Minturn have surged since Mr. Ginn first made his plans known. Last summer, Mr. Sullivan sold his bed-and-breakfast to Mr. Ginn's company for more than $6 million, and has used the proceeds to invest elsewhere in town.

"Prices are probably a little inflated at this point," Mr. Sullivan said. "But Minturn is still the least expensive part of a high-rent district, and it's one of the nicest places to live in the county."

Mr. Ginn is betting his customers will feel the same way.

The Supply and Demand for Water in Las Vegas

As cities in the South West such as Las Vegas and Phoenix grow, water demand increases. Will there be a "water shortage"? Or, will prices adjust such that demanders engage in greater conservation? Will nearby farmers endowed with ample water substitute crops or economize on their water consumption so that they can sell their "excess" water to nearby urbanites?

What is the ecological impact caused by growing urban water demand in arid places? If these cities use their political clout (i.e more Congressional Representatives) to build new dams then the impact caused by growth could be large. However, if institutions permit trades across different water users, if initial property rights are well defined, and if water use is well monitored, then urban growth in arid places can be accomodated without an "ecological crisis".

December 11, 2005
Las Vegas Nearing Its Water Allotment From the Colorado
LAS VEGAS, Dec. 10 (AP) - The booming Las Vegas area's water demands could outstrip the region's share of the Colorado River by 2007, according to the 2006 water budget approved by the Southern Nevada Water Authority board this week.
Kay Brothers, the water authority's deputy general manager, called that timeline a worst-case situation, adding that through conservation and careful planning the state could stretch its share of the river water beyond 2007.
But Ms. Brothers acknowledged that the day was coming when southern Nevada would no longer be able to depend on its allotment from the river, which currently supplies 90 percent of the area's drinking water.
She said the annual budgets were based on separate projections from each of the authority's member agencies, projections that "tend to be conservative."
The water authority has had to come up with backup resources. The 2006 plan approved with the agency's budget on Thursday outlines some of those options. They include about 290,000 acre-feet of groundwater stored beneath the Las Vegas Valley, 30,000 acre-feet banked with California and an agreement with Arizona that guarantees Nevada 1.25 million acre-feet of water over the next 30 years.
There are 325,851 gallons in an acre-foot, which is nearly enough water to supply two Las Vegas households for one year.
The water authority already plans to build a $2 billion pipeline to pump groundwater from basins in rural Nevada. Officials also hope to use water from the Virgin and Muddy Rivers.
A 1922 compact and several later agreements divided use of the Colorado River among seven states. Efforts to change the deal have led to fights in the nation's courts.

Friday, December 09, 2005

International Environmental Negotiations

In the 2008 Presidential Campaign, will the Democratic Party's nominee run as an international "team player"? Will the typical U.S voter be looking for a candidate who wants to build coalitions to conquer global challenges? I thought that Tip O'Neil said that all politics is local.

President Bush's antipathy towards "Kyoto" style greenhouse gas treaty participation raises an interesting game theory question. Is there issue linkage? If the U.S did sign a CO2 treaty that encouraged green innovation and carbon taxation how much good will would this "buy" the U.S on other issues ranging from Iraq to Israel to free trade pacts in South America?

President Bill Clinton certainly gives a good speech but I must admit that I don't really remember what his initiatives were during his Administration for reducing the carbon intensity of the U.S economy. Did he push to raise gasoline taxes?

Clinton Says Bush Is 'Flat Wrong' on Kyoto

By CHARLES J. HANLEY, AP Special Correspondent 42 minutes ago

Former President Clinton told a global audience of diplomats, environmentalists and others Friday that the Bush administration is "flat wrong" in claiming that reducing greenhouse-gas emissions to fight global warming would damage the U.S. economy.

With a "serious disciplined effort" to develop energy-saving technology, he said, "we could meet and surpass the Kyoto targets in a way that would strengthen and not weaken our economies."

Clinton, a champion of the Kyoto Protocol, the existing emissions-controls agreement opposed by the Bush administration, spoke in the final hours of a two-week U.N. climate conference at which Washington has come under heavy criticism for its stand.

Most delegations appeared ready Friday to leave an unwilling United States behind and open a new round of negotiations on future cutbacks in the emissions blamed for global warming.

"There's no longer any serious doubt that climate change is real, accelerating and caused by human activities," said Clinton, whose address was interrupted repeatedly by enthusiastic applause. "We are uncertain about how deep and the time of arrival of the consequences, but we are quite clear they will not be good."

Canadian officials said the U.S. delegation was displeased with the last-minute scheduling of the Clinton speech. But U.S. delegation chief Paula Dobriansky issued a statement saying events like Clinton's appearance "are useful opportunities to hear a wide range of views on global climate change."

