Sandwiched between "gays in the military" and "gold standard and fiat money", I find the entry for "global warming" in Jeffrey Miron's new book Libertarianism from A to Z . (Full disclosure --- Basic Books published this book and they will publish my book this fall).

I will paraphrase his entry and then discuss;

1. Debate will continue about the underlying science of global warming.

2. There are benefits caused by global warming.

3. There are pre-existing government distortions that encourage the use of fossil fuels so we should consider getting rid of these "unlevel playing field policies" before we introduce new policies (i.e carbon tax). examples include; ethanol subsidies, not allowing peak time pricing and critical peak pricing on roads and electric utility pricing (both would reduce demand).

4. the cost of anti-carbon policies would be very high

5. public money would be better spent on LDC malaria fighting or improving education in LDCs.


There is a lot of truth to what he says here but I'm surprised by one big point. Where is the Coasian logic concerning property rights? At my University of Chicago, we were taught that if there are well defined property rights and everyone agrees on who owns what then through trading and bargaining that we can reach an efficient allocation of resources.

In the case of the atmosphere and carbon, who owns the right to pollute and what markets exist to trade in these rights?

I would have thought that a free market libertarian might say; "right now there are no world wide carbon markets for buying and selling the right to pollute. I favor opening up such a market and letting people buy and sell and pursue their own individual freedom". My question for a libertarian is; "in a free society, how do people who fear climate change and want to take action express their concern?" Yes, we will move to higher ground and yes we will purchase products to protect us from climate change's blows --- but could creating a new market be a bad thing? If your answer is yes, then you are implicitly endorsing that the polluters have the right to pollute but you are not allowing them the opportunity to sell this right in a free market. You are thus not allowing and encouraging endogenous innovation and squeezing out the waste in our status quo system.

I do not believe that being a libertarian = demanding "low prices".

To quote Gary Becker from 2007,

"Using a social-discount rate of 3 percent does not sweep away the greenhouse-gas problem. The latest report by the Intergovernmental Panel on Climate Change strongly suggests that the problem will be quite serious in perhaps 50 or fewer years from now. However, the 3 percent rate does imply that low weight be given to effects on the utility of generations 150 years from now, and even more so 400 years from now. Common sense also dictates that one recognize that technologies will be much improved in the future, including technologies that can improve health, income, and the environment. A positive and non-negligible discount rate is the formal way to recognize the importance of these and related considerations."

source is here

What do Andre Agassi, Maria Bartiromo, Austin Beutner, Willie Brown, Tony Pritzker and I all have in common? We represent just a handful of the panelists at the 2010 Milken Institute Global Conference in Beverly Hills.

As your loyal reporter, here is a picture of CNBC Anchor Maria Bartiromo signing autographs at her book signing.



If you'd like to hear what I have to say about climate change, click here to see my Milken Institute session.

There were some economists at the event. I attended a large lunch in which "Dr. Doom" Nouriel Roubini discussed the issues of the day with Big Mike Milken. Roubini didn't say anything interesting but Milken dominated the microphone. I thought that Milken was quite smart but he said some funny stuff.

He claimed we could save 1 trillion $ a year if we lost weight and became the same weight that our parents weighed when they were our age. Could this be true? This sounds like quite an extrapolation off of some linear relationship between health costs and average weight.

He said more interesting things about the conventional 30 year mortgage for homes. He pointed out what a strange contract this is for the lender.

Case A: if interest rates fall, the household refinances

Case B: if the bet turns bad, the household defaults

Case C: if home prices rise, the lender gets paid back but the borrower gets all of the upside.

I couldn't tell if he favors a relationship such as what Caplin and Tracy supported a long time ago in which the bank owns X% of your home and you own 100-X%.

Overall, I enjoyed the Milken Conference but it looked to me that the academics were under-represented at this conference. The share of panelists who have PHDs was probably 9%.

I don't own a tv so I don't know what goes on --- on this new show called The Big Bang and I don't care. But, I am happy to see pro physicists receiving some public attention without getting a hair style like Einstein or making pronouncements about world peace. My colleague Dr. Saltzberg is clearly diversifying his portfolio of pursuits.

From looking at his resume, I see that we were at the University of Chicago at the same time for graduate school. Back then, I knew many physicists and used to lose to them at chess. Despite our shared Chicago past and our present UCLA stationary, our paths have diverged, he has experienced a Los Angeles glamour that I've been deprived of.

"Still, problems and questions arise, which is where David Saltzberg, a particle physicist at the University of California, Los Angeles, and the show’s scientific consultant, comes in. Besides supplying the equations that appear on whiteboards in Sheldon and Leonard’s living room, he sometimes advises on the plotting and characters’ scientific predilections.

