Sunday, January 31, 2010

What's New in Agricultural Economics?

In early March, I will find out when I participate in this agricultural economics conference . While biofuels appears to be far from "Green Cities", I actually started reading up on biofuels last year when I almost entered the "corn based" ethanol wars. Is it a low carbon fuel? Does its production cause deforestation around the world? Does scaling up its production raise food prices around the world? I had a few subtle points to make about the implicit assumptions built into the Computable General Equilibrium Models that are used for answering these questions.

In the case of California's AB32 and the low carbon fuel standard, I see an interesting case in which the environmental policy has ran ahead of the basic research. Its not clear to what is the "true" carbon emissions factor for different biofuels.

When there is fundamental modeling uncertainty, how do we provide the policy maker with a single number that represents our best guess? If we know that we do not know, should the policy maker be taking a portfolio of actions that we believe feature a negative correlation so that we are protected against the unintended consequences of the policy?

For the nerds, here is one side of the debate.

Returning to what this blog post was supposed to discuss, I think that farmer heterogeneity in adapting to climate change should be one of the major research topics for modern agricultural economics. How important is physical capital and human capital for coping with climate change? What discrete set of choices over location of where they farm, crop type, irrigation, quitting farming and moving to the cities do farmers face?

If you want to see some good work on this topic based on a sample of China's farmers, take a look at this paper by Rob Mendelsohn.

Saturday, January 30, 2010

In Search of the Monarch Butterfly

The Monarch Butterflies are migrating through Goleta, California. My wife's cousin took us to see them today and we were told that we would see thousands but we only saw dozens.



With my keen eye for nature, I took this photo of one orange one flying around. The Butterflies were clustering just a 1/2 mile from the Ocean Bluffs. Somehow, LA doesn't offer such "green" charms.

While visiting UCSB last week, I had access to a TV. I watched parts of the President's State of the Union. Climate change mitigation does not appear to be a high priority. I am not happy about this but I wonder how big a surprise this is to the environmental economics and environmental policy community. I know many leading environmental economists who have devoted a significant amount of time thinking about "cap and trade" logistics and implementation. The green economists have tried to be directly useful in helping to shape pareto improving legislation but the President has re-prioritized.

He can chant "jobs, jobs, jobs" but unless he repeals the minimum wage and enacts nation wide Right to Work laws then any policies that he pushes will have little effect.

The obvious challenge he faces is "investment under uncertainty". What business person today, who is considering making a large irreversible investment in capital, can be confident that this is the right time to make the plunge?

Thursday, January 28, 2010

The Future of California Redux

UC Santa Barbara has some impressive coastal amenities. It is amazing that the faculty do such high quality research when the opportunity cost is so high! This photo was taken after a 1/4 mile walk from the Bren School.



After sitting and staring at the ocean from a nearby path, I now understand why Brad Pitt and friends seek to sit stoned and tranquil and just watch the ocean from dawn to dusk. The market agrees that this is a valuable amenity. Here is Malibu $10 Million dollar beach house for sale

Wednesday, January 27, 2010

Carbon Cap and Trade in California and Rethinking Local Public Finance

I missed this announcement 2 weeks ago that the Air Resources Board will take the revenue collected from California's Carbon Cap and Trade and give the $20 billion dollar a year flow back "to the people".

A couple of points:

1. California has a $20 billion dollar deficit.

2. As "the people" enjoy this windfall of 20 bill/35 mill = $600 each, if we share fairly, why can't the state reinstate the Car Registration Tax? Why is the state tagging only those polluters who fall under the cap and trade with paying for carbon. I know that car drivers will face the Pavley standards but that doesn't raise any revenue.

So , my big point is that a rational public finance team would bundle several policies here and not simply enact "cap and trade". As California seeks budget sanity, this is a good opportunity to make a couple of changes as a package to ensure political support for the bundled package. In english, let's have the car tax fee and cap and trade and recycle the revenue to the public. Take this package or leave it.

3. How will industry respond to this pricing incentive? Who can cheaply substitute away from carbon production and who can't? Of course, if all polluters under the cap and substitute then the government will collect no revenue from this new market.

Who owns the older capital (whose emissions are likely to be higher and due to expected depreciation is less likely to be retrofitted)? This group will bear the incidence of this regulation.

Will "leakage" take place? I can't see how this effect can be large. I can't foresee a situation in which the state's unemployment rate goes up because of this regulation.

The PUC will face a decision on whether it allows the electric utilities to raise electricity prices to consumers as their natural gas power plants will have a higher cost structure of producing power.

Tuesday, January 26, 2010

Ranking Environmental Economists

I was not aware that Larry Summers, Susan Athey and Brad Delong were leading environmental economists but REPEC knows all and Dr. Summers is #1. As #41 on the list, I have to believe that I would jump into the top ten if REPEC would count kahn book #1 or starting in fall 2010 kahn book #3 . I am a victim of this system. Please feel sympathy for this devil.

Now that my self esteem has been injured, I must admit that I had great time today giving this speech . When the podcast is posted, you will enjoy a good laugh watching this hour. Folks were surprised and only slightly shocked by what unfolded.

Diversity and the Challenge of Implementing "Good" Public Policy

We all know that if we were identical, then President Obama would have an easy time shaping public policy. He could poll one person and ask her for her policy priorities and everyone would love the resulting public goods agenda.

During a time of recession, and a time when the U.S keeps growing more diverse along every dimension (religion, geography, income inequality, ethnicity, green ideology) --- how does a President build a working majority coalition? In english, with a very diverse group of people, what will they all agree to? What is the basic "bill of rights" and who should pay for it? David Brooks discusses this a little bit here .

We celebrate diversity and I'm glad that my UCLA is a diverse place but there is no free lunch. When multiple interest groups disagree about new policy initiatives, this leads to paralysis. So, the question is how costly is such an inability to enact new legislation. In the case of health care? Costly, in the case of climate change mitigation, costly.

Monday, January 25, 2010

A View from the UCSB Bren School

Does this photo below look like NYC's Upper West Side or Medford, MA? UCSB has unique geography.



The office walls here at the Bren School are rather thin and thus I'm learning a little bit too much about the faculty member whose office is next to mine but I have had a very productive first morning here.

Saturday, January 23, 2010

An Exciting Short Run Job

Now that I know that I won't be named to be Chair of the Federal Reserve Bank nor will I be named as the Head Coach of the Oakland Raiders, I have decided to teach this one week course at the UCSB Bren School. I go tomorrow night and monday I will meet my 50 students. I haven't taught for several weeks now and I may be rusty but I'm looking forward to this.

Given that the University of California has 10 campuses, I think that the faculty should be allowed to freely roam across the sister campuses. I could start the week in LA, then migrate to UCSB give a lecture and have lunch with friends, and then meet some cool people at UCSC before having a power dinner at UC Berkeley and finish the week at UC Davis and the Sacramento Air Resources Board before flying back to LA.

Returning to my short run job at UCSB, this short course will allow me to launch some trial balloons related to my new book. There is still time to improve this book and I'm eager to see if these smart Masters students find the material to be interesting and thought provoking.

As promised from a few days ago, here is a great letter to the editor published
by Matthew Duggan. he should be our Mayor.


A mellow mayor

Re “Villaraigosa’s personal life is ‘at a great place,’ ” Jan. 17

Thank you for the informative and heartwarming article chronicling Mayor Antonio Villaraigosa's home and social life.

All this time I have been worried about failing schools and the irresponsible manner in which our elected officials waste tax money. This "news" about the mayor makes it clear to me that my priorities are backward.

Please do not report on how the mayor plans on doing anything that may benefit Angelenos. As long as I know he is losing weight and his social life is on the mend, I will be content.

Matthew Duggan
Long Beach
Copyright © 2010, The Los Angeles Times


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Friday, January 22, 2010

Only in Los Angeles

My son should read People Magazine more carefully. He said that some dude had come by his class to talk about Haiti. After receiving this email from the School's Principal, I now know that my kid should have asked for an autograph.

"Yesterday actor Josh Duhamel visited the lab school to talk to students about "Runnin 4 Haiti," a unique fundraising event to support Haiti that will take place tomorrow in Santa Monica. Information about the event follows in the message below and in the attached flyer. Although Josh was only able to speak to students in a limited number of classes, all interested students and families are invited to attend the event.


Many parents and school staff have asked me how we as a school can support the people of Haiti during this time of tremendous need and suffering. We are finalizing our plans now, and we will be communicating with you in the week ahead about the details of our efforts and and how you can participate. We all look forward to making a collaborative contribution that expresses the care and generosity of our community."


Here is a "tweet" on this event.

Performance Criteria for Politicians

In this age of quantification, how do we judge a politician's performance? By doing before/after comparisons of public opinion dynamics? That sounds silly. By, calculating the change in the "misery index or murder rate"? In that case, you're assuming that the politician is very powerful in shaping events. Ronald Reagan asked "are you better off than you were 4 years ago?" So, random macro economic events determine a politicians' fate? Economists have written many empirical papers on whether CEO's are rewarded in terms of high pay for luck or high performance.

Now, how do we judge Big City Mayors. Is it all about personality (Koch, Rudi)? Unfortunately, the LA Times letters to the editor appear on a 1 day lag but Matthew Duggan has a very funny letter that will appear tomorrow on line. I will update.

Given that politicians make thousands of decisions and given the diversity of the voter base and our individual priorities over these voting decisions on a wide range of issues ranging from abortion, to climate change, to welfare to China, how do we rank them?