The former president spoke between the official morning and afternoon plenary sessions of the conference, representing the William J. Clinton Foundation, which includes a climate-change program in its activities.

In the real work of the conference, delegates from more than 180 countries bargained behind closed doors until 6:30 a.m. Friday, making final adjustments to an agreement to negotiate additional reductions in carbon dioxide and other gases after 2012, when the Kyoto accord expires.

Efforts by host-country Canada and others to draw the United States into the process were failing. The Bush administration says it favors a voluntary approach, not global negotiations, to deal with climate issues.

"It's such a pity the United States is still very much unwilling to join the international community, to have a multilateral effort to deal with climate change," said Kenya's Emily Ojoo Massawa, chair of the African group of nations at the two-week long conference.

Clinton's vice president, Al Gore, was instrumental in final negotiations on the 1997 treaty protocol that was initialed in the Japanese city of Kyoto and mandates cutbacks in 35 industrialized nations of emissions of carbon dioxide and five other gases by 2012.

A broad scientific consensus agrees that these gases accumulating in the atmosphere, byproducts of automobile engines, power plants and other fossil fuel-burning industries, contributed significantly to the past century's global temperature rise of 1 degree Fahrenheit. Continued warming is expected to disrupt the global climate.

In the late 1990s the U.S. Senate balked at ratifying Kyoto, and the incoming President Bush in 2001 formally renounced the accord, saying it would harm the U.S. economy.

The Montreal meeting, attended by almost 10,000 delegates, environmentalists, business representatives and others, was the first annual U.N. climate conference since Kyoto took effect in February.

The protocol's language requires its member nations to begin talks now on emissions controls after 2012, when the Kyoto regime expires. The Canadians and others also saw Montreal as an opportunity to draw the outsider United States into the emission-controls regime, through discussions under the broader 1992 U.N. climate treaty.

But the Americans have repeatedly rejected the idea of rejoining future negotiations to set post-2012 emissions controls. The Canadians continued to press for agreement early Friday, offering the U.S. delegation vague, noncommittal language by which Washington would join only in "exploring" "approaches" to cooperative action.

While rejecting mandatory targets, the Bush administration points to $3 billion-a-year U.S. government spending on research and development of energy-saving technologies as a demonstration of U.S. efforts to combat climate change.

Wednesday, December 07, 2005

Applied Cost/Benefit Analysis: The Case of U.S Rail Transit Investments

Over 25 billion dollars were spent between 1970 and 2000 in sixteen major cities in the United States on the construction of new rail transit lines. Billions more have been spent on maintaining and improving existing rail transit lines.

Nate Baum-Snow of Brown University and I have been examining what have been some of the effects of this large investment. Today at Harvard’s Kennedy School I gave a brief talk sketching some of our research results and what there implications are for Boston as Boston continues to wrestle with making greater investments in its Green Line and Silver Line. You can find copies of our papers on Nate’s webpage at Brown.

Most of people attending my talk were not pro-economists. I expected this but what caught me by surprise was that several members of the audience continued to ask me the hard question “Is Public Transit a Good Investment?” I presume they were asking me for my “expert opinion” on whether this investment passes a cost/benefit test. While I agree that this is an interesting and important question, I wimped out! I refused to answer this question because as an empiricist I don’t feel like we know enough yet. Let me give some examples:

On the Benefits Side:

1. When new rail transit such as Boston’s Red Line gets built, some bus riders substitute to the faster rail mode. How much time do these bus to rail switchers save? How much do they value their time? How many people fall into this category?
2. When new rail transit allows people who work in the center city to commute by public transit rather than car to work, how much do past car commuters gain in consumer surplus by this mode switching?
3. If more people ride public transit rather than drive, how much are local environmental problems such as smog mitigated? How much do urban residents value this pollution reduction? How much less greenhouse gases are emitted if people use public transit rather than driving? How much do we value a ton reduction in greenhouse gases? (One study by Kirk Hamilton of the World Bank values a ton of carbon dioxide at $20)
4. How much extra profits do commercial firms (think Starbucks or restaurants) earn when they are close to fast, clean public transit? (My work with Nate only looks at residential commuters and not “fun non-work trips” or how businesses are affected by public transit expansions)
5. Under what circumstances can we simply use changes in home prices near new rail transit as a summary measure of the localized capitalization benefits of improved rail transit?

On the Cost Side:

1. What is the marginal cost of producing urban infrastructure? The Boston Big Dig’s cost over-runs highlight the importance of distinguishing ex-ante expected costs versus ex-post “actual costs”. In unionized cities, are the costs of producing such urban infrastructure much higher as powerful unions grab the money and pad their payroll? What role does corruption in construction and maintenance of these complicated systems play in raising costs?

