Saturday, August 30, 2008

Some Details about California's AB32

I refuse to tackle the deep issue of who is "hotter"; Biden or Palin. Joe Biden does have very white teeth. Is he promising such a set for every American? Instead, I'd like to talk about California's climate change mitigation bill (AB32). For those of you who have forgotten your facts, in 2006 the Terminator signed this law pushing California to reduce its greenhouse gas emissions 80% below its 1990 level by 2050. Given expected population and income growth over this time period, this is a pretty macho goal.

This law places California at the front of the big push to make progress on climate change.

An economist might ask;

1. What are the benefits to California of unilaterally pursuing this?
2. What are the costs to California of attempting to reach this goal?

The Air Resources Board is starting to provide some answers;

Details on AB32

When I think about the benefits; most of the benefits will accrue to the rest of the world as we California consumers and tax payers act as Guinea Pigs for everyone else.

Through trial and error, producers will learn how to decarbonize their products and you will have us to thank.

Even if California reduced its ghg emissions to 0, this would make no difference for global greenhouse gas emissions. California is 20% of the USA so if the USA is producing 25% of the world's emissions and if 5% vanished; in the current growing world economy; China and India would pretty quickly offset our production.

Given this arithmetic, the benefit of AB32 is as a commitment device. If learning by doing effects are strong, then producers will become much more cost-effective at producing low carbon products.

Sellers of fridges and dishwashers and water heaters will come out with highly energy efficient models for Californians to buy. California households will quickly ditch their "brown" durables and substitute to cleaner, greener products.

I hope that this happens and at least as of right now I do support AB32. We should all read the details of the Scoping Plan.

Californians should be proud that they will sacrifice for the greater good of the planet. I hope you write me a thankyou note.

Every society needs Guinea Pigs. Environmentalists are willing to volunteeer for this job for free.

Now, how costly is this mission? Here we need some hard headed predictions of how the prices of commodities we buy will be affected by the regulation, we then need some estimates of how directed research and development dollars will flow to energy efficiency and how quickly such investments will yield "green" products.

I am interested in whether there will be a backlash against the powers that AB32 is trying to claim. Right now,

Cities and their suburbs are pretty durable. Will AB32 really change California's urban form? Will Westwood become one big public transit station?

Will we knock down the single family homes in Holmby Hills and build 100 story skyscrapers?

Monday, August 25, 2008

How Many Academics Will Attend the Democrats' Denver Convention?

I'm guessing that Goolsbee will be in Denver but don't look for me there. For reasons that I won't list, I've been re-reading Arthur Schlesinger Jr.'s Diary. For you young people, Schlesinger was a Harvard academic who quit the 02138 zip code to become a Kennedy family insider and a public intellectual over the years 1960-2006. In his diaries, he gets quite excited about the Presidential Conventions. Do the new generation of public intellectuals become equally excited? I'm thinking of Larry Summers, Paul Krugman, Jeff Sachs, and some of the leading bloggers.

If Conventions are no longer "news", is this an example of information technology substituting for face to face communication? Ed Glaeser has argued that information technology increases the demand for cities because it facilitates making new contacts.

You can think of Conventions as short run cities bringing together a diverse set of groups with a common goal (elect their guy). If the Internet has made this obsolete and if we will pass a Carbon Tax soon, shouldn't we get rid of these Conventions (and all the air travel associated with them) and allow the networks to air more pre-season football games?

Returning to this entry's title, there is an ongoing debate over what % of academics are Democrats. At UCLA, I would guess that Obama will get 75% of faculty votes and 85% of student votes.

Thursday, August 21, 2008

Summer Reading on Urban Economics

With the exception of UC Berkeley, everyone is on vacation right now. I'm not checking e-mail and just trying to lay low. I know that folks are always looking for good stuff to read on vacation --- so I wanted to make a suggestion, read the chapters from this New NBER Agglomeration Volume .

Like the show Survivor, we will see which of these great papers survive the NBER review process. I must admit that the March 2008 conference was the high point of my long life.

You should read my chapter. There are some deep ideas lurking there.

Tuesday, August 19, 2008

What News is the Olympics Crowding Out?

Michael Phelps should stop talking and I don't need to see any more pictures of his mom. Yes, I'm watching the Beijing Olympics. As we all watch these Olympics, what events are we ignoring? Given our limited attention span and our finite time, what does the Olympics "crowd out"? An excellent paper was published on this topic in the 2007 QJE; The Crowd Out Effects Caused by the Olympics

The authors didn't really care about the Olympics; what they care about is the role of the media in focusing our attention on major issues of the day. When the media focuses on an issue such as Obama's days in Chicago, more readers pay attention. If the Olympics is on, the media is distracted and doesn't cover these events and readers and news viewers are not clued in about the events of the day.

So what? Well this QJE article provides hard facts that victims of natural disasters received less $ relief when the Olympics was on. Distracted people didn't become CNN captivated by the story because they were too busy listening to the brillian bob Costas and listening to the deep philosophy of Michael Phelps and dreaming of that handsome Mark Spitz.

So as we watch the Olympics what are we ignoring and is it socially costly that we are not clued in? This young President of Georgia thought that the U.S would wage World War 3 for him. Putin has a good sense of which threats are credible by NATO and which are bluffs.