A structural IO economist would map these decisions into attribute space (this is sort of what Keith Poole does with his factor analysis of voting in Voteview). His approach essentially returns to Hotelling's ice cream selling on a long narrow beach as all politicians are mapped into a liberal to conservative continuum.

Now in the case of IO, I know the attributes of a Ford versus a GM car before I make my purchase decision. In the case of politicians; the attributes are staggered. I see the choices that the incumbent made but I don't observe what choices his challenger would have made in the same situation.

The politicians who run for re-election know this and can make choices over how to market themselves to the public during the election season. So, my point is that the political market is pretty funky.

Thursday, January 21, 2010

The Future of News Reporting and the Rise of the Academic Blogger

This New Yorker piece bemoans the death of "old-school" Walter Cronkite journalism. Back in the day (pre-Internet), reporters had all day long to drink and think and eventually file their story for the next day's paper. Such "time to build" has value added and this has been lost in the "24 hour continuous news cycle". While there is some truth to this claim, the author seems to have forgotton that nature hates a vacuum.

If news reporters are now running around blogging and commenting on Cable TV and not having the time to think (as this long New Yorker piece argues), then who will fill this void? The answer is obvious--- tenured academic nerds. Has anyone noticed the proliferation of academics who are now doing some serious writing for mainstream media? Glaeser and Mulligan at Economix, Simon Johnston for the Atlantic and there are dozens of other examples including Stavins for the Financial Times and soon Kahn for the Christian Science Monitor.

Is it obvious that journalists have a comparative advantage in doing policy analysis over academic nerds? While my opinion is biased, I don't think so. For years I would read the business section of the NY Times and would be amazed at how little connection there was between what serious academic researcher thought about issues such as takeovers and mergers and what was written in the Times. Same thing with business cycles. Today, I see a promising trend that barriers to entry are falling and academics are competing with journalists for scarce newsspace and the blogs have expanded the access that academics have for writing directly to the public.

Just as some PHDs can have a great career teaching at a Business School, there are some academics who can write for the public and we all gain when they do so.

Now, where this New Yorker piece makes an interesting point is when it argues that Obama's policy may be influenced by the 24 hour cycle that a vicious cycle can arise such that he makes a bad decision because he didn't wait to think things out. To the President's credit , he showed in the case of Afghanistan a great deal of patience so this plausible thesis may not be right.

Cooling Public Interest on Global Warming

There is a good QJE paper to be written on explaining public opinion dynamics. I envision a paper that looks a little bit like the Fox News paper . Recall that when Rupert Murdoch arrives on your TV, your probability of voting Republican rises. But, returning to public opinion dynamics -- I'm especially interested in the case when there is set of policy issues that we must prioritize. To keep this simple, consider the 2 dimensional case of "jobs" and "climate change". "jobs" represents a short run issue while "climate change" represents a long run issue. Under what circumstances will different people's rankings of which is the more important policy priority flip flop? Now, I realize that a tenured ivy league professor may have different rankings than an unemployed Detroit car maker --- but under what circumstances would the same person's rankings flip over time? What explanatory variables could cause such flipping? Possible candidates include; national recessions, cultural events (new Al Gore movie?), climate shocks.

The social interactions literature has made great strides in recent years. How much of policy priorities are determined by group discussions generating learning and peer pressure?

The LA Times tackles some of these issues here .

For those of you who need a laugh, check out these wacky greens . As a green myself, I don't think that all "greens" are wacky --- but these guys count.

Wednesday, January 20, 2010

EcoSnoop: The "Green" James Bond or the Communist Secret Police in the 1970s?

I believe that I've heard of the economist Snoop Doggy Dog but I had not heard of EcoSnoop until today. Do the ends justify the means?


"A new social networking app for environmentalists lets you post environmental concerns as you see them, find green businesses in your area, and in general save the world.. One picture at a time.

St. Louis, MO – If a faucet is dripping in a city park, and there’s only one environmentalist there to see it - does anybody listen? Though the power of a new iPhone and iPod Touch application called EcoSnoop,– they will now. EcoSnoop blends environmental activism and responsibility with social networking, and backs it up with the power of the iPhone’s easy access camera and GPS tagging capabilities to create a new tool that is both easy to use

The premise is simple, yet powerful. Say you are walking down the street one evening and you notice an office building that has left on the majority of their lights, even though the business is closed. Snap a quick photo with your iPhone, and input as much information about the case as you see it. Through GPS, the case will be tagged so that other EcoSnoop environmentalists in the area can see it on their local maps as well, providing comments and suggestions on how to resolve the case. All it takes now is one of these EcoSnoopers to walk into the building the next day armed with not only the necessary evidence, but the support of others in the community and a plan of action on how to resolve the situation. Once a resolution is in place, the location can be tagged as resolved and given a green thumbs up as an environmentally aware business.

While EcoSnoop has its roots in the iPhone, a back end website is available for viewing cases as well. Currently undergoing a make-over, EcoSnoop.com will carry over the content from the feet-on-the street teams and special monitoring tools will be made available to city and state governments, campuses, and businesses along with concerned citizens. Integration with Facebook and Twitter will allow cases to gather awareness even quicker within communities."

Is the Demand to Read the NY Times Inelastic?

"Love is inelastic." This wise phrase was written on one of my Columbia colleague's blackboards back in the mid-1990s. Do we love the NY Times? How much will their readership fall when it starts charging readers in 2011? I see that print subscribers will read online content for free.

Non-subscribers will pay a fixed access fee and then face a zero marginal cost per article. So, they will keep their "heavy reading" nerds and lose the light readers. Someone in their marketing group must have a prediction about the distribution of hidden types of readers.

Now this is a leader follower game with the NY Times and the Wall Street Journal as the leaders. Consider Matt Kahn. If the NY Times gets pricey, I substitute to reading Paul Krugman's blog and the NY Post. While my substitution patterns may strike you as odd, it raises the issue of how the NY Post (and other 2nd tier content providers) will respond to the unilateral move by the NY Times and WSJ. If the Post responds by introducing a similar access fee then the NY Times will lose less business. So, there is the possibility of collusion here. The NY Times controls itself and the Boston Globe. Will it choose pricing for both while recognizing the cross-elasticities of demand? Some Stanford PHD will be able to write a good thesis based on this experimental desighn.

Will bloggers be the big winners here as we will filter the news we read (as voracious reader types) and then provide free content for you? This would make us bloggers more influential and increase our readership.

Let me think about this issue some more and I will have more wisdom for you.

Tuesday, January 19, 2010

Identity Economics: A Couple of Thoughts

I did not know that Akerlof and Kranton had written a book about Identity until I saw this . Recall the favorite example of where economics and sociology merge. Do smart black kids in inner city schools choose to not study because studying isn't cool? The Akerlof/Kranton model would say that a young African American cares about how his peers view him. For some reason, the norm is to not study so this group punishes a nerd for nerding out. Anticipating this cost, a kid at the margin between studying and not studying chooses not to study and this hurts his long run development.

Implicit in this set up, is the researcher's assumption that a household's locational choice is exogenously determined. Why do the parents keep the kid in this school if they anticipate this effect and hope that he will have a great future? You have to tell a "victim" story that the parents were unaware of the "bad culture" treatment effect.

Only in the case when parents don't care about their kid's long run development or are unaware of the true "treatment effect" of sending a gifted kid to a school that beats up nerds, will the statistician ever observe the effect that Akerlof and Kranton want to focus on.

Let's switch examples. Consider President Obama. What is his "identity"? He is a very talented man who at different points in his life has "self-selected" into different groups who he could plausibly claim that he has ties to. Using their framework, how can Akerlof and Kranton study people like him or Tiger Woods who do not have a "unique identity"? The old self selection issues pop up here. It seems to me that Akerlof and Kranton want to take one's identity as an exogenous characteristic rather than as another choice that some people make.

So what is my point? Akerlof and Kranton are taking the neo-classical utility function and augmenting it. Joel Sobel makes some subtle points about this approach in his 2005 JEL paper .

Introducing heterogeneity on unobservables (who is Matt Kahn's reference group and what if Matt knows this group but the econometrician can't figure this out) --- makes empirical work a whole lot harder. In a world where I know none of the neighbors who live within 100 yards of my Westwood home, it would be a mistake to use my physical residential peers as my peer group. Few data sets have information on who a person works with (Mas and Moretti's Peers at Work is an exception). Facebook provides you with webs of networks but it would be a challenging exercise to establish what a friend network's "social norm" is and to show that this norm causes outcomes rather than self selects certain people (bald economists) to sign up in the first place.

While I support the big idea in this "identity agenda", I do wonder whether economists are introducing too much heterogeneity into our models. We can "explain" all of the facts we see in the NY Times but have we explained them?

Environmental Refugees and the Future of Carbon Cap and Trade

So, the Ruggedly handsome Mr. (Senator?) Scott Brown of MA could change the course of the galaxy if he is elected today. This sounds like a new Star Wars movie. I predict that he will only win if a majority of Harvard and MIT vote for him (am I kidding?).

Before I discuss the consequences of his election, I would like to discuss the awkward topic of environmental refugees. The NY Times reports today that the U.S is telling Haitians to not try to respond to the disaster by migrating to the U.S. Is this a credible threat? Suppose that like the Mariel Boatlift that 100,00 Haitians arrive in Miami, what will Pres. Obama do? What would Spock do in this case?

Turning to Senator Scott Brown. While everyone is talking about the knife's edge that health care sits on, what about carbon cap and trade and the Senate's deliberations. One leading energy economist emailed me; "On another note, the Senate race in Massachusetts today will have big implications for climate policy. I predict that if Brown wins, cap-and-trade is dead. It is ironic that a Republican victory could create a setback for market-based instruments and a greater reliance on command-and-control regulation."