If you give me answers to all of these questions, then I would feel more comfortable sitting down and presenting you my answer to this important cost/benefit question!

Tuesday, December 06, 2005

Trends in U.S Public Transit Use 1970 to 2000

Which U.S cities have a rising share of workers commuting using public transit? Consider Philadelphia. In 1970, 23% of workers in this city commuted using public transit but by the year 2000 this share has fallen to 11%. What role has rising income, suburbanized employment and population suburbanization played in increasing the share of car commuters?

Here are the important cross-city by decade facts about public transit. Overall, the national reduction in public transit in big metro areas declined from 12% to 6% between 1970 and 2000.

Sunday, December 04, 2005

Do Highways Cause Suburban Sprawl? Future Evidence from India

Nathaniel Baum-Snow of Brown University wrote an excellent PHD thesis at the University of Chicago. Using data from the United States, he documents that highways have played an important role in contributing to U.S suburbanization. Given that developing countries such as India (see below) are making large investments in new urban roads, Nate's core hypothesis will be testable in such nations by the year 2035!

Here is Nate's abstract:
The Effects of Changes in the Transportation Infrastructure on Suburbanization: Evidence from the Construction of the Interstate Highway System

Abstract: Between 1950 and 1990, the aggregate population of center cities in the U.S. declined by 16 percent despite national population growth of 64 percent. This paper assesses the extent to which the construction of new limited access highways has contributed to center city population decline. Using planned portions of the interstate highway system as a source of exogenous variation, empirical estimates indicate that the population living in center cities would have grown by 6 percent had the interstate highway system not been built. Calibrations of a land use and commuting model imply that one new highway passing through a center city reduces the center city population by about 18 percent, a magnitude that is consistent with estimates from the data. Further, observed changes in the spatial distribution of the population in metropolitan areas following new highway construction are consistent with theoretical predictions from the model.
For a copy of this paper go to:

NATE's paper is relevant today given the New York Times' investigation of India's on going investment in roads.

December 4, 2005
India Accelerating
Mile by Mile, India Paves a Smoother Road to Its Future

NEW DELHI, India - In the middle of the old Grand Trunk Road a temple sits under a peepul tree. The surrounding highway is being widened to four lanes, and vehicles barrel along either side. But the temple and tree thwart even greater speed, and a passing contractor says they soon will be removed.

Kali, Hindu goddess of destruction, thinks otherwise. She is angry, say the colorfully garbed women massing in the holy tree's dappled shade. As evidence, they point to one woman's newly pockmarked face and other mysterious ailments recently visited on their nearby village, Jagdishrai. They have tried to convince Kali that the tree and temple devoted to her must go, but they have failed. Now they have no choice but to oppose the removal, too, even if they must block the road to do it.

Goddess versus man, superstition versus progress, the people versus the state - mile by mile, India is struggling to modernize its national highway system, and in the process, itself.

The Indian government has begun a 15-year project to widen and pave some 40,000 miles of narrow, decrepit national highways, with the first leg, budgeted at $6.25 billion, to be largely complete by next year. It amounts to the most ambitious infrastructure project since independence in 1947 and the British building of the subcontinent's railway network the century before.

The effort echoes the United States' construction of its national highway system in the 1920's and 1950's. The arteries paved across America fueled commerce and development, fed a nation's auto obsession and created suburbs. They also displaced communities and helped sap mass transit and deplete inner cities.

For India, already one of the world's fastest-growing economies and most rapidly evolving societies, the results may be as radical. At its heart, the redone highway is about grafting Western notions of speed and efficiency onto a civilization that has always taken the long view.

Aryan migration, Mogul conquest, British colonialism - all shaped India's civilization over centuries. Now, in a span of less than 15 years, capitalism and globalization have convulsed India at an unprecedented rate of change.

The real start came in 1991, when India began dismantling its state-run economy and opening its markets to foreign imports and investment. While that reform process has been fitful, leaving the country trailing its neighbor and rival, China, India has turned a corner. Its economy grew 6.9 percent in the fiscal year ending in March. India has a new identity, thanks to outsourcing, as back office to the world.

The new highway is certain to jump-start India's competitiveness, given that its dismal infrastructure helped keep it behind the economic success stories of the Asian Tigers.

"The perception of India earlier was that it cannot be in the rank of other fast-growing nations," said Sudheendra Kulkarni, who was an aide to Atal Bihari Vajpayee, the former prime minister who championed the project. With the highway, Mr. Kulkarni said, "People began to see that India is transforming."

To grasp that transformation, and India's transition, a New York Times reporter and photographer spent a month this year driving the first stage of the highway project, which has been dubbed, in awkward but bullish coinage, the Golden Quadrilateral.