Dr. Saltzberg, who blogs about his activities on the show, said that many of the people who grouse to him about the show have not seen very much of it. His comments were echoed by Mr. Prady, one of the producers, who rejected the notion that the show stereotypes women. “Far from being a dumb blonde, Penny has demonstrated time and again that she possesses above average intelligence and practical knowledge that often far exceeds that of the guys,” he wrote in an e-mail message." "

This is all very nice.

I do think that a better TV show would be to take the underemployed posters at www.econjobrumors.com and allow them to harness their energy and anger in creating a show.

We could hold a competition in which;

A. sociologists would write their show

B. physicists have their show

C. economists have their show

and then similar to American Idol --- the American People would decide who has the best show and the Department that wins gets more $ from the Deans.

With the UC furloughs, I have been thinking about retiring but as the year continued, I find myself mildly interested in economics again and have now written a new paper titled; "Urban Policy Effects on Carbon Mitigation".

Here is the paper's first section. I will present this at this NBER Conference next month.

Introduction

Suppose that your household was choosing between living in suburban Houston or center city San Francisco. In each case, what would your household’s annual carbon footprint be? Glaeser and Kahn (2010) estimate that a standardized household would create 12.5 extra tons of carbon dioxide per year if it moved to Houston rather than moving to San Francisco. In Houston, the same household drives more, lives in a bigger home, uses more residential electricity – electricity that is generated by power plants with a higher emissions factor. Using data from 2006 for 74 major Chinese cities, Zheng, Wang, Glaeser and Kahn (2010) document that northern cities have the largest household carbon footprints due to coal burning for winter heat. This cross-sectional descriptive work creates a benchmark for comparing cities’ household carbon emissions from transportation, electricity consumption and home heating, at a point in time and tracking city trends over time. In both studies, there is clear evidence that cities differ sharply with respect to their “greenness” on this important dimension. Given that greenhouse gas emissions are a global externality, households are unlikely to internalize this cost of moving to a city like Houston when they make their locational decisions.

Why is San Francisco “greener” than Houston? San Francisco is blessed with a temperate climate. Northern California’s electric utilities emit less greenhouse gas emissions per unit of power generated than their Texas counterparts. In addition to these factors, San Francisco’s urban form and public transit system encourage more households to live a walking, compact, “new urbanist” life relative to households living in sprawling Houston.

This discussion highlights that there are a number of urban policies that can affect a metropolitan area’s per-capita carbon emissions. Rather than attempt to tease out the individual contributions of any one policy, I focus on estimating how much does a household’s carbon footprint shrink by when it lives closer to the city center. Throughout this paper, I assume that urban areas can enact a range of policies including urban transit investments, to business incentives (such as urging major employers to remain downtown) and center city quality of life improvements. Such policies increase the demand for living and working in the center city. I seek to measure the carbon mitigation externality benefits of having a more vibrant center city that attracts households to live closer to the center.

To quantify the greenhouse gas emissions reductions benefits from living at higher population density, and closer to the city center, this paper uses recent micro data from the 2009 National Household Transportation Survey and unique 2008 data from a California electric utility to measure how a household’s carbon footprint varies as a function of how close it lives to the city center, and proximity to rail transit. This paper’s main finding is that a standardized household drives less and consumes less electricity when it lives closer to the city center than if it lived in the same metropolitan area’s suburbs.

Is this a causal effect? A reasonable concern is residential self-selection; those with an unobserved taste for living a “low carbon” life cluster close to rail transit stops and close to city centers. My cross-sectional OLS estimates are likely to reflect a mixture of selection and treatment effects and thus to represent an upper bound on the policy induced benefits of moving a household chosen at random closer to the city center.

Economists are still learning about capitalist firms. The recent recession has convinced me that there are many incentive problems that I had not fully appreciated how they can add up to having "macro consequences". Microeconomists continue to look at specific cases. Recently, we have studied bagel delivery , and Starbucks' sales responses to caloric information on drink contents. We have been macho enough to put on "hard hats" and enter factories and take a look at how you actually produce a pin.

Now, some of the NBER's stars are asking good questions about external directors' incentives to participate in the day to day running of the firm. When the going gets tough, do the firm's outside directors dig in their heels and help the firm? Or to protect their reputation and search for more lucrative consulting per hour invested, do they quit and seek greener pastures? I had always thought that these gigs were a chance to get a $50,000 check for attending a few nice lunches a year. I have not been invited to be an external director of anything!


The dark side of outside directors: Do they quit when they are most needed?

Rüdiger Fahlenbrach, Angie Low, René M. Stulz
NBER Working Paper No. 15917*
Issued in April 2010
NBER Program(s): CF


Outside directors have incentives to resign to protect their reputation or to avoid an increase in their workload when they anticipate that the firm on whose board they sit will perform poorly or disclose adverse news. We call these incentives the dark side of outside directors. We find strong support for the existence of this dark side. Following surprise director departures, affected firms have worse stock and operating performance, are more likely to suffer from an extreme negative return event, are more likely to restate earnings, and have a higher likelihood of being named in a federal class action securities fraud lawsuit.