I had not thought ahead to this point but it allows me to make a new point.

With the anticipation that the Federal ACES (passed by the House in June 2009) (the Waxman-Markey Anti-carbon bill) would be signed by Pres Obama, I had naively thought that California's AB32 (our anti-carbon law) would become a little brother to the federal law. But, if the Feds stall then this makes AB32 even more important as a guinea pig and a credible commitment for continuing the green push. The state's republicans will argue that California can't afford AB32. I don't believe this but the election of Senator Brown at the Federal level will make it imperative for the Air Resources Board to work with serious economists to design the carbon regulation in a cost-effective manner.

Monday, January 18, 2010

Will China Dominate Late 21st Century Academic Economics?

Back in 1920, the Economic Journal had more cache than the AER or JPE or QJE. In 2080, will the CJE be the place that I'll be trying to publish? While I don't know if the China Journal of Economics (CJE) exists yet, The New York Times is debating whether the best universities in the U.S face a serious challenge from China's rising universities.

One doubter in the debate states; "China’s one-party state cannot produce world-class historians, economists, political thinkers or even demographers. Beijing’s increasing demand for obedience smothers creativity in many of the social sciences and “soft” disciplines."

At least in the case of applied micro economics, I don't know if this is true. When I was in Beijing in September, I was quite impressed by the empirical research agenda that professors at Tsinghua and Peking Univ were pursuing. They were able to run novel field experiments because they were in China. While I agree that some topics related to the monopolist state may be awkward to work on, I did not sense Big Brother's hand dictating what could and could not be said. Now, one could counter that applied micro nibles around the edges and doesn't really pose a challenge to the State.

Turning to the bigger question, will Harvard still be the world's top dog in the year 2100?

There are 7 billion people on this planet and 1.3 billion of them in China. Will the best and the brightest of the remaining 5.7 billion want to go to China or the U.S? The irony here is that if China's state squashes individual liberty and makes people feel trapped then this will help the U.S compete for talent. As I have argued many times, the footloose want quality of life. The United States is greener and offers more individual liberties than China. How much will this two dimensional gap narrow over time?

Now, objectively it appears that China will invest much more in its universities than the U.S. It remains an open question how large the endowment of schools such as Tsinghua and Peking will grow as some of their graduates become rich.

I must admit that I'm a pinch puzzled about what is the U.S's comparative advantage in the 21st century. I hope that my able son will be able to answer this question.

We also have not discussed technological innovation and how this will affect whether China replaces the U.S as the King of the Hill. By the late 21st century, tele-conference technology will be pretty good. Airplanes (if they still exist) will be faster so that one could travel from LA to Beijing in 3 hours? In such a flatter world, will the physical location of the world's best universities matter less?
Once an academic has established a reputation, one can live in a nice city and jet in for the occasional conference.

Ideas are public goods. Now if the researchers are dreaming up stuff with national security implications (bombs, plagues) then I understand why the location of where they are produced matters. But academic economics doesn't have this feel. We are an open source profession. People want to get their ideas out and get credit for them. Where they produce these ideas only matters if there are sharp increasing returns to scale from face to face communication. But, I can honestly say that I do not need to see your face to learn from you. I read quite fast and would prefer to read your work rather than to hear you describe it.

As long as Chinese economists write reasonably good english, I will follow their best guys' stuff.

Sunday, January 17, 2010

Is California a Great Place to Live for the Middle Class?

This NY Times magazine piece laments the decline in quality of life for California's middle class. Attending the flagship UC's best campuses costs a family roughly $25,000 a year per kid. While this is a great deal relative to an Ivy League education, it is a high price tag for a "Middle Class" household who makes $125,000 a year. There are more and more pieces pointing out that such households appear to be "rich" but in real terms (if they have a mortgage and 2 or 3 kids) they aren't.

Enrico Moretti's paper on Real Wage Inequality
should be required reading. Nominal high salaries do not buy you much in high tax, high home price areas. The amenities must be highly valued to keep people living here.

If the middle class are squeezed and can no longer live in California, this leads to some funky political economy. The state will consist of immigrants, native wealthy and international wealthy. What types of public goods and taxes will be equilibrium outcomes? In the case of UC tuition (now at $10 grand a year), that looks cheap to me. But, I'm used to ivy league prices and I have 1 child and I know that the UC provides roughly equal quality to our ivy league peers.

I would like to see President Yudoff counter the perception that there is plenty of waste in the UC budget. For all of the well paid administrators at his Oakland office, he should explain what each of them do and why they are earning their salaries. The UC campuses also need to learn the dark art of fundraising. We should hire people from Princeton's and dartmouth's fund raising offices to show us how the pros do it.

The NY Times author hints that California's best days are in the past. So, where in the U.S would she suggest we move to? St. Louis? Phoenix? Cleveland?

I am cautiously optimistic about the state but I do worry that there is too little thought about reinventing government and thinking through innovative ways of providing public goods. I look at the Los Angeles Public Schools District and its apparent inability to put together any good middle schools or high schools and wonder what in the heck is going on.

With a budget of $13 billion a year, they owe taxpayers such as my household some value.

http://en.wikipedia.org/wiki/Los_Angeles_Unified_School_District


UPDATE:

Here is a quote from my teacher Gary Becker; "Hundreds of economists have blogs, although many are not very good." Source .

Now , I'm slightly concerned that he is talking about this blog. As Malcolm X once said, the Chickens have come home to roost.

Gary, if you read this blog --- please keep in mind that I'm trying to supplement my UCLA salary with a comedy act and I use this blog to hone my material that I hope will soon be a HBO Comedy Show. This is all a joke. Nothing here is serious.

Is Climate Change Legislation a High Priority for Pres. Obama?

Not according to the LA Times. This article mentions 7 other priorities without touching upon climate change. The big 7 are; health care, improving the intelligence system, job creation, international engagement, guantanamo, immigration, gays in the military. Now , I recognize that climate change could count under international engagement but the article itself focuses on on Iran and North Korea.

My new empirical paper (which I hope will be co-written with Matt Kotchen) argues that the recession has caused this diminished interest in battling climate change. Greens need booms to get guys likes Dick Cheney "in the mood" to support new regulation.


Switching gears; heavy rains will hit LA this week. Given that most economists are fans of spot markets, if you would like to hire Dora and I for one week, We are willing to move to your city and work for you. Call my agent at WMA to get our rates.

Friday, January 15, 2010

Some "Big Think" on Climate Change Adaptation

Twenty years ago, when I was a Ph.D. student at the New Yorker's John Cassidy's favorite Mid-Western Economics Department , I learned that I wasn't very clever and that I should always remain a modest man. But, as time passes one forgets the truth and at least in my case one begins to fill with hot air. Today, I have some self awareness of my limitations but perhaps not sufficient awareness.

So with that drumroll, I'm looking forward to giving this talk at the UCSB Bren School at the end of the month. I'm grateful for the invite and eager to start a lively discussion. If this topic interests you, then in the fall of 2010 -- I will have something pretty good to show you.

Why is California So Much More Energy Efficient than the Rest of the Nation?

In the early 1970s, the average Californian used roughly 15% less electricity than the average person in the USA. Why? Easy, less air conditioning demand. Today, the average California uses 50% less electricity than the average person in the USA. Why? The Los Angeles Times says that the answer is Arthur Rosenfeld . There is also an OP-ED piece in the 1/15/2010 edition titled "Founding father of efficiency" that claims that the pivotal "Superman" moment for why Rosenfeld caused this progress was his random meeting with then Governor Brown where he convinced the Governor to pursue energy efficiency programs (such as appliance standards) as a substitute for building new power plants such as new nuclear plants.

I greatly admire Arthur Rosenfeld. He gave a great presentation at the December 2009 Berkeley Green Buildings Conference but I always question the "Superman" theory of history. A slightly more nuanced view of the California exceptionalism would run a horse race between;

1. energy efficiency standards
2. general population rising environmentalism and voluntary restraint
3. high prices for electricity relative to the rest of the nation
4. differences in income and demographics between California and the rest of the nation
5. The relative deindustrialization of California

If you'd like to see a recent paper that does a pretty good job, examining these factors take a look at Stanford paper . Now, this paper has a flaw because the decomposition that is presented implictly assumes that each of the factors such as household income, and home size are all independent of each other. In my read of the paper, the authors do their decomposition piece-wise rather than using a regression context to correctly estimate the index weights so they are guilt of double counting. Putting this point to the side, it appears that they give Arthur and the California CEC credit for about 20% of the observed Calif improvements; that is still very impressive! I would only hope that all UC professors could be so useful for the state!


Switching Subjects: I appreciate the mention in Cafe Hayek's Blog Today about my work on economic development and deaths from natural disasters.

Thursday, January 14, 2010

RFP for Research on "Economics and Climate Change"

California researchers, I want to make sure you know about this funding opportunity. I'm hoping that the ARB receives some great proposals that highlight the constructive role that serious economic analysis can play in shaping cost-effective carbon mitigation regulation. If us economists can deliver, then we are more likely to achieve the "win-win" of a growing California economy and achieving the AB32 carbon reduction goals.

As the national debate continues on the financial crisis, I find that economists are slightly on the defensive concerning the "big think" question of whether we are as smart (and socially useful) as we have always thought. While my confidence remains high, my mom wonders whether I am a truly useful person. She still hopes that I will go back to school and become an urban planner.

