The Director of my UCLA Institute has just edited a special issue for the Proceedings of the National Academy of Sciences. Here is Glen MacDonald's PNAS Volume link.

Given the growth of population and jobs in the Southwest and the basic need for water, if the supply of water is threatened by drought --- how can this region continue to flourish?  An economist would say that allowing water prices to reflect scarcity would take care of this problem.   Consider Peter Gleick's quote;


"Part of the challenge we face in the Southwest is old-style thinking," said Peter Gleick, president of the Pacific Institute and an author of another analysis. "We brought to the Southwest very European ideas about water, developed in water-rich areas. ... That worked OK for a while, although not really. But now it's clear that green lawns and unlimited swimming pools and inefficient irrigated agriculture can't be sustained."
Gleick says the solution lies in a combination of encouraging the development of untraditional water sources, such as reclaimed wastewater, policies to encourage more efficient water use, efforts to coordinate water policy at local, state and federal levels, and planning to help water utilities adapt to climate change."

I agree with Peter but I would say that allowing water prices to rise would simply and equitably solve this problem.  You would see less green grass in Los Angeles, fewer private swimming pools, and farmers (who use the majority of the water) would use water more efficiently and would make better choices over what to grow.  Water engineers (such as my colleague UCLA's Yoram Cohen) would have strong incentives to innovate to figure out how to reclaim water and use it for the variety of tasks we need water for.

Many new economics students worry that such "price gouging" will hurt the poor.  It doesn't have to.
Consider the following scheme.

Suppose a public health expert says that every person needs X gallons of water a day as minimum for bathing and washing and other essential services.

Suppose the free market price for water is  p cents per gallon.  In this case, we would have a public policy that gives each poor person 365*p*X/100  dollars per year so that they can afford their water needs under the new water pricing rules.

If there are  Z  poor people and  N total tax payers who are not poor, then the per-capita tax of protecting the poor would equal   365*p*X*Z/(100*N)

Politicians would need to "draw the line" in defining who qualifies as poor for this cash transfer but note that we can have the best of both worlds;  the Southwest's suffering from drought ends as we now face a proper pricing signal for not "wasting water" and the poor's basic rights are protected.

This example highlights why economists are useful people.  The climate scientists have shown that under the status quo, the Southwest (including my Los Angeles) has a problem -- and the economists know how to redesign incentives to mitigate the problem. This is the social science of climate change adaptation and this is the guts of my Climatopolis.

If homes weren't durable (and thus melted in one year like a piece of pizza), how many people would live in Detroit today?   Glaeser and Gyourko argue that Detroit's population would be much smaller.  Past investment decisions in real estate development sometimes turn out to be a irreversible mistake. We end up with infrastructure, housing and buildings where we currently do not need it.  If Detroit had remained the car capital of the world, then the housing built there in the 1930s-1950s would be quite valuable today but given the decline of Detroit's "golden goose" industry the durable housing stock lives on.  Demand for Detroit housing is low and the result is very low home prices (under $20,000) and the city thus becomes a poverty magnet and this effect feeds on itself.

This case study matters for thinking about climate change adaptation. If, due to climate change, a city such as Phoenix faces extreme heat conditions and water shortages in the year 2040, will it become the "next Detroit"?

I sketch this quick example because I received a very reasonable email this morning from Jim Gleeson of the London School of Economics.  Since I am a graduate of the LSE,  I believe I owe him a serious answer.  Here is his comment.

"If Moscow's quality of life declines relative to other Russian cities, do you believe that people won't move to a relatively nicer city?"

My Grist Blog  entry on Climatopolis.  I thank Grist for being open minded and fair.

Grist has republished an angry review of Climatopolis.  Permit me to make two points about myself and my work on the economics of climate change.

1.  I would love to see the world reduce its greenhouse gas emissions but I don't believe that we will in medium term.  Why?  You can read my academic papers on this subject here and here and especially here.

2.  Given that global GHG concentrations will rise and given the uncertainty over what will happen next in terms of weather fluctuation and how this risk differs across continents and cities within contents, it is relevant to ask how diverse households, firms and governments will respond to the new realities they will face in our hotter world.  Climatopolis is my attempt (as a microeconomist) to anticipate how we individually and collectively respond to an anticipated known "unknown".

For a brief sketch of the book's core logic read this.

To listen to me talk about the micro economics of climate change adaptation watch this.

I'm trying to start an intellectual debate --- I won't be shouted down by interest groups who are afraid of intellectual discovery and debate.