We have learned that we have a strange choice for President this year. One young guy is running on hope and slimness while his opponent (the straight talk express) needs a rest.

As a risk averse guy, I would like to form a portfolio of the two of them. Let them share the Presidency with Obama handling domestic matters and international diplomacy matters while McCain handles the macho stuff at Defense and national security.

What am I doing? Well, when I'm not watching the Olympics -- I'm talking to my son about the new Clone Wars Movie (Star Wars) and trying to get myself to work on 3 different revise and resubmits at journals. I'm almost at the point where I will not submit papers to journals that demand revisions. I like this new policy at Economic Inquiry where they give you one shot (yes, no) with no "maybe".

The truth is that in the middle of August, I'm trying to get myself ready for the new academic year and maybe it is a good thing to have the Olympics help me to clear my mind before my own personal gold medal competition begins. I'm talking about teaching of course. I am an educator and I'm looking forward to teaching during the fall quarter.

Thursday, August 14, 2008

Praise for the 2008 Toyota Avalon

At the tender age of 42.5, I have bought my first new car. I have had a drivers license since I was 16 so this has taken a while. When I was a young man, I drove my father's Buicks. At the University of Chicago, I bought my cousin's Toyota Tercel. While I couldn't fit into the car, I did like driving around in it. I sold that car to Derek Neal when I joined Columbia University's faculty. In Manhattan, you don't need a car. When I moved to Tufts, my wife alread had a car (a 1993 Nissan Altima) and we didn't buy another. We just got rid of her 1993 Nissan Altima and people are shocked that this 15 year old car has only 39,000 miles of use.

Today, we took our new 2008 Toyota Avalon out on the road. It is a battleship. I'm an honest man -- it gets 20 MPG in the City. Before you send me to hell, keep in mind that we will continue to drive 2000 miles a year so 2000/20 = 100 gallons of gas a year. That's a small footprint. We did take a close look at the Toyota Camry Hybrid but at the end of the day, we prefer to live well now rather than when we go to heaven.

My wife was surprised today when I demanded that she let me drive the new car. She does all of our driving as I sit in the passenger seat stating my views on everything and everyone (including my opinion of you).

As I drove the car, Dora realized that I haven't driven her anywhere since I drove her to the hospital 7 years ago for the birth of our son. Today's drive was not as dramatic but the Toyota Avalon is a kick-ass car. I'm hoping that our neighbors will treat us better now that we've upgraded cars but our car is still not in the same league with their big mercedes and jaguars and bentleys.

A New Estimate of China's Real Exchange Rate

The Economist has its "Big Mac" Index of inflation and purchasing power parity across nations. I'd like to introduce my "Green Cities" index. Let's see if I can do this arithmetic right. I'll make one assumption that the english version (mine) of "Green Cities: Urban Growth and the Environment" and the chinese version of the same book are of equal quality (perfect substitutes).

Let's go to Amazon for the pricing of each:

English version prices at $17

Chinese version price 20 Yuan

Exchange rate 1 $ = 7 Yuan (source Economist Magazine)

Does Purchasing Power Parity Hold? If the only good you buy is my book?

I sell one english version and have $17.
I exchange this for 17*7 Yuan = 119

I can buy 6 copies of my book there: 119/6. This looks like a violation of PPP.

It looks to me that the true exchange rate is almost 1 to 1.

So I agree with this quote from Wikipedia

"For example, the World Bank's World Development Indicators 2005 estimated that in 2003, one United States dollar was equivalent to about 1.8 Chinese yuan by purchasing power parity [2] — much different than the nominal exchange rate that put one dollar equal to 7.6 yuan."

so for you currency arbitrage dudes, I'm telling you to buy the Yuan over the medium term.

Wednesday, August 13, 2008

Will Your Coastal City Suffer Greatly from Climate Change in 2070?

How will different cities be affected by climate change? Are you buying real estate in Fargo, North Dakota and selling Houston real estate? As you might have guessed, I'm working on the first question.

From a quick search using google, I see that the OECD Environment Directorate has some guts. Their researchers are forecasting out to the year 2070. Given that I was born in 1966, their time horizon is a little bit longer than mine. I don't feel a strong bequest motive. My son has 1/2 of my mind and I think that I've given him enough capital of various forms.

OECD Data for 2070 . If you click there, here is what you will see.

"Scenario Methodology

The port cities study determines the number of people that would be exposed to extreme water levels assuming no coastal flood protection measures, which can then be related to the economic assets that would be exposed within the city. Exposure therefore refers to the population and assets that are threatened, taking no account of any defences or other adaptation."

Tuesday, August 12, 2008

Some Important Links

Today is my parents' 46th wedding anniversary, so to celebrate what did I do? I called them but I also typed my father's name into google scholar and I see that he has been productive lately. My father's recent medical publication .

Is Interest in Environmental Issues Declining? I actually find the polling dynamics here puzzling. I don't see a "Al Gore" effect. Now, I never know how people think about these vague questions but I'm still puzzled.

You did see my quote in today's Wall Street Journal?
Read the last sentence.