What is my point? This California RFP will prove beyond a shadow of a doubt that economists can deliver value added. When we know that we do not know key pieces of information that are necessary for designing "good public policy", economists can figure out how to fill in the gaps. Theory and measurement will help to raise the public's view of us economists. While we aren't lovable, we are useful.

The War on Terror and Type I and Type II Errors

The NY Times feels sorry for "Mikey" . Recall that he is the 8 year old who is suspected by the airport computers of being a terrorist. While many students sleep through Stats lectures on type 1 and type 2 errors, you must admit that this is an interesting case.

In a James Bond world, our Homeland Security people would be as talented as Santa Claus. He knows who is naughty and nice and thus is able to partition kids into "good" and "bad". Apparently, in the real world this is costly to do and humans make mistakes.

So which mistake is worse;

Case A: The "Mikey Case"; innocent kid who has been profiled as a bad guy

Case B: Missing an underwear bomber who is presumed to be a good guy?


These are real world examples of type 1 and type 2 errors where the null hypothesis is that a given person at the screening line is not a terrorist. In Case A, we reject a true hypothesis. In case B, we accept a false hypothesis.

Now most people would ask the Feds to minimize Case B risk, but this raises the probability of more "Mikeys". In a world with scarce time and where we value quality of life, what is the marginal cost to society (measured in lost time being screened and probed and laughed at by the scanners) at our airports of lowering case B by 1%?

In a world of tradeoffs where we can't have "no terrorist attacks" and "no time wasted " at airports; what is the right balance? How much has Mikey suffered from his mis-classification?

Wednesday, January 13, 2010

The Damage Caused by Natural Disasters

The NY Times points to unenforced building codes and low quality cement as leading causes of the damage caused by the Haitian earthquake. The 2nd point is interesting. Cement is costly in Haiti. To economize on it, construction waters this stuff down.

"Concrete is very expensive — much of the cement for it comes from the United States, Mr. Dooley said — so some contractors cut corners by adding more sand to the mix. The result is a structurally weaker material that deteriorates rapidly, he said. Steel reinforcing bar is also expensive, he said, so there is a tendency to use less of it with the concrete."

A recent literature has examined the death toll imposed by natural disasters in poor, middle income and rich nations. If you want to read two of my favorite papers; look at paper #1 and
paper #2 .

Does Volunteering Prevent Frailty? Selection or Treatment One More Time

My UCLA colleagues continue to do interesting research. The key finding is that older people (over age 70) who do volunteer work are less likely to become frail as time passes.

"specifically volunteering, paid work and child care -- prevent the onset of frailty".

Now, which way does the causality run here? How many vote for; volunteer ==> non-frail? versus expect to be non-frail ===> volunteer (unobserved to the researcher heterogeneity).

Intellectually, what interests me here is that the 1990s econometrics approach of seeking a convincing instrumental variable or "natural experiment" does not appear to matter in these other quantitative literatures.

For example, I see study after study in public health journals correlating cross-city mortality rates with cross-city variation in air pollution. You don't need to be Chay or Greenstone to ask some tough causal questions that these researchers appear to just take for granted.

Now, am I smart enough to think of a good instrument for volunteering?

Yes, read my 2003 paper with Dora Costa in Kyklos; In more diverse cities, people free-ride and volunteer less. So using micro data with city identifiers, I would instrument for volunteering using the "diversity" measures.

The identifying assumption would be that the unobserved determinants of frailty (such as bad genetic history) are uncorrelated with income inequality or ethnic fragmentation within the metro area. Not a crazy assumption.

So, my big question is whether empirical researchers at public health schools and medical schools and gerontology departments --- have found the economics causal treatment effects literature interesting? Or merely strange and annoying?

Tuesday, January 12, 2010

Crime and Punishment Revisited: The Case of Texas

Perhaps demography is an interesting social science topic. I just received this email for an upcoming demography talk here at UCLA. Given that the basketball team is losing, everyone can focus on what we are supposed to be doing (thinking).


“DON’T MESS WITH TEXAS: Monthly Time Series Analyses of Executions, Short-Term Deterrence and Displacement of Homicides in Texas“


Prof. Kenneth C. Land

Duke University

Wednesday, January 20, 2010
12:00-1:30 PM

4240 Public Affairs Bldg.


Abstract:

Does the death penalty save lives? In recent years, there has been a new round of research using annual time series panel data on the 50 US states for 25 or so years from the 1970s to the late-1990s that claims to find substantial numbers of lives saved through reductions in subsequent homicide rates following executions. This research, in turn, has produced a round of critiques which generally concludes that these findings are not robust to model specifications such that even small changes in specifications yield dramatically different results. A principal reason for the sensitivity of the findings to model specifications is that there are very few state-years (about one percent of all state-years) in which there have been six or more executions. To provide a different perspective, this study focuses on Texas, a state that has used the death penalty with sufficient frequency that it may be possible to make relatively stable estimates of the homicide response to executions. In addition, the observation interval for recording executions and homicides is narrowed from the annual calendar year to a monthly interval. Based on time series analyses and independent validation tests, our best-fitting model shows that, for the 12 years from January 1994 through December 2005, there is evidence of modest short-term reductions in homicides in Texas in the first and fourth months following an execution – on the order of 2.5 fewer homicides total. Another model suggests, however, that, in addition to homicide reductions, there may be some displacement of homicides from one month to another in the months after an execution – which reduces the total reduction in homicides after an execution to about 0.5 over a 12-month period. Results of various validation and post-sample forecasting analyses and new analyses of felony and non-felony homicides separately will be described. Implications for additional research and the need for further analysis and replication are discussed.


Now, Steve Levitt made an important point somewhere that convicted criminals on death row have a lower probability of being killed in the next month than their friends walking the street who are not in jail. Assuming this fact is right, then how does patience and discounting enter into the thinking of a "would be killer"?

The "would be killer" recognizes that he will be eventually executed in Texas if caught (and assuming he kills), but how many months in the future is that? How impatient are "would be killers"? Has anyone ran a field experiment to elicit this information?

Tel Aviv's Boom and the Knife's Edge

Today, David Brooks celebrates Tel Aviv's success as an innovation hub. He tells an increasing returns story about a vibrant city. But, at the end of the article he hints that the "migration option" lurks and that the superstars in Tel Aviv could return to Silicon Valley (and Stanford) if life gets bad in Tel Aviv. He tells a "bank run" story hinting that terrorist attacks could set off a chain reaction that lead to an unravelling of the city --- the skilled leave.

Duke's Chris Timmins and Pat Bayer have done the best econometric work on this topic. This is an old draft of their work.

We all know the basics of discrete choice models (move to Tel Aviv or not). But suppose that rather than having exogenous attributes of Tel Aviv (i.e climate) as explanatory variables that people considering moving to Tel Aviv take into consideration whether other skilled people are moving there. So my probability of moving to Tel Aviv depends on the count of skilled people who are already there. In an IRS model, this variable should have a positive effect on my moving there. Now let a terrorist attack make households reconsider living there. In the Bayer/Timmins model; the initial "small" shock amplifies as the "bank run" begins --- as people leave Tel Aviv; this lowers my probability of wanting to live there and all of the skilled split.

To prevent this, you need some gravitational force such as patriotism or some Tel Aviv amenities that California cannot offer so that there is some baseline loss from leaving it.

Now from an irreversible investment perspective, if investors are aware that the golden goose may run away; does this retard certain capital investments in Tel Aviv?

I don't know.

Monday, January 11, 2010

Anthony Burgess' Book The Wanting Seed and China's Skewed Dating Game

This news story about the 24 million lonely bachelors in China due to government policy got me thinking about an Anthony Burgess (the dude who wrote Clockwork Oranage) book that I read 22 years ago.

The Wanting Seed

Plot

"The novel begins by introducing the two protagonists: Tristram Foxe, a history teacher, and his wife, Beatrice-Joanna, a homemaker. They have recently suffered through their young son's death.

Throughout the first portion of the novel, overpopulation is depicted through the limitation and reuse of materials, and extremely cramped living conditions.

There is also active discrimination against heterosexuals, homosexuality being encouraged as a measure against overpopulation. Self-sterilization is also encouraged.

One of the major conflicts of the novel is between Tristram and his brother, Derek. Very much alike at first, Derek chose a different path from Tristram and pretends to be homosexual while in public to help his career. In private, he has an affair with Beatrice-Joanna, and when she forgets to take her State-provided contraceptives, she becomes illegally pregnant. She has sex with her husband, Tristram, and his brother, Derek, within a 24-hour time span, thus the paternity of her twin boys is uncertain.

Life changes as the police ('Greyboys') become more active and more repressive - something that begins as a mysterious blight spreads across the world. Tristram is arrested after getting unintentionally mixed up in a protest and spends the next section of the novel in jail, as society outside changes rapidly.

While he is imprisoned, formerly repressed religion begins to bloom, fertility rituals are endorsed, and the structure of society, as well as government, are competely destructed. Most shockingly, cannibalism is openly practiced in much of England. Beatrice-Joanna has run away, and is staying with her sister and brother-in-law in the countryside on their Farm, where the blight is affecting even their chickens. She stays there until she delivers her twin sons, when a government agent arrives to take her and her children to the city." Source

This plot is so weird, I now understand why I became an economist. Novelists have too much freedom.

Will China and India's Population Be Wheat Deprived in Our Hotter Future?

Will climate change cause wheat production in India and China to sharply contract? The Times Green Blog thinks so. As an urban economist with some interest in how our food is produced, this got me thinking.