More jagged than geometric, the four- and six-lane quadrilateral's 3,625 miles run through 13 states and India's four largest cities: New Delhi, Calcutta, Chennai, formerly Madras, and Mumbai, formerly Bombay. The journey along the highway offered a before-and-after snapshot of India, of the challenges of developing the world's largest democracy, and of how westernization is reshaping Indian society.

To drive east from New Delhi to Calcutta is to travel through flat fields, almost primeval forests, lush rice paddies - and some of India's poorest, roughest states, where contractors have battled violence and corruption to get the road built.

To move south from Calcutta, alongside the Bay of Bengal, through palm-covered hills, then up the west into Rajasthan's desert, is to see the highway as a conduit for the forces molding the new India. Ever-flashier cars, evidence of a frenzied new consumerism, leave bullock carts in the dust. Truckers slow at night for roadside sex workers, each of them potential carriers of H.I.V. Farmers' sons make a beeline for swelling cities that are challenging the village as the center of Indian life.

The highway itself brings change. For a nation inured to inefficiency, the improved interstate saves time - for Kailash Pandey, a milk-seller, one-third off a 90-minute commute to market; for Imtiaz Ali, 15, half off the bike ride to school; and half off the travel time for Sarjeet Singh, a trucker.

These micro gains make for macro benefit: some $1.5 billion a year in savings, by one World Bank estimate, on everything from fuel costs to faster freight delivery. More intangibly, the highway may turn India into a society in a hurry, enslaving it to the Western notion that time equals money.

Nationalists also hope the highway will further unite a country that is home to 22 official languages, the world's major religions, a host of separatist movements, and 35 union territories and states, many more populous than European nations.

But coherence may bring collision. Since 1991, India's population of poor has dropped to 26 percent from 36 percent, yet the poor seem poorer than ever. India now juxtaposes pre- and postindustrial societies: citizens who live on dirt floors without electricity and others who live like 21st-century Americans, only with more servants. The highway throws these two Indias into jarring proximity.

Outside Jaipur, young men virtually bonded into labor hack with primitive tools at old tires. They work in an archaic assembly line beside the highway, chopping the tires into pieces and loading them onto trucks so they can be burned as toxic fuel at a brick kiln. The tent camp they call home splays out in dirty disarray behind them. A brutish overseer verbally whips them to work faster.

"Please take me out of here," Rafiq Ahmed, 21, whispered as he bent in the darkness to lift another load. "My back hurts."

On the revamped road next to him, the darkness has been banished by electric lights overhead. Auto-borne commuters race along six silky lanes toward the Golden Heritage Apartments, the Vishal Mini-Mart, the Bajaj Showroom featuring the New Pulsar 2005 with Alloy Wheels, all the while burning rubber that will eventually fall to the young men, hidden by night, obscured by speed, forgotten by progress, to dispose.

Empires and Engines

On the highway from New Delhi to Agra, where the Taj Mahal floats over a grimy city, homelier but no less enduring relics line the route. Kos minars - massive pillars that once served as markers - invoke India's last great road-building effort.

It was five centuries ago.

The Moguls, whose empire stretched into central Asia, understood the importance of transport links for solidifying empire. Most famously, Sher Shah Suri, who ruled in the 16th century, commissioned the Grand Trunk Road along ancient trade routes.

The British who began colonizing India a century later also understood that imperial rule required physical connection, not least for moving the raw materials, like cotton, that made empire profitable. But they cemented their rule in the age of the steam engine, laying railways rather than roads across the subcontinent.

For decades afterward, India's roads remained better suited to bullock carts than motor cars. In the 50 years after independence, the government built just 334 miles of four-lane roads.

The romance of India's railroad, meanwhile, could not obscure the reality of a badly aging system, with state funds bolstering patronage more than service or safety.

Over time, more and more traffic shifted to the roads, despite their choked, potholed state. Driving in India has meant more stops than starts, necessitating braking for sacred cows, camel carts, conversational knots, tractors and women balancing bundles of wood on their heads.

The new highway, then, is nothing short of radical, which becomes clear after Agra, where large stretches are already complete. An American-style interstate unfurls through villages where mud-brick buildings rarely rise above two stories and women still cook with buffalo dung. The highway is smooth, wide, flat and incongruous: an ambitious road amid still-humble architecture, a thoroughfare from this century amid scenery from a previous one.

To drive it is to gain momentum, to not want to stop, and not have to. Drivers no longer pass through towns, but by them, or where the highway soars into the air, over them. The rural landscape, formerly painted in pointillist detail, becomes a blur, an abstraction - a vanishing trick that may portend things to come.

Bridging Distances

The highway's nerve center sits on the outskirts of the Delhi metropolis, a sleek, six-story building with automatic doors and functioning elevators that radiates immaculacy and efficiency. Most Indian government buildings sit in the British-built heart of the city. They wear a decrepit air, reflecting a fusty bureaucracy hidebound by red tape.

