Friday, February 12, 2010

A Chicago Economist's Plea to Keep the Berkeley Planet in Print Format

The New York Times is filled with news today. David Brooks demands that our President should focus on one key theme that would unify our diverse nation. I'll propose one. Let's erase our border with Canada and Mexico and have a new unified nation called North America. This would reduce the region's poverty, address immigration concerns, solve energy insecurity issues and help us collectively to adapt to climate change.

The Times upset me today on two fronts. First, in a small blurb I read that the
Berkeley Planet will no longer be available in print format. What will I read at Starbucks? My demand for their coffee will plummet. The San Fran Chronicle has shrunk to the size of a Kindle and now the Planet vanishes? I live in Berkeley a chunk of the time and I love the crazy letters that are published in the Planet and it does a great job on Berkeley local politics. Ed Glaeser should be offered a column there.

Most importantly, today's NY Times has a piece discussing Arizona's decision to exit the Western Carbon Cap & Trade initiative. This has several implications. Building on the Kahn and Kotchen theme, they claim that the recession is the trigger of their decision.

You do not have to be John Nash, to ponder the following;

1. Will Arizona's decision trigger a domino effect such that the regional pact unravels? Why? Fear of leakage of jobs. Will Nevada now say to itself; "If we remain in the pact; our electricity rates will be higher (reflecting carbon pricing) but Arizona's won't be; footloose electricity intensive consumers such as a Google may move to Arizona rather than here." If Nevada believes that this story is true, then their probability of staying in the pact declines. Erin Mansur and I have been studying this job migration issue as a function of local electricity prices and will report some results soon.

2. If other West Coast states drop out, how does this affect California's AB32 initiative? In particular, do issues of thin markets arise as there are not enough buyers and sellers in the carbon market to have a competitive market?

3. If all of the West Coast States remain in the cap & trade initiative, will there be more R&D innovation because there are a larger number of potential buyers of "green energy" low carbon? Hopefully California is a large enough market to create a "home market" effect so that innovative nerds keep tinkering away even if Nevada and Arizona drop out.

I am worried about the guinea pig effect. With new ideas, we need a guinea pig to step up and try the medicine. The rest of the country was counting on Arizona and the other members of the pact to taste the medicine. There should have been an Obama transfer to the region for rewarding us for being a first mover because of the externality benefit. What is the externality? It is identical to Caplan and Leahy's old paper about the information gleaned from 1st movers; read this for details