My first thought concerns the benefits of globalization. In a world where nations can trade in wheat, then will India's and China's urban consumers really suffer if the nation's farmers can't grow as much wheat? In a world of free trade (without nasty tariffs), the answer is no. Now while urbanites wouldn't suffer much (because the price of wheat post climate change would not increase much), the domestic farmers would lose as their profits will fall. The NY Times must be upweighting them in its social welfare function.

I then started to do some "googling" and found this interesting quote; "The most significant difference between our predictions and the predictions
of others is in the nature of the demand for wheat. Others forecast rising per
capita wheat consumption over time. Our view is that the unique structure
of wheat demand in China, one in which rural residents consume more wheat
per capita than urban residents, will take the pressure off of domestic
demand as China’s population continues the gradual shift from rural to
urban. As the projected migration occurs, rural residents migrating to urban
areas are likely to adopt the demand behavior of other urban residents, and
wheat demand will shift down sharply." Source

So, these guys are saying that aggregate demand for wheat in China will decline as the population urbanizes. In this case, demand is shifting down while supply is shifting up and it is possible that the equilibrium price of wheat won't change much at all in China --- especially if China can import (as a small price taking nation) from the rest of the world.

Now , I agree that India and China together are "not small" but if you haven't noticed -- I've made 2 points; both globalization and urbanization in this case help to protect the Indian and Chinese population from climate change's wraith. Look for more on this theme!

Party Animals and Grandpas Battle: The Cost of Diversity in the Big City

We know that the future of cities is as "consumer cities" where the educated want to live and play. But, what if the young educated want to party late into the night and then sleep all day while the older educated want to get to bed early and solve the crossword puzzle in the morning? In Paris , this case study is playing out as fun nightlife is creating too much noise and bugging the locals who have spent a fortune for their nearby apartments. This same dynamic is playing out in all major cities.

When I taught at Columbia University, I lived at 113th and Broadway just above a bar called the West End Gate. As a younger man, I used to drink beer there. In my early 30s, Dora and I were signing noise petitions against the bar. Things change!

So what? I am quite interested in tragedy of the commons issues --- especially in the presence of diversity. How would Nobel laureate Ostrom solve this problem? How would Coase solve it? I would want to know the demographics here. Which group? (the young noise suppliers or the peace and quiet (elderly) demanders is growing faster?

Turning to social capital, in more tight-knit communities do the victims of the noise pollution face lower transaction costs to work together to sue the bar? Is there less of a free rider problem for the victims to work together when they are all buddies?

Sunday, January 10, 2010

Social Networks and Influence: The Case of the Obama Administration

I was reading this article about Peter Orszag's busy social life, when I stumbled across the following sentence in the print edition; "declared Mr. Orszag's brother Jon, an economic consultant in Los Angeles who talks to Peter about five times a day."

Several Points: 1. This quote was in the print version but not the electronic version of today's NY Times (strange).

2. How many brothers talk to their brothers 5 times a day? I love my brother but I call him 1 time a month and he doesn't call me.

3. Now I apologize for acting like a crazed conspiracy Mel Gibson but we all know that Peter Orszag is an excellent economist. His brother is also an economist.

4. So what?

Without knowing any facts or gossip here, this raises a fascinating case. For important public figures such as Peter Orszag, who should he talk to for advice? Al Gore would tell us in the 2000 election that he should be talking to the public not the powerful.

From Peter Orszag's perspective; the easiest way to collect information is to talk to your staff, friends and family but this gives the last 2 sets some monopoly power and the appearance of having unique access. Has Jon Orszag's consulting career been helped by his brother's promotion? Has he taken pre-emptive steps to minimize the appearance of conflict of interest or having "inside information"? I don't know but 5 talks a day sets off a red light in my mind.

In fairness, Colin Powell's son has had a nice career Do you see my point?

We need some sociologist to write a big book on nepotism in government. For the kids, the spouses (I'm thinking of Hilary Clinton) and siblings, does having a "connected family member" change the course of their career? Establishing causal effects in peer effect is always hard to do but the key counter-factual here is how a person's career would have progressed in the absence of a connection to "Mr. Big"?

So here are the research questions;

1. How much do "Friends of Bill" and family members benefit when their guy becomes King? How far do these chains of influence go? (Do best friends of best friends of Obama benefit?). This would be similar to Ray Fisman's AER paper about Indonesia but his research design would be hard to repeat at the individual level and this is a hard counter-factual about what an individual's earning path would be if a key person in his social network becomes a King or not.

As you know, I have written a whole book on social networks but our setting was the U.S Civil War. Go to mek1966.googlepages.com to download the first chapter of Heroes and Cowards.


2. Is this simply a zero sum game of distribution of perks such as tickets to State Dinners? Or are there real effects as a Peter Orszag listens to his brother but tunes out my advice? The answer here hinges on the quality of advice the network offers versus if the leader "outsources" to the best in the profession --- how much better advice would he receive? (tough question)


Now for full disclosure, Jon Orszag is my neighbor (his vita above gives this info) and from zillow I see that he has a bigger house than my humble abode. I have never met him. He lives .5 miles away from me.


In economics, we always talk about comparative advantage but we are not great at explaining the micro-determinants of why one person specializes in one occupation. In the case of China with its huge workforce , it is clear that it would specialize in labor intensive exports. But for families of Washington heavyweights (such as Senators), do we see a clustering in suspicious occupations? Now a non-cynic would say that this could be true because of similar preferences and learning by doing by seeing the "family business". I understand this but I would like to know how many children of Senators are doctors or professors and thus are in fields where their parent's power can't help them.

In the 1950s, Ike warned us about the "Military Industrial Complex". With guys like Rahm Emanuel becoming multimillionares after leading the Clinton Whitehouse , I'm seeing something similar and worth talking about. Connections -- to Washington leaders are quite valuable.

Now I realize that connections to any powerful person can be valuable. But, suppose you are Bill Gates' best poker buddy. Does this open up doors for you and business for you in the same way that being Friends with Obama or Bill Clinton would? I doubt it and that is my point. The Concentration of Power in Washington DC today is enormous. You don't have to be that big of a libertarian to wonder about the wealth creation caused by political connections and how this has amplified in recent years relative to the recent past.

A Report from Cairo

I am not with King Tut but I have sent two of my top reporters to Cairo to observe the urban growth in the developing world. Their presence in Cairo is a field experiment and I'm eager to see their "treatment effect" on all 8 million people they meet. I will write up the results and send the paper to a top journal. Here is their first report. I hope they used the crisp one dollar bills that I gave them as their per-diem.

"We visited the Pyramids in Giza, rode a camel on a camel badly built for two, and are amazed at all the modern and ancient things jumbled together in Cairo: like a lady carrying five tires on her head. We had a good flight.

Cairo is bustling. The road from the airport was characteristically beautiful. lined with palaces King Farouk etc. and Saldins citadel. The hotel is on the Nile and has beautiful views and internal design. A huge amount of traffic functions completely without traffic lights. if an economist had the pedestrian death rate from traffic accidents and the cost saving of not having lights corrected by the gain or loss of commuting time with no lights, an Egyptian calculation of the monetary worth of a life would emerge and be interesting. Tonight the Cairo museum."

Dear Reader, note that without any formal training in economics that they have noted
a key theme in the Presidential Address by Dixit last year.

To Quote from Dixit's 2009 AEA Big Presidential Speech on Order without law.
http://www.princeton.edu/~dixitak/home/PresAd_F1.pdf

"It is important to maintain a distinction between the state’s laws and actual order
that must support economic activity, and between the laws that are on the books and how they actually function (or fail) in reality. The state’s role seems simplest in situations that require pure coordination to achieve the better of two equilibria in an assurance game: daylight saving time and traffic lights are commonly cited as examples. However, notoriously dangerous intersections persist despite traffic lights, and well-understood social norms of behavior can allow smooth flows of heavy traffic despite the absence of traffic lights. Tom Vanderbilt (2008, 186-204) argues that norms can work better than traffic lights. At a more entertaining level, YouTube videos illustrate traffic “law without order” in St. Petersburg:
http://www.youtube.com/watch?v=H2JFL1Sk21Y and conversely, “order without law” in India:


click here for the India Video


click here for the Vietnam video

Saturday, January 09, 2010

Two Cases of Property Rights and the Tragedy of the Commons in Los Angeles

Here are two quick case studies of allocating public property in Los Angeles. In this first case , a doctor has just been sentenced to 5 years in jail after he drove in front of two cyclists and slammed the brakes and they were injured as they hit his back bumper.

He appears to have a vigilante streak as he claims that cyclists had been rude to him as the bikers and cars share common roads in the Brentwood Canyons. I must say that I saw this even more vividly in Beijing. In Beijing, there is an awkward transition taking place as there is huge car growth but still a lot of urban bike riders. Traffic laws are not exactly enforced and orderly chaos rules but there is plenty of risk of traffic accidents.

But, in this LA case --- the doctor was attempting to privatize the commons and to make sure that drivers could drive at regular speed (30 MPG) rather than being nice to bikers and driving slow behind them.

In this 2nd story, the Los Angeles port now forbids older trucks (any built before 1988) from shipping from the ports. In the recent past, these trucks had greatly contributed to local particulate emissions. While economists would prefer to have an emissions tax (based on mileage and the emissions factor (emissions per mile of driving and this could be measured at a Smog Check), this ban on old trucks effectively transfers income from the truckers who owned the old trucks to the "victims" who live near the ports and were breathing that air. The regulation effectively transfers property rights back to the victims. Will rents rise in those communities? Will the real winner be the landlords who own the land there? This article does have an interesting discussion of how unions gain from this regulation.