The distance, in geography and mien, between the highway headquarters and the rest of India's government is no accident.

The highway was conceived in 1998, soon after a Hindu nationalist-led government took power. The prime minister at the time, Mr. Vajpayee, quickly ordered a series of nuclear tests, and later that year announced the highway project.

Former aides say that both moves were essential to Mr. Vajpayee's nationalist vision of a secure, competitive India. To circumvent India's entrenched bureaucracy, Mr. Vajpayee empowered an autonomous authority to oversee the highways, streamline the contracting process and privilege the private sector.

He allowed foreign companies in to do much of the work, ending four decades of postcolonial self-sufficiency, and imposed taxes and tolls, challenging a political culture engorged with government subsidies.

The man responsible for executing these shifts was Maj. Gen. B. C. Khanduri, who had been India's minister of roads. A year after he left the post, he still kept a map of the Golden Quadrilateral on his wall.

Political pressures, rushed planning and mixed performance by contractors have led to uneven results along the route. But Mr. Khanduri, a retired army engineer who cites Rudolph W. Giuliani as a role model, did imbue the project with both military discipline and a patriotic ethos. He told contractors, "You are not only making money, you are building a nation."

But that nation's people had their own opinions, plenty of them. India's democracy may have been imposed by a nationalist elite, but the idea had taken root and was bubbling up from below.

Truckers went on strike against the taxes and tolls. Citizens blocked the highway, stopped construction and staged hunger strikes to demand underpasses, overpasses and cattle crossings. Sometimes they won, sometimes they lost, but their point was made. Highway officials say future projects are being designed with far more local input - an accountability that may give India a long-term edge over authoritarian China.

Still, Mr. Khanduri is wistful about China, where officials can literally pave over objections. On every infrastructure front, India has fallen well behind China, although debate over whether the blame for that lies with democracy or just with India's short practice of it is an enduring Indian pastime. Having invested more than 10 times as much as India since the mid-1990's, China now has 15 times the expressway length.

Mr. Khanduri conceded that China's system has its own price, but concluded of India's experience, "So many constraints are there in a democratic society."

Clearing a Path

The air in Rashidpur village, in the state of Uttar Pradesh, smelled of betel juice and excrement, and festered with raw feelings. The authorities had come and "done the needful," to use a favorite Indian saying, smashing houses into piles of bricks to clear a path for the highway. Dust from the demolitions still seemed to hover in the village.

Resentment certainly did.

Building a highway is by nature a violent act, since everything in its path must yield. So the project has cut a swath of destruction, swallowing thousands of acres of farmland, shearing off the fronts of thousands of homes. Smashed walls and piles of bricks line the route like broken teeth.

The process of acquiring the land along the highway - 20,574 acres - has delayed the project more than anything else. Once scheduled to be finished in December 2003, the highway is some three years behind.

The government has the power of eminent domain, but it must compensate for land taken, relying on cumbersome regulations and a revolving door of local officials.

Land prices recorded on paper routinely bear no relation to actual market value. Often, people have refused to vacate until they received satisfactory payment. Even where the price was right, the emotional toll was heavy. Land and home here are primal possessions - a tie to ancestral roots that extend back centuries, a legacy to children, a link to rural life in an urbanizing society.

The process has left bruised feelings, reflecting the distance between impoverished, often illiterate citizens and an administration whose structure and attitude can seem frozen in colonial amber.

"They spoke what you call police language, I can say it was indecent," an indignant 68-year-old named R. S. Dubey said of the officials who had come to oversee the destruction of his family home.

Navigating Religion

Neem. Mango. Sisam. Most delicate of all, holy peepul, the Indian fig, which could not be cut without prime ministerial dispensation. In work contracts several phone books thick, every tree that would be felled for the highway's construction was documented before its demise.

This reflected not only the bureaucracy that had slowed the project, despite the efforts of Mr. Khanduri, the former roads minister. For Hindus, trees are sacred; one highway official said Muslims were sometimes hired to cut them down at night.

Then there were the hundreds, or thousands, of religious institutions that lined the highway. Contractors were required to move or rebuild every one. On some stretches, contractors said they suspected that new religious structures had been hastily nailed together to extract compensation for their moving. Hindu contractors and officials whispered about the "sensitivities" of moving mosques for fear of offending India's Muslim minority.

The process was careful, but imperfect. In the south the earth movers preparing the way for the highway churned up the bones of the dead next to a Shiite Muslim shrine. Muhammad Shah, 74, tender of the shrine, gathered and reburied them.

"They could have been anyone's ancestors," he said in the purpling dusk, a long beard lengthening an already sorrowful face. "They could have been mine."