Monday, August 11, 2008

In Defense of High Gas Prices: I Miss $5 Gas

As gas prices fall in recent days, why are only economists sad about this ? McCain's platform for President will be based on a promise of a constitutional amendment that gas will never cost more than $2 a gallon? It looks like smart politics to argue that effete environmentalists are the single cause of high gas prices.

I typed into google's search engine; "sierra club and high gas prices" and this was the 3rd entry.
As a nerd, I was hoping to find a vigorous defense of the benefits of high gas prices.

The Republicans smell a good issue here:

Given that the public is not strong at calculating general equilibrium models and it is probably is the case that not drilling reduces aggregate supply by a little bit, it is qualitatively true that not drilling everywhere raises gas prices. But how much? a penny? a dime?

Economists always talk about "clear signals" that prices signal scarcity; if energy prices are bouncing around like crazy and if consumers believe that big daddy government will step in with a bailout then why not keep driving the Hummer? While economists have stopped talking about the "communism of rational expectation models" that all agents in the economy know the true probability distribution of future states of the world --- we haven't done a good job modeling how people do form their expectations of future prices. Given that cars and homes are durables, and energy efficiency investments are durable long run decisions --- smart decision makers should base these decisions in part on expectations of what they think future energy prices will be. If Government steps in and mediates high price spikes, then the private incentive to "go green" is minimized.

So that's why I say ; "let's see some price spikes, let's see some pain" ---- fool me once shame on you; fool me twice, shame on me. If consumers demand energy efficient products, then our $ hungry firms will supply them but consumers will only demand such products if they expect that energy prices could soar. We need the right tail in our lives to scare us into action today.

The Berkeley Worldview

I'm back at UCLA. We cleared out of Berkeley for a week but today's New York Times Front Page offered a reminder. Consider this quote about commercial building energy efficiency from Prof. Dan Kammen of University of California, Berkeley. “Not only will you see (solar) panels on the roofs of your local stores, but I suspect very soon retailers will have stickers in their windows saying, ‘This is a green energy store.’ ”

May I ask you what is the expected profit gained by such a righteous sticker?

Suppose you are choosing between buying a Coke or a Pepsi and you read that all of Pepsi's electricity is generated using renewable energy sources (i.e wind or solar), how many people in the world would choose Pepsi because of this?

People like organic food because they believe that it is good for them. They like the Prius because it sucks less gas and you can show off as you drive around Berkeley. But if the local Starbucks gets its power from burning dandruff can you get proud of that?

Now, in Berkeley this may be a valuable sticker to have your store's window. Even there, I'm not sure. Perhaps Dr. Kammen should take a leave of absence and go to Washington Univ in St. Louis for a term or go to Rice University. Would such a sticker generate a lot of extra business in those cities?

My guess is that Dr. Kammen is well aware that his quote is a pinch goofy but that he wanted to get his name into the New York Times and knew that he needed to be on his "A game" to guarantee that he wouldn't be edited out of the story. I know that this explaines my wacky quote here:

August 11, 2008
Giant Retailers Look to Sun for Energy Savings

Retailers are typically obsessed with what to put under their roofs, not on them. Yet the nation’s biggest store chains are coming to see their immense, flat roofs as an untapped resource.

In recent months, chains including Wal-Mart Stores, Kohl’s, Safeway and Whole Foods Market have installed solar panels on roofs of their stores to generate electricity on a large scale. One reason they are racing is to beat a Dec. 31 deadline to gain tax advantages for these projects.

So far, most chains have outfitted fewer than 10 percent of their stores. Over the long run, assuming Congress renews a favorable tax provision and more states offer incentives, the chains promise a solar construction program that would ultimately put panels atop almost every big store in the country.

The trend, while not entirely new, is accelerating as the chains seize a chance to bolster their environmental credentials by cutting back on their use of electricity from coal.

“It’s very clear that green energy is now front and center in the minds of the business sector,” said Daniel M. Kammen, an energy expert at the University of California, Berkeley. “Not only will you see panels on the roofs of your local stores, but I suspect very soon retailers will have stickers in their windows saying, ‘This is a green energy store.’ ”

In the coming months, 85 Kohl’s stores will get solar panels; 43 already have them. “We want to keep pushing as many as we possibly can,” said Ken Bonning, executive vice president for logistics at Kohl’s.

Macy’s, which has solar panels atop 18 stores, plans to install them on another 40 by the end of this year. Safeway is aiming to put panels atop 23 stores. And other chains, including Whole Foods Market, BJ’s Wholesale Club and REI, the purveyor of outdoor goods, are planning projects of their own.

Wal-Mart, the nation’s largest retailer, has 17 stores and distribution centers with solar panels in operation or in the testing phase. It plans to add them soon to five more stores. People at the chain are considering a far larger program that would put panels and other renewable technologies at hundreds of stores.

“It’s going to be the Wal-Marts of the world that will buy these things over acres and make a difference,” said Roger G. Little, chairman and chief executive of the Spire Corporation, a Boston company that provides solar equipment.

Analysts are not sure how much power the rooftop projects could ultimately produce, but they say it could be enough to help shave total electricity demand. In many communities, stores are among the biggest energy users. Depending on location and weather, the solar panels generate 10 to 40 percent of the power a store needs.