Friday, January 08, 2010

Public Relations Challenges for Prominent People

Forget Tiger Woods. I want to talk about Scottie Pippen. As a graduate student in the early 1990s in Chicago, I could have learned a lot more economics if I hadn't been watching the Chicago Bulls. Scottie Pippen's life has taken a strange turn in recent years.

I will switch subjects. It was 75 degrees today and my family ate dinner outside (no heat lamp you wimps). As I have said many times, when people bad mouth California they don't know what they are talking about.

Despite the sunshine and warm January temperature, I feel like I'm making good progress on my major projects. There is something about not teaching that helps the process. But, for reasons I don't understand, I have agreed to serve on faculty search committees, faculty promotion review committees, a review of the UCLA Statistics Department, and some other stuff. I also volunteered to give several guest lectures on campus. Looking at this aggregate list of crap work (that I volunteered to do) I am a big fool. I am carefully watching to see if the University of California will try to cut our pay again in 2010-2011. President Yudoff (if you are a reading this), that would be a big mistake.

My hope is that when my new book is published this fall that it will make me "too big to fail" and I will begin to act like a 2 year old saying "no" to everyone I meet. You won't like the new me but I will.

Thursday, January 07, 2010

Ranking Economists

While economists talk about comparative advantage, deep in our heart we believe in the 1 factor model of quality. Who is the top dog versus who is at the back of the pack? REPEC tells us that Joe Stiglitz leads the field with Shleifer, Barro, Heckman and Lucas trying to close the gap. REPEC now ranks over 22,000 economists on a monthly basis. Each month I hope to rise in the rankings. I now stand at # 827 . Is that good? When I thumb through the list of people above me, I see some stars and some nobodies. Below me, I also see some stars and some nobodies.

Given that we live in a world of complete markets, we should be allowed to buy futures in our future index ranking. I agree that you shouldn't be able to short your future index ranking because you can choose to write no papers or just bad papers.

To REPEC's credit, it doesn't rely on "reputation" or the opinion of Department Chairs. Instead, it takes "real data" for publications, citations, downloads and uses a formula to collapse this matrix of data into a single ranking.

As usual, I have complaints. Books are only included in the rankings if the publisher alerts REPEC. So my 2006 Brookings Instituion Press Green Cites book does not count.

The following papers I have published are not in REPEC because the journals haven't bothered to contact REPEC;

So, my friends; I see 16 papers and 1 book of mine NOT counted in REPEC. If this stuff was counted, I would hope that you would agree that I would crack the top 500?



Informal Economies, Information and the Environment, joint with Alex Pfaff, Journal of International Affairs, Spring 2000 53(2) 525-544.


Decentralized Employment and the Transformation of the American City, joint with Ed Glaeser, Brookings/Wharton Papers on Urban Affairs Volume 2. 2001.


The Beneficiaries of Clean Air Act Legislation. Regulation. 24(1) 34-39. 2001.

Civic Engagement in Heterogeneous Communities (joint with Dora Costa), Perspectives on Politics 2003, 1(1) 103-112.

Two Measures of Progress in Adapting to Climate Change, Global Environmental Change, 2003 13 307-312.

The Effects of Urban Rail Transit Expansion: Evidence from Sixteen Cities from 1970 to 2000 (joint with Nate Baum-Snow), Brookings-Wharton Conference on Urban Affairs 2005 Volume, edited by Gary Burtless and Janet Rothenberg Pack.

Air Pollution in Cities, chapter for Blackwell Press Companion Volume on Urban Economics, edited by Richard Arnott and Daniel McMillen. 2006.



Public Health and Mortality: What Can We Learn from the Past? (joint with Dora Costa) , in Poverty, the Distribution of Income, and Public Policy edited by Alan Auerbach, David Card and John Quigley, Russell Sage volume in honor of Eugene Smolensky, 2006.



Environmental Valuation Using Cross-City Hedonic Methods. Chapter Two of Environmental Valuation: Interregional and Intraregional Perspectives. 2006 Ashgate Press book edited by John Carruthers and Bill Mundy.

The Quality of Life and Productivity in Sprawled versus Compact Cities , OECD Roundtable. Proceedings, 2008


Kahn, Matthew E. "compensating differentials." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan.

Kahn, Matthew E. "urban environment and quality of life." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan.

Think Again: The Green Economy, Foreign Policy , May/June 2009 http://www.foreignpolicy.com/story/cms.php?story_id=4837&page=0



Understanding Spatial Variation in Tax Sheltering: The Role of Demographics, Ideology and Taxes (joint with Bill Gentry) International Regional Science Review 2009, 32(3) 400-423.



Urban Growth and Climate Change, Annual Review of Resource Economics, 2009, 16(1): 1-17.



Walking the Walk: The Association Between Environmentalism and Green Transit Behavior (joint with Eric Morris), Journal of the American Planning Association, 2009 , 75(4) 389-405.

Wednesday, January 06, 2010

Rare Events: The New York Post Publishes an Article About the Private Life of an Obama Economist

The Doors were right. These are strange days indeed. Low probability events, that in the past that I would have thought had a zero probability of taking place, continue to occur. When was the last time the New York Post ran a salacious piece about a prominent economist? Don't believe me? Take a look at this . The Post tends to specialize in articles about Tiger or A-Rod. Or have we caught up to those stars? Have the best in our field now have become "one name" celebrities like Cher and Madonna?

China's Green Cities: Where Would Al Gore Want their New Urbanites to Live?

Over the next couple of decades, hundreds of millions of Chinese households will move to their cities. They will base their location decision on their own private benefits and costs but are there serious social externalities exacerbated by their choices? In a recent NBER paper, Zheng, Wang, Glaeser and I examine this question. You can grab a copy by downloading the first paper listed here .

Stephen Dubner gave a good description of the paper in Today's Freaknomics Blog .

In a nutshell, we focus on measuring household greenhouse gas emissions for 74 of China's major cities. Given current urban form and heating technologies, it will be a bad thing for Al Gore if the northern cities grow. These cities are cold and thus need some serious heat to survive the winter and the heat and the electricity come from burning cheap coal.

Many greenhouse gas studies focus on the nation as the unit of analysis but with better data we can zero in and spatially disaggregate. Regional economic development policies have unintended environmental consequences. I believe that our paper does a good job getting the conversation started and I'm hoping that our paper will lead to a literature ranking cities on their carbon footprint in each nation across the world and re-ranking them over time. Somehow rankings encourage accountability and identifying successful policies.

I-405 Expansion in LA Offers a Case Study of the Fundamental Law of Traffic Congestion

Do new roads mitigate traffic congestion? You might think that extra supply allows a finite number of vehicles to move faster but transport economists haven't believed this. Duranton and Turner have done the best empirical work on this subject. Now, an expansion of the 405 Freeway in LA offers a specific case study. At the end of this piece , you will see some skepticism from two quoted reasonable people.

Economists reason that you shouldn't forget the extensive margin. If people sense that a highway now offers faster speeds this lowers the time price of driving on it and new people will come up with new trips on this now faster road. This increased demand will continue until the speeds slow down to the original sluggish pace.

Of course, what we need here is some road pricing with a time of day charge. Not everyone needs to be on the 405 from 730am-945am and 4pm-630pm. For example, UCLA faculty could reposition their teaching times to not be on the 405 at such peak times. A time of use varying charge would push these cheapskates off of the road and help everyone to save their most scarce asset (our time).



I-405 Sepulveda Pass Widening Project to begin Thursday
By Sean Greene
UCLA Bruin Newspaper

The 405 Freeway will undergo a three-year, $1 billion expansion project, beginning Tuesday, that will add a new carpool lane in the stretch between the 10 Freeway and the 101 Freeway.

The I-405 Sepulveda Pass Widening Project will create a 10-mile northbound lane to accommodate carpoolers, buses and other multiple-passenger vehicles. About 15 percent of the vehicles that travel the route daily contain multiple passengers, according to Los Angeles Metropolitan Transportation Authority spokesman Dave Sotero.

“The extra (high-occupancy vehicle) lane can absorb these vehicles, which will help improve and more evenly distribute traffic flows across all freeway lanes,” he said.

The northbound stretch of the Sepulveda Pass is the last stretch of highway to receive a carpool lane.

The project will also reconstruct the Sunset, Sepulveda and Skirball bridges and realign 27 on- and off- ramps. It is scheduled for completion in 2013.

Although the immediate impact of the construction project on UCLA’s commuters is not yet known, Sotero said there will be a “net benefit” for traffic flow in all lanes once the project is complete. Studies show that vehicles can save one minute per mile by using the carpool lane during peak commute periods.

To avoid congestion from construction, L.A. Metro suggests finding carpool partners and finding alternate routes in daily commutes.

Dan Raysh, a second-year business and economics student that commutes to campus, said last quarter traffic on the 405 often tripled his commute time, he said.

However, he said he thinks the expansion will not help congestion in the long run.

“An extra lane will cause more people to use the freeway,” Raysh said. “It’s a temporary change at best.”

Geography professor Antony Orme agreed that widening the freeway will not solve the problem either.

“It will be all right for a few years, but it will get clogged up again,” Orme said. “Eventually we’re just going to have renewed gridlock.”

Orme said the increased traffic on the freeway will come from new developments in the area. “They’re always trying to build the freeway for the decade passed,” he added.

Orme said the solution he’d like to see, although costly, is an increased push for mass transit in Los Angeles. He said there is no easy solution to the problem of congestion.