Yes, I am an economist. Yes I know I can learn from climate scientists but right now their predictions about our future have large confidence intervals. I am optimistic that they will make progress in making more accurate predictions for the new risks that cities will face and that rational households and firms will respond to this new information in new ways that will shield them from climate change's blows. This doesn't mean that adaptation will be costless.  But, in a world where we refuse to mitigate (the free rider problem) --- we have a great capacity to adapt to the new realities we face.  At the heart of my optimism is that we are forward looking, and make investments to protect ourselves from anticipated known unknowns.  I also have great faith in capitalism to produce new products to shield us from new risks we will face. Capitalism is a friend of climate change adaptation.  Before Climatopolis, this point has not been thought through in sufficient detail.

My critics need to return to microeconomics and explain why the incentives and investments won't help to protect us from climate change's future punches.

In this column, Paul Krugman says some wise stuff.  As an applied micro economist, he starts with some facts: "Oil is back above $90 a barrel. Copper and cotton have hit record highs. Wheat and corn prices are way up. Over all, world commodity prices have risen by a quarter in the past six months."

He offers some speculations about the causes of these price dynamics.  But, the interesting part of the article is his predictions about the consequences of these events:

He writes:

"So what are the implications of the recent rise in commodity prices? It is, as I said, a sign that we’re living in a finite world, one in which resource constraints are becoming increasingly binding. This won’t bring an end to economic growth, let alone a descent into Mad Max-style collapse. It will require that we gradually change the way we live, adapting our economy and our lifestyles to the reality of more expensive resources."

This smells like the logic presented in my Climatopolis.

In Climatopolis, I argue that the anticipated rise in fossil fuel demand in China and India will help us to adapt to climate change.  If forward looking entrepreneurs anticipate that real fossil fuel prices will rise over time, then they have an incentive to find substitutes. If these substitutes are cleaner than fossil fuels (i.e renewables) then we can achieve the win-win of economic growth without exacerbating GHG concentrations in the atmosphere. In this sense; the belief in "Peak Oil" helps us to simultaneously mitigate and adapt to climate change.

Note that Krugman predicts a gradual adjustment of society to our new realities. He is taking a gentle slap at those who believe that we can fall off a cliff over night.

I wonder if Hayek owned a cell phone?   This article about the cell phone reports that soon you will be able to determine whether you are exposed to high levels of air pollution just by waving your phone around.

"Rather than using cell phones to just snap photos of friends or the occasional celebrity sighting, phone users in California may get the chance to track levels of harmful black soot near their workplaces and homes.

Tech entrepreneurs created a simple circular filter that darkens over time as it absorbs black soot. Anyone with a basic cell phone camera can take a picture of the filter next to a calibration chart that reflects different black soot pollution levels - no smartphone required. "We don't need a fancy app for this, because we just need to be able to e-mail it or SMS it to our system," said Martin Lukac, a cofounder of the nonprofit Nexleaf Analytics. Sending the photo via e-mail or text to an online database allows the cell-phone user to get back info about black soot concentration. The power of that information is that it reflects the individual person's exposure to air pollution."


This is just one example of how information technology helps us to adapt to changing circumstances (of course I'm thinking ahead to climate change).

Another example of the future power of the cell phone is Nathan Wolfe's efforts.  As I read in the New Yorker, this guy was my colleague at UCLA and he had the nerve to quit our esteemed faculty so that he could have more time for field research. He is interested in how viruses pass from animals to people in poor rural parts of the world. Here is an interview with this nerd where he celebrates that rural people with cell phones can know when an epidemic is breaking out and will change their behavior to protect themselves and this will have social benefits in slowing contagion risk.


"What's next? What are you excited about?

If the Internet is the global nervous system, and you have companies like Google pushing forward its evolution, part of what we're trying to do is create the equivalent of the global immune system.
One thing I'm excited about is mobile phones. How are we going to work with populations that are in geographically distant spots and link them together, to know when they're sick?
I'm fascinated by revolutions that come from adapting technologies like text messaging. For example, people can text message surveillance information, and we can respond and put credit on their phone, which means even populations that are very poor, if they have proximity to cell phones, can have access to healthcare."


Here  is the New Yorker profile when I first heard of this guy.  The New Yorker rejects my cartoon captions and thus I respect them.


Now, if you really want to learn something about the power of cell phones -- read the work of my man Robert Jensen.  Most academics just sit around and recall how witty and charming they are but not this young man.  He functions!


The Digital Provide: Information (Technology), Market Performance, and Welfare in the South Indian Fisheries Sector






The popularity of Zagat's ratings highlights that we have a thirst for making "good decisions" and we know when we do not know the full consequences of our choices.  Technologists are figuring out ways to provide us with the high frequency information we need to better handle an increasingly risky future.  Are these technologies substitutes or complements of an individual's own cognitive skills?  

Don Fullerton tells all here.   What's new in urban economics?  You have a choice.  You can read this or this.