If Wal-Mart eventually covered the roofs of all its Sam’s Club and Wal-Mart locations with solar panels, figures from the company show that the resulting solar acreage would roughly equal the size of Manhattan, an island of 23 square miles.

Booming demand in recent years has driven up the price of solar panels, and analysts say it costs far more to generate electricity from solar energy than from coal.

Coal generation costs about 6 cents for a kilowatt hour, which is enough electricity to run a hair dryer for an hour. Natural gas generation costs about 9 cents a kilowatt hour, said Reese Tisdale, a senior analyst with the consulting firm Emerging Energy Research. In comparison, “best case” for power from solar panels is about 25 to 30 cents a kilowatt hour, he said.

But retailers believe that they can achieve economies of scale. With coal and electricity prices rising, they are also betting that solar power will become more competitive, especially if new policies addressing global warming limit the emissions from coal plants.

Retailers, hoping to create a bigger market and positioning themselves at the forefront of a national shift toward renewable energy, are encouraging one another to join the bandwagon.

“We’re hoping that our purchases along with some other retailers will help bring the technology costs down,” said Kathy Loftus, who is in charge of energy and other initiatives at Whole Foods Market.

Most of the efforts so far are in California, New Jersey and Connecticut, states that offer generous incentives. Executives say they would like to convert many more. How quickly they can do so depends on government policy because retailers rely on tax incentives to offset the cost.

Corporate officials describe a federal tax credit for renewable energy, one that Congress has let expire and then renewed several times, as particularly important. A Congressional deadlock over offshore oil drilling has held up legislation that would renew the credit for next year.

“Every project that starts development has to be finished by Dec. 31 or you lose tax equity advantage, and nobody’s willing to take that risk,” said George Waidelich, vice president for energy operations at Safeway. “You’re talking about millions of dollars.”

Retailers are fast becoming energy experts. They are experimenting with traditional solar panels, a new type of thin solar panel and ground-mounted tracking systems that move with the sun.

They are also combining those systems with other rooftop technologies like skylights and solar water heaters.

“Solar has become part of the kit that we think about when we open a store,” said Sharon Im-Lee, REI’s energy manager.

American retailers are following the lead of stores in Europe, which are much further along. Store-roof projects are so numerous in parts of Germany that they can be spotted in satellite photos. Government subsidies there, however, have lasted for years.

“In Germany, there are none of the concerns you find in the United States about whether support will be around next year,” said Jenny Chase, an energy analyst in London.

Retailers in the United States tend to buy their own solar-power systems, at $4 million to $6 million for a store the size of a Wal-Mart, or enter into an agreement with a utility company that pays the up-front costs and then gives the store a break on power bills — an approach that appeals to big chains.

“It really helps make it economical for the retailer,” said Kim Saylors-Laster, Wal-Mart’s vice president for energy.

Retailers are also looking at other ways to extend their use of renewable energy by testing technologies like wind turbines and reflective white roofs, which keep buildings cooler in warm weather.

Bernard Sosnick, an analyst with Gilford Securities who has examined Wal-Mart’s plans, said the day might come when people can pull their electric cars up to a store and recharge them with power from the roof or even from wind turbines in the parking lot.

“It’s not as over the horizon as it might seem,” he said.

James Kanter contributed reporting.

Friday, August 08, 2008

How to Encourage China to "Green" Itself?

Can you shame a dictatorship into providing global public goods? I doubt it. So, is there any reason to be optimistic that China will reduce its greenhouse gas emissions? Co-benefits is one possible route. Coal fired power plants produce local smog and greenhouse gas emissions. Concerned about public health, a regulator might regulate the coal plant because it cares about the former but this may help to reduce both pollutant threats. An alternative route is issue bundling; a determined internation coalition would only allow China to receive special trade deals if it achieves certain specified environmental targets.

Olympian effort needed to clear China's smoggy skies

By Robert Collier

Friday, August 8, 2008

The persistent smog that shrouds today's opening of the Beijing Olympics is not just a danger to the lungs of international athletes. Nor is it merely an embarrassment to the Chinese government, which has long pledged that it would clean up the city's notorious pollution problem and deliver blue skies for the Games.

The haze over Beijing is proof of the urgent need for the United States and other nations to mount an Olympian effort to help China clean up its entire economy. In the past year, several international studies have shown that China has surged past the United States to become the world's largest source of greenhouse gas emissions. Although China emits substantially less per capita than the United States, the sheer size and red-hot pace of its economic expansion and emissions growth is making global warming almost unstoppable. According to a recent study by scientists at Lawrence Berkeley National Laboratory, China accounted for 55 percent of the total increase in the world's greenhouse gas emissions between 2000 and 2006.

What's worse, the Chinese government seems unable to fully control its emissions. It has not yet reached its goal of improving energy efficiency by 4.4 percent annually - a goal that is not sufficient to stop emissions growth. Major progress toward limiting China's emissions would require energy efficiency to improve at a rate more than half that of overall economic growth, that is, 5 to 6 percent annually. Until China believes that such a dramatic efficiency improvement is feasible, it will be unable and unwilling to commit to the emissions caps that the United States and other developed nations are demanding in negotiations toward a new climate treaty.