UPDATE: Internet Congestion offers another test of the "fundamental law". Internet Service Providers continue to expand their network of wires and infrastructure in order to guarantee that Internet users will not suffer download delays. This sound familiar? Households respond by wanting to download bigger and bigger files (movies rather than songs and email) and the congestion returns. Time of use pricing on the Internet? We will see.

Tough Times for Chicago?

While John Cassidy was unable to persuade Robert Lucas to talk to him, but he did get to have a lot of fun in Hyde Park in writing this New Yorker Piece . He is happy to report that Richard Posner is now a Keynesian and that Gene Fama is not retreating an inch on the importance of the efficient markets hypothesis. He highlights the diversity within Chicago's group of excellent economists as he implicitly endorses the "moderate reasonable" views of Rajan, Thaler and others.

There are roughly 100 Ph.D. economists at the University of Chicago. Why would anyone expect to meet 100 young Milton Friedman clones? The Business School has imported a ton of talent from the 02138 zip code.


Now the New Yorker is written for people like my mom. She is a New Yorker and a lawyer. Why would this piece interest her? Why did the New Yorker editors publish it?

I believe that the editors want to signal to people who live close to Central Park in Manhattan that even the most staunch "free marketers" with Nobel Prizes and fancy job titles at the best universities are confused about what has just happened and thus that we now live in "an of anxiety". Similar to Watergate when we naively learned that we couldn't trust the politicians, Cassidy wants to tell my mom that we can no longer trust the economists. He claims that we are not the experts that we claimed to be. When Big Ben Bernanke makes a confident statement on CSPAN, "Don't believe him".

Is this reasonable? I agree that it is crucial to know "when you don't know something". I agree that moving forward that economists can be more honest about model mispecification and fundamental uncertainty.

But, the key issue in this whole affair has been game theory and the game played between government and free market actors (including Wall Street). Chicago cannot be blamed for this "too big to fail". Milton Friedman and Prescott always supported rules over discretion. If the government could pre-commit to bail out nobody, would the banks have been more careful in their lending practices? Would more thought have been put into understanding the degree of risk they were exposing themselves to? Now some might say, "oh they thought that home prices would just keep rising." But in a world with no "government safety net", the doom and gloomers would be valuable to the firm in foreseeing low probability, potentially very costly scenarios. In my opinion, we have this strange Capitalist mix right now --- of active government with brilliant technocrats unable to restrain themselves in terms of policy activism (i.e Summers) and brilliant private firms anticipating their moves. This is game theory , this is not the invisible hand at work. We do not have a strong understanding of how such strategic interactions aggregate up into macro business cycles.

UPDATE: The NY Times has found a new guy to write editorials. His views are very close to mine on the ugly game that Wall Street played with the Fed.

Switching subjects slightly;
The Economist's Free Exchange Blog has a piece commenting on a recent Becker/Davis/Murphy WSJ piece. I agree with the Becker et. al. key point that political business cycles can freeze up investments.

Much investment, such as building a windmill farm, is irreversible. Once you make the investment, it is sunk and you can't sell the turbines on eBay and get back your original money. A "green investor" who is uncertain right now about California's AB32 and the Senate's likelihood of passing the anti-carbon Waxman-Markey Bill is unlikely to invest in the farm today. This is just the tip of the iceberg. With concern over how Bernanke will unwind his strange balance sheet, with concern about the dollar's decline and the growing deficit, investors may be very leary of investing now. The privately optimal strategy is to delay until the "uncertainty passes". But when will it pass? If President Obama could commit to a simple set of rules and stick to them, this would do it. But, then Rahm Emmanuel and Larry Summers wouldn't get to have as much fun.

Tuesday, January 05, 2010

The Plug-In Hybrid Arrives in Berkeley: But Is it "Green" Relative to the Conventional Prius?

As you know, I am a keen observer of day to day life. Walking close to Solano Avenue in Berkeley last week I spotted this distinctive plug-in hybrid that openly advertised "its type".



Relative to the conventional hybrids, per-mile of driving, the plug-ins will need less gas but more electricity. What is the maximum carbon factor for electric power generation such that Al Gore would prefer that you drive a plug-in to a conventional Prius?

Suppose that a conventional Prius achieves 50 MPG. Given that one gallon of gasoline creates roughly 20 pounds of carbon dioxide, then one mile of driving a Prius creates (1/50)*20 = .4 pounds of carbon dioxide. Assuming a social marginal cost of $40 per ton of carbon dioxide, the global warming externality from driving this mile = (.4/2000)*40 = .8 cents.

Turning to the plug-in hybrid, according to this webpage I found; the electricity input per mile of driving an electric vehicle equals .33 kWh. So, we can now solve for the key threshold emissions factor.

Given Al Gore’s urge that we all reduce our carbon dioxide production, Al Gore is indifferent between you driving a Prius and Plug-in Prius if: .4 = .33*f or f = 1.2 . For now, I am ignoring the rebound effect.

f = pounds of carbon dioxide per kWh generated

How does this f compare to “real world” power plant emissions factors? We can look this up in the US EPA EGRID database.

So, here is the irony. For the nation, the average power plant creates roughly 2,400 pounds of carbon dioxide per mWh of power generated. Note that 2.4 > 1.2, so based on the algebra above Al Gore would prefer that you drive the conventional Prius. The Plug In doesn’t use oil but the electricity source is relatively dirty.

In California, the average power plant creates roughly 1,200 pounds of carbon dioxide per mWh of power generation. So, Gore wouldn’t care whether you drive the Prius or the new plug-in Prius.

So, what is my point? Al Gore needs high gas prices relative to electricity prices to encourage consumers to substitute to the plug in hybrid. But for these plug-ins to be “green”, he needs our power to be produced using mainly renewable and using much less coal.

He also needs the “rebound effect” to not exist. At a price of 10 cents per kWh, to drive 50 miles using the plug-in will cost you; (50/3)*10 which equals $1.70. This is cheaper than a $3 gallon gas. Facing this roughly 50% lower electricity price, the average driver who has studied economics may drive 15% more miles. This is the “rebound effect”. Put simply, demand curves slope down.

The expected growth in plug-in vehicles poses new challenges for California’s electric utilities. Suppose that communities that currently buy “green cars” such as Berkeley and Santa Monica will also disproportionately buy the plug-in vehicles. Then at night these communities will have a large number of households placing localized demands on the grid at those spots. If the utilities do not anticipate these demands then the system can be overwhelmed by these hotspots. The same issue arises during the day when people are at work and are parked and seek to charge up. I have been helping SMUD to better understand these geographical patterns and I expect that other utilities in California face similar challenges.

To start to see my ideas take a look at the Kahn and Vaughn 2009 paper and my IOE Scorecard piece. Paper #1 and Paper #2

As a humble California state employee, I am here to help you. Do you want fries with that?

UPDATE: Here is a very reasonable blog post that challenges me on a couple of points listed above.

Monday, January 04, 2010

Don’t Delay Implementing California’s AB32

A California Republican State Assemblyman named Dan Logue seeks to delay the implementation of the 2006 AB32 law until the California recession is over. Is this wise public policy? The NY Times “Green Inc Blog” mentioned his proposed initiative but didn’t bother to delve into the nitty gritty economic issues concerning whether his proposal has any merits.

Before I provide my answer, I should put my cards on the table. The Chair of the Air Resources Board (Mary Nichols) was the Director of my Institute when I joined the UCLA faculty in January 2007. She resigned as Director in July 2007. I also serve on the Air Resources Board’s Research Screening Committee. Some of my recent research has been funded by the Air Resources Board. Most importantly, in fall 2008 I published a critique of the economic analysis predicting the likely consequences of AB32. A copy of my comments can be found here .


Put yourself in the shoes of Assemblyman Logue. I have never met him but I doubt that he is a fan of global warming. He must be worried about the standard of living of his constituents. It is certainly a reasonable question to ask how this ambitious complex legislation will affect the economic standard of living of his constituents.

At the heart of AB32 are provisions that will;

1. sharply increase the fuel efficiency of new vehicles driven in California
2. Require new buildings to be much more energy efficient
3. Require electric utilities to produce 33% of their power using renewables (the RPS).
4. Introduction of cap and trade for greenhouse gas emissions;

The WCI cap-and-trade program will cover emissions of the six main greenhouse gases (carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons, and sulfur hexafluoride) from the following sectors of the economy:

Electricity generation, including imported electricity
Industrial and commercial fossil fuel combustion
Industrial process emissions
Gas and diesel consumption for transportation
Residential fuel use


Here is the Source for the Previous paragraph.


I doubt that #1 and #2 will have any impact on the economic livelihood of any of Mr Logue’s district. Hummer drivers will not have the same menu of muscle cars to choose from due to the Pavley Standards. I discuss their "suffering" in my review. In the middle of a recession, there are no new buildings being built.

The more serious issue is how #3 and #4 will affect the California economy in the short term. First, I would like to know what is the penalty that the ARB will impose on electric utilities who fail to meet this target? If PGE or SCE sincerely “try their best” but fail to meet the target, will they be sued for $1 or $1 billion? Who will decide if they did indeed “try their best”?

How are households affected by the 33% RPS in the short run? I would like to ask each of the California major electric utilities what expenditures they will need to make to meet the 33% RPS target. What does their “supply curve” look like? Facing this constraint, what price hikes will they ask the PUC for? If electricity prices will go up, by how much? What economic model is good enough to be used to predict this?