This is really interesting stuff. I can imagine that it is hard to write out a contingent contract that the best talent will "stay on the bridge" during a financial storm.

Now, during the attacks of 9-11-2001, firemen rushed into the burning World Trade Center ---- what is the difference between those "heroes" and the men and women who are the outside directors of these firms? The latter appear to be running away from a burning building! Where is the loyalty and patriotism?

I just read this sad story and watched the video. If you watch, you will see a number of people walk by this victim. He is lying on the sidewalk. He must have been moaning in pain but nobody stops to help him. If you refuse to read the NY Post, then here is the same story in the NY Times.

We can lament anomie in the Big City. People may have thought that he was a drunk bum or worried about being dragged into a lawsuit but still this is quite gross.

Switching to happier subjects, as you know UCLA is on the quarter system so this means that this week is Spring Quarter's midterm week. My friends who teach at schools such as Tufts (who are on the semester system) will finish their teaching perhaps as early as this friday.

Now, I must love to teach --- because I have signed up to teach summer school. If you are a person who is ready to learn some environmental economics then I suggest that you enroll in this exciting July 2010 class. West Los Angeles is the right place to be during summer. Its the greatest place in the whole wide world. No NBER Summer Stuff for me this summer --- Boston is not the right place to be during summer.

Read it here .

Energy Conservation “Nudges” and Environmentalist Ideology: Evidence from a Randomized Residential Electricity Field Experiment

Dora L. Costa and Matthew E. Kahn

Abstract

“Nudges” are being widely promoted to encourage energy conservation. We show that while the electricity conservation “nudge” of providing feedback to households on own and peers’ home electricity usage works with liberals, it can backfire with conservatives. Our regression estimates predict that a Democratic household that pays for electricity from renewable sources, that donates to environmental groups, and that lives in a liberal neighborhood reduces its consumption by 3 percent in response to this nudge. A Republican household that does not pay for electricity from renewable sources and that does not donate to environmental groups increases its consumption by 1 percent.

The paper is posted here .

One of my favorite reporters attended my class on wednesday. The Hawthorne Effect was out in force and here is what I said . Would I have lectured about more "conventional material" had she not been there? Who knows? Who cares? My wife (and my students) thinks that my wacky quotes are funny and that's all I care about.

I do suggest that you read the entire piece. Its a nice overview of what UCLA's Institute of the Environment has achieved in building up a first rate major. The IOE's Keith Stolzenbach and Cully Nordby deserve a lot of the credit for designing this very serious major. I teach one popular elective -- so I'm a cog in this bigger machine and I can honestly say that the machine functions quite well.

One size does not fit all. Costa and Kahn (2010) are fans of the "nudge" in certain nuanced cases but those who nudge to achieve social goals (such as increased energy conservation) must keep in mind that the population is diverse. If you want to read a new NBER paper that I think is both interesting and funny (I did write it!) then click here .

On an unrelated note, this is a ridiculous NY Times story. People have to keep straight that there is positive economics (what is) and normative economics (what ought to be). A leading economist can hold a normative view (i.e support California's AB32 policy) and still take a sober cold hearted look at whether this legislation passes a cost/benefit test. Academic economics value their reputations too much to "sell out" to politics. If we intentionally back a bad economic idea in return for short term political gain then our long run reputation will suffer. Anticipating this, academic economists play the game straight without catering to special interests.


If you don't believe that we can disentangle our "Spock" from our "McCoy" take a look at my writing here . In the first paragraph of my report, I state that I support AB32 and then you will note that I kick the crap out of the first economic model used to evaluate its impacts.

We are tough guys and gals who play the game straight up. This is due to selection (who enters academic economics) and treatment (sell out and you lose your reputation forever).

Here is an interesting debate about the merits of ramping up residential solar power generation in California. So far, Dora and I have resisted joining the "million solar roof" army. We received a piece of mail that showed our roof (it is white) with a nice solar panel in one corner of it. Dora saw that I was staring intently at "my future" and she took this piece of mail away from me. Now, I know that such a system costs about $30,000 and that we couldn't sell any excess electricity back to the grid right now. But, if there is a solar leasing company who is willing to accept $1 from me per year for the next 30,000 years then we will purchase this system right now!

If you want to "go solar" then go here . Would Milton Friedman feel good about this specific government intervention?

In Severin Borenstein's discussion, he makes a nice point that he is more optimistic about the economics of commercial real estate installing solar rather than residential. So, I have a real estate inventory question. If every viable commercial building in California installed solar --- how much generation capacity would this create? Why is residential solar the thrust of the solar push? Why not have a lower profile campaign called a "10,000 Solar McDonalds"?