Put simply, the dilemma is this - if China does not succeed in greening its economy and cleaning its skies, the U.N.-sponsored negotiations for a new treaty to replace the Kyoto Protocol will have little chance of success at their final summit next year in Copenhagen.

So how can the United States help China go green? Don't look to Washington for answers. The Bush administration and Congress remain hog-tied by a Cold War-era ban on direct aid to Beijing and by lingering anti-China suspicions. Total federal spending on energy conservation and emissions-reduction programs related to China is about $10 million a year, although public affairs officials at the State Department and the Energy Department say no exact figure is available.

With $1.8 trillion in reserves, China certainly does not need cash handouts. Instead, what it needs is a vast expansion of work that is already being provided from the Bay Area on a relatively small scale. The Energy Foundation, a San Francisco nonprofit, has long eclipsed the federal government in the amount it spends on funding China's emissions reduction work. The foundation offers about $18 million annually in grants to American energy experts to advise China on how to develop and implement state-of-the-art policies and programs on energy efficiency and renewable energy. While China could afford to pay for these donated services out of its own pocket, the payback in goodwill, credibility and influence for the United States - and in emissions reductions for the planet now rather than later - is crucial.

These efforts must be dramatically expanded with direct federal funding. The talents of the U.S. national laboratories, as well as leading universities, state regulatory agencies and nonprofits with similar expertise should be put on full throttle to transfer critical knowledge on energy efficiency to China. How much money is needed to make a difference? Mark Levine, the director of Lawrence Berkeley National Laboratory's China Energy Group, estimates that without any major new federal assistance initiative, China's emissions could triple or even quadruple in the next 20 years - a prospect that would probably doom all hopes of stopping catastrophic global warming.

But if the federal government adopted a broad program of technical assistance totaling $200 million annually for China (plus another $300 million for other developing nations), and contributions from other industrialized countries tripled this program, China could cut the projected emissions growth in half in the same time period - a "much more tolerable" prospect, Levine says, and more feasible if the rest of the world also makes significant emissions reductions.

Even in this best-case scenario, Levine suggests other initiatives are also needed, including: joint development and patent sharing of low-emissions technologies, and adoption of an emissions cap-and-trade program similar to the system enacted by the European Union and being planned by California.

Also much needed is for the next U.S. president and Congress to take the lead on limiting America's own emissions, showing China and the world a good example of how to adopt energy-saving, emissions-avoiding technologies and build cities and suburbs in the most low-emissions way possible. All together, it's still a longshot. But there's no hope of slowing global warming whatsoever if we don't do everything remotely possible to help China go green.

Robert Collier is a visiting scholar at the Center for Environmental Public Policy at UC Berkeley. To view the daily smog in Beijing, go to

This article appeared on page B - 11 of the San Francisco Chronicle

Thursday, August 07, 2008

Does Economic Research Lead or Lag Public Policy?

Our Rankings of which U.S Cities have the smallest carbon dioxide footprint is now available. Los Angeles scores well and Houston does not. New Glaeser/Kahn Paper . The Greenness of Cities: Carbon Dioxide Emissions and Urban Development Harvard Institute of Economic Research Discussion Paper No. 2161 Working Paper Series, Ed Glaeser and Matthew Kahn

As you can see from this editorial in today's SF Chronicle ; our methodology is directly relevant for this key greenhouse gas policy issue.

This article was sent to you by someone who found it on SFGate.
The original article can be found on here:
Thursday, August 7, 2008 (SF Chronicle)
On transportation woes/The planning void

It seems almost inconceivable that the California Air Resources Board
would fail to make land-use decisions a central part of the state's plan
to reduce greenhouse gas emissions.
But as the board prepares for Friday's public workshop in Santa Clara on
its "scoping plan" to carry out Assembly Bill 32 - the landmark
global-warming legislation - it proposes a reduction of a scant 2 million
metric tons of emissions through better land-use decisions. Incredibly,
that would be less than the air board plans to achieve from encouraging
proper tire inflation.
California can and must do better. Transportation accounts for about 30
percent of greenhouse gases.
Anyone who has studied Bay Area traffic patterns would recognize the
effect of land-use decisions on congestion - and its corresponding level
of pollution. New housing developments are built with the expectations of
long commutes. Too many have been built far from employment centers and in
suburbs where public transportation is insufficient or nonexistent.
Fortunately, the Air Resources Board may be about to get strong guidance
from the Legislature. State Sen. Darrell Steinberg, D-Sacramento, has done
a remarkable behind-the-scenes job of building support for legislation
(SB375) that would require the impact on greenhouse gas emissions to be
included in regional housing and transportation plans. It also would
provide regulatory relief for residential and mixed-use projects that
optimize available public transit.
Steinberg worked with local governments and home builders to assuage their
initial concerns on a bill that was originally promoted by
"I do think that everyone recognized that the status quo was not
sustainable when it comes to land use, air quality and all the related
issues," Steinberg said of the coalition that joined him at a news
conference in Sacramento Wednesday.
If California is going to get serious about fighting global warming, it
must confront the fact that its land-use patterns have been dooming us to
long commutes and dependence on the automobile for simple daily tasks.
Passage of SB375 would represent a significant step toward identifying and
addressing a major source of greenhouse gas emissions. ----------------------------------------------------------------------
Copyright 2008 SF Chronicle

Wednesday, August 06, 2008

Siting New Nuclear Power Plants: The Coase Theorem at Work?