Now, the political challenge here is that by the definition of a recession, people feel that their real income is low. If the 33% RPS does lead to higher electricity prices then this further makes lower middle class households a little bit poorer as the purchasing power of $ declines. There will be diversity. A household who loves its plasma tv will have less purchasing power than a household who meditates in the dark all day long. Now, California’s political representatives are quick to demand that the electric utilities protect the poor against these price hikes so if they listen to the economists they will raise the price of electricity and have targeted income transfers so that the poor’s purchasing power remains unchanged (Laspeyres price index). But, the utility must cover its costs. This means that middle class and rich households will have to cross-subsidize the poor. Perhaps Federal Obama Stimulus money can be used to pay for the subsidy but if it can’t then richer Californians will pay.

During a recession, do the middle class care much less about environmental policy? Unfortunately, according to monthly data from the PPIC think tank, the answer appears to be yes.

I do not support delaying AB32 but I do believe that this nasty recession should be used as a reason to try to achieve its core goals using full economic efficiency. In English, the marginal cost of abating a ton of carbon from each sector should be equalized. If this is not achieved then the rules are inefficient. I am not fully convinced that the 33% RPS is a cost effective policy for achieving AB32’s goals. Like most economists, I want to see the full reduction in carbon placed in the cap and trade program. In a diverse world, pollution permit trading offers us the best chance to achieve environmental goals at the lowest possible social cost.

The Assemblyman’s heart is in the right place but he is not showing much imagination. Every policy has winners and losers and he appears to be fixated on the losers. I am not convinced that the losers lose much. Another random variable is what the winners win. Today there are many small businesses in California gearing up for the “green economy”. Delay AB32 and you pull the chair out from such firms. They have been investing in green tech under the hope and expectation that the "green economy" is coming. Political uncertainty caused by infighting between democrats and republicans creates incentives for new irreversible investment to freeze up. After all, what's the point of making green investments in renewable power generation if one expects that carbon emissions will continue to be priced at $0 per ton! Expectations matter. I continue to hope that AB 32 sends a clear signal to business about gradually modifying their day to day actions starting today in order to meet future goals.



UPDATE: I just received this interesting email. There must be some truth to
this claim below. I grew up in Scarsdale, NY and this is exactly why Scarsdale forbade any rental housing within its borders. But, I wonder why a recession makes this effect worse. The politician I mentioned above was emphasizing the recession.


To: Kahn, Matthew
Subject: Don’t Delay Implementing California’s AB32


I think you're missing the reason for the opposition to AB32. The opposition at the grassroots is technically to SB375. Specifically to the Regional Housing Needs Assessments (RHNAs) which requires that each community accept its share of expected future growth and more significantly requires each community to accept its share of low income housing under the Region Housing Needs Assessments.
The problem is that in a lot of communities the major source of neighborhood equity is the quality of the local schools. Low income students tend to bring down school test scores which in turns hurts local property values.
Its in the small cities like Sierra Madre that are freaking out about the RHNAs. At the moment the City of Sierra Madre has stopped payments on its contribution to the Southern California Council of Governments because the locals are up in arms about low income requirement.
The issue is being framed about AB 32 because when the city talks about why it needs to add more housing (and more low income housing), the city cites requirements under state law to densify in order to minimize global warming under state law. So AB 32 gets blamed.
Technically it would probably be more precise to blame SB 375, but because the mixed income infill is framed as being required to achieve global warming targets, the opposition is thus to all global warming legislation in general including (AB 32). Mixed income infill is no problem in large cities which already have bad schools (City of LA, City of Oakland, City of SF, etc) but in any community where the local neighborhood equity is based upon the quality of local schools they are going to fight this tooth and nail.
I don't know if William Fischel was correct about Serrano influencing California Voters to pass Prop 13, but I suspect we are about to find out.
http://sierramadreweekly.com/featured/sierra-madre-wont-pay-scag-membership-dues/
http://sierramadretattler.blogspot.com/2010/01/outraged-environmentalist-writes-in.html
http://www.cityofsierramadre.com/docs_forms/files/
housingElemFAQ20090331.pdf

My New NBER Paper on China's "Green Cities"

I have returned to Los Angeles. You did not see me in Atlanta. Dora and I believe that the AEA Leadership should embrace a more democratic aggregation algorithm for choosing where the meetings take place. Our preferences (no conferences in New Orleans or Atlanta) are often ignored and we vote with our feet.

I have spent the last two weeks working hard and now have a clear vision for how I will spend the next two months. I know that I owe Tim Sullivan some serious effort. With his help, I expect that bloggers around the U.S will receive another free book from me in the fall of 2010. Do bloggers sell all of the free books they are sent on eBay? Or do transaction costs mean that the Coase Theorem fails? If Bloggers do sell their books on eBay does this generate a flow of $2,000 in cash per year? ($20 times 100) Could Obama balance our fiscal budget if he forced the economists to pay taxes on this windfall?

Turning to research, as you all know --- I continue to do work on the causes and environmental consequences of the growth of China's cities. My New China Paper is available Here . On this paper, I have had the good fortune to work with a dream team including; Siqi Zheng, Rui Wang, and Ed Glaeser.

We were able to access some great micro data and I think that we've written a real interesting paper.

Here is the intro from an earlier draft of the paper titled;

THE GREENNESS OF CHINA: HOUSEHOLD CARBON DIOXIDE EMISSIONS AND URBAN DEVELOPMENT

I. Introduction

Today, China emits about four tons of carbon dioxide per person per year, while the United States produces about five times that amount. At the national level, China’s greenhouse gas emissions trajectory will increase as its economy grows. Potentially offsetting some the carbon consequences of such growth is the new policy initiative that commits China to reduce its carbon intensity (CO2/GNP) by 40% by the year 2020.
A major source of China’s ongoing economic growth is due to urbanization. Since 1990, China’s urban population has grown by 300 million as people have moved from rural areas to the cities. In this paper, we will present new evidence that ranks China’s major cities with respect to their household carbon footprint. Our methods are useful for benchmarking how different cities compare with respect to this criterion and for judging the greenhouse gas implications of regional economic development policies. Today, China’s government is investing in urban infrastructure in preparation for hundreds of millions of future urbanites. We will argue that knowing a nation’s per-capita income and total population size is not sufficient for judging its household sector’s greenhouse gas production. The spatial distribution of this population across diverse cities is key determinant of the size of the aggregate footprint.

In recent work, Glaeser and Kahn (2010) rank U.S major cities with respect to household carbon emissions. There is substantial variation in household carbon emissions both across metropolitan areas and within the same metro area between its center city and its suburbs. For example, we estimate that for a standardized household that its carbon emissions are 78 percent higher in Memphis than if it lived in San Diego. Based on their cross-city study, Glaeser and Kahn (2010) conclude that the small carbon footprint cities embody some of the following characteristics; high population density, a good public transit system, temperate climate, high home prices, and located in a region featuring low carbon electric utilities (i.e using natural gas or renewable rather than coal) for power generation. This suggests that global carbon emissions will be substantially lower if China’s urban growth occurs in compact, temperate places that do not rely on coal for power generation.

In this paper, we use unique micro data to estimate household carbon emissions across China’s major cities. The majority of China’s greenhouse gas emissions are now produced by its industrial sector, but the household sector’s share of total emissions will increase with further economic development. The range of emissions across China’s cities today does not capture the diversity of possible long run outcomes, but it does help us evaluate the impact on carbon emission of current regional policies, such as those that now bolster employment growth in some regions in the Northeast and West. Policies that favor the growth of particular areas will tend to increase carbon emissions if the marginal resident in that area is associated with more energy usage, and decrease carbon emissions if the marginal resident emits a lower level of carbon.

We calculate household carbon emissions using the Chinese Urban Household Survey, which provides information on energy usage for 25,000 households in 74 cities, Urban Statistics Yearbooks and other data on carbon emission factors of the regional power grid. We have also collected rail transit system electricity consumption in 2006. Data on carbon consumption due to public heating comes from the Department of Environmental Engineering and Department of Building Science in Tsinghua University.
While transportation, especially cars, accounts for about one-half of carbon emissions of the average household in the U.S., only one-tenth of the carbon emissions in our Chinese sample reflects from transportation. Overall, electricity use accounts for about four-tenths of total household carbon emissions in China. In the U.S., electricity is a somewhat lower share of total household emissions, but a much higher share of non-transport emissions. In the U.S., home heating accounts for a relatively modest share of total household emissions, even in the colder metropolitan areas, but in China winter centralized heating accounts for 40 percent of total household emissions. A poorer country can do without air conditioning and cars, but not without warmth. The remaining 10 percent of China’s emissions comes from domestic fuels such as coal, LPG and coal gas.

We calculate a predicted level of carbon emissions in different places for a standardized household with a fixed size and level of income. Even though we attempt to hold individual income constant, we find that richer cities have significantly higher household carbon emissions. In China, carbon emissions are particularly high in places with cold Januarys, because of centralized home heating. For example, Shanghai (without centralized home heating) is much greener than Beijing (with centralized home heating) . The prominent role played by central production of heat reminds us that carbon emissions could fall significantly if greener sources of energy were used by the government for that purpose, as argued by Almond et al. (2009).

China currently has three significant regional policies, which support growth in the Northeast, the Western hinterland and the Beijing-Tianjin-Bohai Sea region. We find that carbon emissions are 85 percent higher in the Northeast than outside, 37 percent higher in the Beijing-Tianjin-Bohai Sea region and 18 percent lower in the West. The first two regional policies favor carbon-intensive places, suggesting that one unintended consequence will be to increase total residential carbon emissions. We use our cross-sectional estimates to predict how much higher will Chinese cities’ carbon emissions will be in 2026. We predict that the Northeast cities will continue to have the higher carbon emissions.