Roadside Attractions

In October 2003, Yogendra Singh, a hotel manager, bought a plot of land from a farmer in the village of Raipur. Mr. Singh, from the nearby city of Kanpur, had no interest in agriculture, but every interest in what he saw supplanting it.

The land was next to the highway, on which construction was well under way. Mr. Singh foresaw that a steady increase in traffic would follow its completion. He imagined, among other things, tourists driving from the Taj Mahal to Varanasi, an unthinkable passage on the extant roads. He opened Shiv Restaurant, where the chickens are killed in the basement and served on the ground floor, and he planted a garden out back and planned a hotel.

America's early interstate years had their own such visionaries, like the men who built an empire of Holiday Inns. Mr. Singh's dreams may not be on that scale, but these are early days, and he is not alone. Land prices along the highway have shot up, as farmers who see little future in farming have cashed out, and entrepreneurs who see gold in asphalt have bought in.

"The entire stretch has been sold off," Mr. Singh, 40, said of the land along the highway.

With construction nearly done in Raipur, Mr. Singh's place was already a popular way station, and his land had almost doubled in value. It was not hard to imagine how different life along the highway could look in a few years. The newly rich farmer who sold his land to Mr. Singh, meanwhile, had moved to the city of Kanpur.

Picking Up Speed

In the village of Kaushambi, in Uttar Pradesh, Anil Kumar, a 34-year-old shopkeeper, watched truck traffic speed by on the widened highway and explained how the artery's revamping had reconfigured long-held local geography.

Because vehicles rarely traveled at more than 25 miles an hour, village life had always happened on both sides of the road. The two-lane highway inhabited space, but did not define it. The railway station and village hand pump were on one side, the school and fields on the other. Women roamed across the land, indifferent to whether soil or asphalt was beneath their feet, gathering wood, water, the harvest.

In India roads have been public spaces, home to the logical chaos that governs so much of life. They have been commas, not periods, pauses, not breaks.

The redone highway has challenged that, trying to impose borders and linearity, sometimes controlling pedestrian (and bovine) access to ensure drivers' speed. In Kaushambi, the highway planners put concrete walls on both sides to ensure that neither crossing pedestrians nor trucks stopping to shop would slow traffic. There were cuts every 380 yards or so, requiring detours for crossing. Cars and trucks sped along at 70 or 80 miles an hour.

The women with bundles atop their heads now had to walk to a cut in the wall, and then sprint across. Even that had not saved Parwathi Devi, 70, from a cut lip and head from a speeding car as she ran across with dried plant stalks on her head. For many rural Indians, insulated from the westernizing of urban India, the highway is the most dramatic change in their lifetimes. All along the route, the disorientation showed in the faces of uncomprehending pedestrians who darted out in front of cars coming fast enough to kill.

The highway was bifurcating Kaushambi, too. Villagers had begun pressing district officials for a second hand-pump so women wouldn't have to keep crossing for water.

"It is almost like two villages now," Mr. Kumar said.

Service With a Smile

In a perky blue uniform, 34-year-old Pradeep Kumar stepped forward to pump gas with a smile. He had reason to: he had been coached on American-style, customer-comes-first service, and in an area of north India with rampant unemployment, he was thrilled just to have a job. That it made little use of his bachelor's degree in political science was of secondary concern.

Where crops once grew along the Golden Quadrilateral, gas stations are sprouting. Mr. Kumar's employer near Allahabad - Reliance Industries Ltd., one of India's largest private conglomerates and a petroleum giant - is planning 5,000 stations. Perhaps more than any company, it has grasped the highway's commercial potential.

Commerce along the American interstate system began with quirky roadside establishments. Over time it evolved toward deliberately homogenized chains - McDonald's, Motel 6 - whose signs meant familiarity in unfamiliar terrain.

Reliance has leapfrogged that process, making itself the Golden Arches of the Golden Quadrilateral. Its British-designed gas stations are identically bright and streamlined, with computerized billing and clean, airy dhabas, or restaurants.

That the stations feel American is not accidental: Reliance had hired as a consultant the Flying J Company of Ogden, Utah, which runs diesel stations and travel plazas across the United States.

The growth of gas stations suggested the way India's agricultural society is yielding not to an industrial economy, but a service one. Fifty percent of India's gross domestic product is now in the service sector, compared with 25 percent apiece for manufacturing and agriculture.

In 21st-century India, the $50 a month that Mr. Kumar, the attendant, was earning was still more than farming would pay.

An Easier Journey

Nathu Yadav was burning, his body morphing into a plume of smoke and ash that moved out over the sacred water of the Ganges. His soul, Hindus believe, was being liberated in the process.