The New York Times reports today that there may be as many as 34 new nuclear plants built in the U.S over the next decade. Nuclear power offers global environmental benefits (less greenhouse gases per unit of power generated) but imposes local environmental costs on the communities close to the new plants (extra radiation risk). Who will be the "lucky" communities where these power plants will be built? We used to nuclear test in Nevada rather than Manhattan because nobody lived in the former. Regional migration to the Sunbelt has altered this equation.

If local communities have the right to veto the placement of a nuclear power plant close to them, how will such communities be "bought off" or more politely compensated for taking the extra risk and providing public goods (less global warming) for the rest of us? Will Berkeley, California allow a nuclear plant to be built here? This is a nuclear free zone. Will cambridge, MA?

I'm eager to see more urban planners get involved in research on how to handle this issue that we will need to site plenty of new power plants, wind turbines and solar panels and they will take up a lot of land. We will need transmission lines to run from these to the grid. Which land should be used for this purpose? Do you trust the market to make these decisions? Do you trust local government?

The market of course would place the new sites where land is cheap to purchase. Are you okay with this allocation or would you prefer to site the new power plants on Bill Gates' land?

Tuesday, August 05, 2008

The Chicago School of Economics and the Arts: A Possible Use for Contingent Valuation

Over the last month, two University of Chicago economists have had their picture in the New York Times Arts Section. As a Chicago graduate, I would have thought that this would be a low probability set of events. First Lars Hansen made his debut and yesterday there was a long profile of David Galenson in the New York Times Art Section . I now look forward to a future profile of Derek Neal and Casey Mulligan discussing which artists have been influential in shaping their world views.

In the case of the Galenson profile, the Times focuses on his novel approach of how to rank which artists do the best work. Given that art is an asset that rarely trades (think of the Mona Lisa), how do we value assets for which there are no observed market prices? Galenson suggests that he can rank such assets by using the number of times different pieces of art are discussed in leading art textbooks. This is creative but permit me to propose an alternative strategy.

The whole field of contingent valuation is devoted to valuing non-market goods such as the Grand Canyon or a pristine Prince William Sound.

In a nutshell, you would ask people what their valuation of different pieces of art are. While I wouldn't take the overall level of their rankings seriously by sorting their stated valuations you could form relative rankings of which pieces of art are best versus okay.

Here is one serious issue ; Is art a private good or a public good? If Bill Gates buys the Mona Lisa and hangs it in his private house, only him an his friends see it; while if it is in a museum then many people at the same time can enjoy it.

If we rank art that will hung in museums, then Galenson should sample a representative sample and sum their individual stated willingness to pay to look at each work and then sort this from highest to lowest.

I hope that David invites me to be his co-author on this project. I'm sure that we would get on great.

Monday, August 04, 2008

Local Growth Controls: The Case of Santa Monica

To quote the article below; "explains in large part why Southern California looks the way it does: sprawly, congested and polluted". Now if Santa Monica is such a dump, why is the price of real estate North of Montana St. in Santa Monica valued at $1200+ per square foot of interior space? Los Angeles is certainly not polluted these days with the exception of communities next to the main highways. Here the solution is to get the diesel trucks and buses to internalize their external costs. Yes, Los Angeles is spread out but how many people in Los Angeles want to trade their single detached house to live in a 30 story highrise? There is diversity such high rises exist along the coast and in the center city and near some major employment centers.

I would argue that Los Angeles quality of life is higher now than it has been in 50 years. Crime is down, smog is down and high home prices reflect the amenity vitality of this sunny metro area.

"Falling crime rates have been one of the great American success stories of the past 15 years. New York and Los Angeles, once the twin capitals of violent crime, have calmed down significantly, as have most other big cities. Criminologists still debate why: the crack war petered out, new policing tactics worked, the economy improved for a long spell. Whatever the alchemy, crime in New York, for instance, is now so low that local prison guards are worried about unemployment."

We know how to fight traffic. Charge more for parking and have peak load pricing for using the highways. reducing commercial construction will simply raise commercial real estate prices and this will price some firms out of the Los Angeles area. In equilibrium, only Google will have an office in Santa Monica.

The "odd bedfellows" listed below represent a funny set of partners.,0,2442158.story

From the Los Angeles Times

Measure aims to fight traffic by curbing growth in Santa Monica
The ballot measure would halve the rate of commercial construction for 15 years. Meanwhile, the city's proposed general plan suggests capping heights based on buildings' use.

By Martha Groves
Los Angeles Times Staff Writer

August 4, 2008

Raising the specter of rampant development and a rising tide of street-choking traffic, a group of Santa Monica residents has begun pressuring friends and neighbors to vote in November for an initiative that would limit commercial construction for 15 years.

Predictably, the Residents' Initiative to Fight Traffic, or RIFT, has created a schism in the city, where the desire to maintain the area's small-town scale and charms often conflicts with the need to create jobs and spur economic gains.