An example  worth reading.  You won't learn much about our future under climate change but you will see a laundry list of uncertainties related to how climate change will affect us in the future.  You will see that this researcher admits that "he knows that he does not know" what climate change will mean for specific migration patterns.  Since the author is not an economist, you will not see any discussion of incentives or free market capitalism providing signals helping people to cope with future scenarios.  This logic is what distinguishes Climatopolis from other "pontifications" about our future in the face of climate change.

UPDATE: I also suggest that you read the preface from the same January 2011 Special Issue. I can't say that I'm that impressed with their current knowledge.  Climate change looks like a vague threat and we need these nerds to make some progress refining their predictions and offering better geographic resolution to help us to adapt.

Here are a few quotes from the article.


"As adaptation strategies will be a key element of the fight against climate
change in a 4◦C+ world, policy responses would need, in particular, to promote
the right to mobility. Migration can indeed be an efficient adaptation strategy
and traditional patterns of mobility in relation to environmental changes will
most probably be deeply disrupted. Migration, in many cases, would need
to be encouraged rather than avoided. Migration would have to become a
core element of the affected populations’ adaptive capacity, rather than a
symptom of adaptation failure."  (this sounds like a quote from Climatopolis!)


"Climate change will affect societies through an extensive range of impacts. The
prediction of such impacts, however, remains marred by uncertainties, especially
at the regional and local levels."  (this is why I wrote Climatopolis to help people think these issues through!)


"The effects of water stress on migration patterns remain heavily contested:
some authors argue that droughts and desertification are a major push factor
for migration [28,29]"


"We are thus faced with a double level of uncertainty: the first level deals with
uncertainties related to climate impacts on local and regional scales; whereas
the second level concerns the way humans will react to environmental changes.
Such uncertainties are even greater in the event where the average global
temperature would rise by 4◦C and beyond."  (again my friends, this is why I wrote Climatopolis!)


"Given the uncertainties associated with a 2◦C temperature rise, an assessment
of climate-induced displacements in a 4◦C+ world is a very tricky task. Though
empirical evidence cannot predict future population displacements, it suggests
that, in a 4◦C+ world, people might move in a very different way than in a 2◦C
world: the very nature of the displacements might be affected more than just
their magnitude."  (capitalist price signals will guide the migration, migration is a rational investment
choice and price signals will tell workers where their skills are valued and where food and necessities are
more plentiful).


"However, not everyone moves when confronted with environmental changes.
Another consequence of a temperature rise of 4◦C+ might be, paradoxically
and in some cases, a decrease in the number of people on the move. Numerous
studies show that migration flows tend to decrease when environmental crises
peak. This is especially true in the case of droughts, as people tend to allocate
their income primarily to meet their household’s basic needs rather than to
moving [6,36]."   (note that he does not discuss increasing the efficiency of using our resources more wisely in a climate changed world. No more green grass, reducing production of water intensive crops --- such actions could allow us to live on where we currently live even if we have fewer resources because of climate change -- price signals of rising scarcity would bring about this transition more smoothly).


"In a nutshell, the effects of a 4◦C+ temperature rise on migration flows remain
difficult to assess. The linkages between environmental changes and mobility
cannot be explained through a linear, deterministic relationship, though many
discourses on this issue remain rooted in an essentialist perspective. Empirical
research has shown that responses to environmental changes vary according to
a wide set of factors and are context-specific: this makes it difficult—if not
impossible—to design a general predictive model of climate-induced displacement."  (and this is a peer reviewed paper given that he concludes "mush"? I do respect his honesty about the uncertainty here but notice that nowhere does he discuss capitalism as a useful force in guiding adaptation efforts. But, that is the whole point of Climatopolis.)


"As Danish physicist Niels Bohr famously put it, ‘prediction is very difficult,
especially about the future’. A 4◦C+ world would bring unprecedented changes
to the environment, likely to affect human mobility in different ways."  (Well, maybe the wise Bohr should have taken a course in micro economics?)


I looked up the author's resume and he is not a scientist but it is revealing that this is the author that must have been selected for this conference to discuss "climate change and humanity".   While prediction is difficult an economic analysis of adaptation offers more precise pathways for how we will respond to climate change than this article suggests.

The Yale Students who Joel Waldfogel surveyed at the start of his Scroogenomics research project could never have anticipated that someone could order this "Gift" as a public speaker for their event.  Call now.  At the stated price, there is "excess supply"!

My Christmas gifts to you include My blog entry  and Lucas Davis's academic paper.  The key issue here is the Becker --- full price of operating the energy using product. If you use your time as an input (recall that driving a car requires gas and your time) then the Jevons point doesn't hold (see my blog entry).  If increased energy efficiency lowers the full price of owning and operating the good (such as an air conditioner) then the extensive margin matters.  In English, if poor people in India and China can now afford an air conditioner because it becomes more energy efficient then this ownership margin (rather than the utilization dimension given that you already own one) could lead to an increase in aggregate use.