Mr. Yadav was 95 when he died, the oldest man in his village. His family rode 14 hours in a bus - the body stored on top - to reach Varanasi, Hinduism's holiest city.

The river was, in essence, India's first highway, and the bodies were once brought down it. Now they come by train, or the Grand Trunk Road, which had brought Mr. Yadav's body and family from Bihar state.

"God bless Sher Shah Suri for making this road!" his son, Adya Prasad, exclaimed.

The road's condition has long been less of a blessing, a state the new highway project is changing. That is welcome news to the family that runs the Harishchandra ghat, where Mr. Prasad's father was burning. Members of the Dom caste have manned this ghat, named for a legendary king, since ancient times. The ritual is essential, but the act of touching the dead is reviled by upper castes. It is a job of smoke-in-the-face indignities consigned to untouchables.

The new highway will ease one unpleasant aspect. "In summer, the bodies start to smell," said Matru Choudhary, a 47-year-old Dom with a morose mien. "The faster they can come, the better."

Bureaucracy and Bandits

In the shade of a makeshift shelter at the border crossing between Uttar Pradesh and Bihar, two truckers were killing time on string cots. They wanted to move from one state to another, but given India's cumbersome, often corrupt interstate bureaucracy, they might as well have been trying to pass to Pakistan.

It was noon, and they had been waiting five hours, their trucks among hundreds parked in endless lines. They figured they would pass by nightfall, after paying a bribe on top of the interstate tax.

The improved highway was already easing their passage and saving them time, the truckers said, cutting their drive from New Delhi to Calcutta to three days from five. They relished the new ease of the ride.

But the improvements had not addressed other obstacles. Petty extortion by officials was common at many border posts. In the north, bandits, or dacoits, robbed truckers on the highway.

"In Bihar, they'll cut off your neck and leave you six inches shorter," said Rajesh Sham Singh, 30.

Kamludeen Khan, 38, said, "The police don't do anything," except join in the extortion, stopping trucks at night to demand bribes. At least with the bandits, there was a chance of escape.

Feats of Engineering

At night on a floodlit bridge in Bihar, a chain of women moved in graceful tandem, hoisting buckets of cement onto their head and hurrying to pour before it hardened. Imported from southern India, they were living in a meager shanty camp next to the highway, earning less than $40 a month.

Such mingling of primitive methods with the mechanization mostly being used to construct the Quadrilateral fascinated the Korean engineers ensconced 12 miles down the road, in a camp near the town of Aurangabad. Employed by Ssangyong, a construction giant in South Korea, they came to the state of Bihar to work on the highway with an Indian company, Oriental Structural Engineers Pvt. Ltd. "We in Korea have never seen people putting cement on their heads," said M. S. Won, a planning engineer. "We only use machines."

His boss, Noh Sung Hwan, was a cheery man who spoke a smattering of Hindi and had taught his Indian cook to make kimchi. Having arrived with an appreciation of India's rich engineering history, he was soon well versed in its current challenges.

They had far less to do with building the highway than with the forces circling it. This stretch of Bihar was home to often violent local mafias, some tied to a Maoist insurgency that has spread through at least 11 states.

Some three years ago the Maoists attacked a construction plant for the highway, and fractured the bones of a project manager with rifle butts and sticks. The Maoists occupied the plant for months while negotiations dragged on over how much it would cost to buy their cooperation.

"India is very fantastic," Mr. Noh said. "Just a little bit risky."

A Study in Limits

For four years, the Indian project managers and engineers of Oriental Structural had been living in enclosed camps next to the highway, serenaded nonstop by truck horns.

In the camp near Aurangabad, Bihar, 18 families and some 30 single men found their entertainment in a volleyball and badminton court, television and cold beer. Most of them were from Punjab or southern India. Bihar was as much of a foreign country to them as it was to their Korean counterparts, a country they could not wait to leave.

The sociologist Yogendra Yadav calls Bihar a metaphor: for the rest of India, it represents being poor. Bihar offers a reflection at which ascendant India recoils.

Bihar is home to more than 82 million people and some of India's most storied history. Bodhgaya, where Buddha achieved enlightenment, is only a few miles off the highway. The area was once a center of democracy and learning, and of India's freedom struggle against the British.

Today, Bihar is a study in democracy's limits. Villagers depend on doctors who are quacks, schoolteachers who siphon government grain meant for children, policemen who charge businesses to provide security.

Bihar, by most measures, is India's poorest state. Migration to other states for work is epidemic. Only 5 percent of rural households have electricity.

J. P. Gupta, the jovial Punjabi project manager at the Aurangabad camp, spent his mornings appeasing the gods, praying first in his car, then in his office, then much of the rest of his days appeasing local politicians. Politics was a business here, he said.