Santa Monica is not alone. November is shaping up to be a pivotal month for cities grappling with growth and traffic. Beverly Hills voters will weigh the merits of a proposed expansion of the Beverly Hilton that would include luxury condos and the West Coast's first Waldorf-Astoria hotel at the busy corner of Wilshire and Santa Monica boulevards.

Redondo Beach residents, meanwhile, will mull two competing measures -- one a citizen-produced initiative and the other sponsored by the City Council -- both of which purport to give residents more say in development and land use matters.

"These [initiatives] are examples of people frustrated with the consequences and trade-offs forced by economic prosperity," said Randall Crane, a professor at UCLA's School of Public Affairs. Proposition 13, the 1978 measure that limited increases in the state's property taxes, "gives local governments no real discretion over their revenues except through land use planning toward commercial, sales-tax-generating development," he said.

"It has really distorted planning for community building, jobs and livability," said Stephanie Pincetl, a researcher at UCLA's Institute of the Environment.

Indeed, Proposition 13 exacerbated the long-standing pressure on elected officials to make development their priority. The constant search for revenue, prosperity and jobs -- in other words, growth -- explains in large part why Southern California looks the way it does: sprawly, congested and polluted. It also explains, Pincetl said, the Los Angeles City Council's initial reluctance to accept Griffith J. Griffith's 1896 gift of Griffith Park: It would take too much land away from development.

Ballot measures intended to control or manage growth typically encounter stiff opposition from the building industry and chambers of commerce. Even when measures succeed, Pincetl said, they are "virtually futile" given the region's multiple jurisdictions and varying needs. Communities "can't control what's going on next door," she said.

But community activists are determined to have a voice in matters that they say affect their quality of life.

"Developers and their friends at City Hall want you to believe that runaway commercial development is good for our city," the measure's backers say in their arguments for the measure. "Big developers make huge profits in our city, while residents get stuck with -- and pay for -- the huge traffic mess they create."

Opponents -- including an odd-bedfellows alliance of businesses, developers, renters' rights advocates, environmentalists, preservationists and the school board president -- kicked off a campaign against the initiative at a rally Wednesday. They say it would limit the city's ability to collect revenue for schools, fire and police departments and other social services and to promote mixed-use projects and transit-oriented development with housing and shopping.

"RIFT is so full of loopholes that the damage it will do to the city will be felt for years to come," said Terry O'Day, co-chair of the opposition campaign and executive director of Environment Now.

The measure would limit new development of offices, hotels and stores to 75,000 square feet a year, about half the current rate. The Santa Monica Coalition for a Livable City, the group behind the measure, said schools, hospitals, low-income housing and other vital community-serving projects would be exempt.

Although the measure's supporters invoke traffic as their key motivator, the initiative does not directly propose solutions to existing traffic problems. Rather, it aims to curb future commercial development that proponents say would exacerbate conditions on the city's already congested streets.

Jeffrey Tumlin, a transportation consultant to the city, said many of the streets are filled to capacity at peak periods. At the city's eastern edge, freeway ramps have become bottlenecks.

For four years, Santa Monica has studied its land use and traffic circulation as part of revamping its general plan, as required by state law every 20 years. In the last year, the city has held more than two dozen workshops and hearings to review proposals and get input from the public.

On Thursday, the City Council endorsed the plan that emerged from the public process. It calls for "no net new trips" -- in other words, no increases in traffic.

The council agreed that most future development should be concentrated around transit centers -- downtown, Bergamot Station and the area around a mid-city park, all of which have been proposed as sites for Expo Line light rail stations. The idea is to reduce traffic by making it easier for residents to use public transit to run errands and go to offices, restaurants and attractions.

Under the proposed general plan, developers could earn approval to exceed height limits if the projects provided low-cost housing and "extensive" public benefits such as parks or transportation improvements.

They would also have to go through a public process after which the council would decide whether to approve any extra height.

For example, on Wilshire Boulevard, developers could extend a 32-foot limit to as high as 55 feet if they satisfied the requirements.

Now, developers can build to 55 feet only if the project is 100% low-cost housing.

Planning director Eileen Fogarty said the council agreed with the Planning Commission that the proposed plan would protect 94% of the city -- in effect, all of the residential neighborhoods -- from development that would be incompatible in character and scale. Extra height would be allowed only in a tiny portion of the city, Fogarty said.

Some council members expressed concern that the proposed plan did not go far enough to reduce heights and densities along key boulevards, including Wilshire and Santa Monica boulevards. Some longtime residents say they dread the potential for "canyonization."

"In general, I think the heights and densities are too intense," said Councilman Ken Genser, a former planning commissioner. On the other hand, he praised the plan's requirement that most development above the first floor be housing.

"We're overbuilt with offices in the city, and housing is a need," he said.

Before the proposed plan can be adopted, it faces months of environmental review and discussion about what benefits new projects would have to provide to win approval for extra height.

Tumlin, the transportation consultant, said neither the ballot measure nor the city's land use and traffic plan could solve the traffic problem on its own.

"To address traffic congestion," he said, "we have to do a lot of things and all at once. . . . The important thing is to put any new development where people can get around without a car."

Senator Obama and Environmentalists

I am a fan of Obama. He is smart and smooth but I do have some questions. Why at the age of 33 did he write an autobiography? I know many egotistical academics and I can't name one who tried this move. At that age, most people are in the "investment" phase of their career putting in long hours investing in skills and relationships. A forward looking person seeking to raise his profile might be well aware of what "Profiles in Courage" did for Senator JFK and how the "Autobiography of Malcolm X" helped to generate buzz and media superstardom. Conversely, he may not have been so strategic and instead recognized that he was part of a growing group of americans with multiple identities and he wanted to tell his story.

If we think of politicians and brands of products (so think of Mercedes versus Lexus), how do they distinguish themselves from each other to stand out? Great hair? Give a great speech? be a war hero? A rational actor will compare the costs and benefits of each of these strategies.

Turning to environmentalism. In a recent post, I argued that the causes and consequences of environmentalism should be a major research topic in environmental economics. Few economists agree with me. What is my point?

Consider a mixture model where 1/2 the population are Dick Cheneys and the other 1/2 are Ralph Naders. What would be the environmental footprint of this nation in aggregate? Would this nation vote for "green policies"? Now change the composition to 10% Cheney and 90% Naders, both the political equilibrium (greener policies) and the private behavior given any set of incentives would be greener.

If you take this simple logic to be true, then you immediately see my point. What a green planet Sierra Club? Then get yourself some "true believers" but how does this happen? How do you convince the marginal median voter to join you when your actions are costly in terms of time, resources and utility lost (no more steak?).

Sunday, August 03, 2008

Network Effects: The Case of Civil War Blogs

How does information spread across a diverse population? When an objectively important economics working paper is released, how much time passes before the leading popular media outlets (i.e the New York Post) is aware of the study? How much has the Internet and networks such as SSRN and the NBER Working Paper series accelerating this diffusion?

Why is this interesting? If a tree falls in the forest and nobody hears it ... What is the difference between a tree and a research paper if nobody reads it? Nothing. The expectation of effective networks creates incentives for researchers to write papers. Now a cynic might ask whether the expectation that a "sexy" paper will get popular attention encourages creative researchers to engage in too much freakonomics? I have blogged on this subject before. If you recall my main point, there are huge financial incentives in academic economics if you remain "pure" and are branded a leading theorist or econometrician. Yes, being quoted in the New York Times is fun and offers a short run immediate payout but there are very high medium and long term returns for working on fundamental economic questions.

Returning to the theme of network effects, I'm happy to see that Civil War blogs are aware of my forthcoming book; A Sophisticated U.S Civil War Blog

Brett Schulte will need to take a close look at our book. Yes Civil War companies were formed locally. Men fought in groups of 100. In our work, we use variation in the characteristics of these communities to examine how "peer groups" affect such important outcomes as desertion, POW Camp survival, and ex-slave soldier literacy.

Many Civil War studies rely on soldier diaries as the basis of the analysis. We respect such diary based research but there are limitations to what can be learned from such a self-selected sample. Many black soldiers couldn't read or write. You can't expect to see many diairies written by such a sub-group. Our main empirical sources is a unique longitudinal data set that covers over 40,000 soldiers (white and black). I will have more to say soon; but go to to go to the Princeton Press weblink.

Before I forget, one other example of Network Effects is the network. Suppose that an economist issues two working papers a year and randomizes to release one as a NBER working paper and posts the other on his web page. What would be the difference in the diffusion of the two papers?

At the Martin Feldstein dinner last week, Jim Poterba asked the 350+ audience to consider what their life would be like without the NBER. Access to this network is valuable. I conjectured that the average NBER member would be willing to pay $15,000 for this access --- so Jim Poterba could collect $15 million a year to keep this operation going. Some people claimed that I was over-stating the value of the network but I disagree. Would cogent argument is that the SSRN network provides a substitute but it doesn't screen out anything.

Saturday, August 02, 2008

Government Intervention in Energy Markets and the Crowd Out Effect

If government could pre-commit to never get involved in regulating any energy market, how much more energy efficient would our economy be right now? Do you need a Big Daddy government to protect you from the law of supply and demand in energy markets? Is demand for energy really price insensitive in the short run? If you knew that price spikes had a positive probability of taking place, would you have a backup plan ready to help you adapt when prices soared?

"Consumers have the ability to make wise decisions if they face prices that accurately reflect costs. Firms have just as much ability to innovate in ways that will attract thrifty buyers. High prices may be painful, but they convey a key nugget of information: Energy is scarce; use it wisely. If the government uses tax policy to artificially reduce energy prices, then the government will only deter private individuals from appropriate conservation."

Edward L. Glaeser, a professor of economics at Harvard University, is director of the Rappaport Institute for Greater Boston

I agree with Glaeser. Purchases of "green" durables would be much more likely in a world where people anticipate that they must protect themselves from energy spikes. Moral Hazard lurks again. Government is crowding out individual incentives to invest in energy efficiency.

Right now, I'm living a small footprint lifestyle in Berkeley, California.
5 of us are living in a 1 bathroom house. You are welcome to join us. I'm ready for the price spikes. Are you?