Biharis did not want the road, one engineer asserted, because they preferred a potholed one that would make it easier to rob passing trucks.

Farther east along the highway, near the town of Mahapur, dozens of armed guards patrolled another camp where more Oriental Structural employees had bunkered down. Its chief project manager, P. Nageswara Rao, gray-haired, and on this project, usually grim-faced, never left camp without an armed escort.

Buddha preached ahimsa, or nonviolence, in the area, "but the most crime is here," he said. "For nothing they will kill the people."

His camp, to the east of Mr. Gupta's, operated under an even greater threat of violence. What appeared to be an armed robbery nearby took the life of a government engineer working on the project; it took seven months to fill his shoes.

Mr. Rao had no pesky politicians to deal with, but only because even they feared the Maoists. Government had all but melted away here. From the highway, the Maoists extorted money and, for followers, jobs.

The Maoist movement had begun with a 1968 agrarian peasant uprising in West Bengal. In the years since, Naxalites, as the rebels are known, have flourished, penetrating, with arms and ideology, the many corners where prosperity has yet to reach.

Mahapur, Bihar, is one such corner.

Poverty and Promise

In a gilding morning light on the margins of the Grand Trunk Road, a fight broke out over wet concrete.

A hailstorm the night before soaked the ground before the concrete could finish drying. So scarecrow-like scavengers had come out to scrounge the wet muck. An emaciated Bishnuji Bagwan, at least 90 and wearing little more than rags, had brought his wife, children and grandchildren to collect enough of it to shore up his dilapidated house. Malti Devi, mother of four, married to a man she called useless, wanted to smooth her floor.

One family accused another of greed, and the fight began. Ms. Devi shrugged off the finger-pointing, hoisted a load atop her head, and headed across the highway.

"It's my share of concrete," she said. "If someone takes it, won't I fight?"

She called the highway a "blessing," and said she had never seen anything like it. And it holds promise for Indians like her, with data showing that proximity to a real highway could alleviate poverty.

For now, the villagers living along the route rarely had bus fare to reach nearby Mahapur. For them, the highway was more spectacle than utility.

An American Dream

As Ms. Devi was lugging wet concrete into her mud house, Mr. Rao, the project manager, was counting the days until he could take highway, train and plane, and escape for a holiday in America.

He had three daughters living there, one a computer engineer, the other two married to computer engineers. Most of his engineers - almost all, like him, from the southern state of Andhra Pradesh - had relatives in America, too.

If Bihar was enemy territory for the professionals roosting in rugged camps to build India's dream highway, America was the promised land. India's traffic with America has never been higher; sending a child there had become a middle-class "craze," in one engineer's word.

The founding elites of India were British-educated. Today, the ambitious young pursue degrees from Wharton and Stanford, with some 80,000 Indian students in the United States. Two million Indians live there, working as doctors, software engineers, and motel owners along America's highways.

No surprise, then, that America has shaped the ideas of what India's highway can be. Mr. Rao's deputy, B. K. Rami Reddy, also with a daughter in America, was nearly breathless as he described one stretch of finished roadway in southern India: "You really feel like you are in the U.S., it is so nice. When you go on that road, you feel you are somewhere else."

The implicit effort to make India "somewhere else," more like America, more of the first world and less of the third, girds this entire project. With the highway and India's accompanying rise, Mr. Rao predicted that by 2010 or 2020, "Indians may not feel the need to go abroad."

"This highway will really change the face of India," he said.

Time Travel

The face of West Bengal, home to 28 years of Communist rule and acres of green rice paddies, was already changing. Three satellite townships were being built near the town of Bardwan, which would be only an hour from Calcutta when the new highway was complete. Residents would commute, as they did from suburbs across America.

If the highway was enabling the middle class to migrate out of cities, it was also encouraging the poor to migrate in. Beneath a crosshatch of elevated highways on the edge of Calcutta, thousands of rural Indians had burrowed in, constructing homes, creating businesses. Dung patties dried on the highway's underpinnings. Yellow taxis sat in rows. A whole civilization within, or beneath, a civilization, had hatched.

Dal bubbled over a wood fire in the single room, constructed from wood and jute bags, that eight men shared. Bal Dev Rai, a 40-year-old from the state of Jharkhand, had called the room home for five years. He drove a bicycle handcart, sending money to his wife and daughters, returning to his village at harvest time. For him and his fellow bottom-dwellers, the improved highway meant a nicer roof over their heads.

Each year the permanent residents were joined by temporary migrants, idol-makers who came from their villages to work their craft for Calcutta's festival for the 10-armed goddess, Durga, the invincible killer of demons. Statues of Saraswati, the goddess of knowledge, lay cast off under the highway overpass, waiting to be resurrected. From above came the sound of speeding cars.