Social scientists are in deep thought about breast-feeding.   Leading economists have worked on this topic and now UCLA psychologists are working on this.  While I don't plan to work on this topic, I reserve the option of doing so in the future.  Here is the headliner for the new UCLA research; "Women who breast-feed are far more likely to demonstrate a "mama bear" effect — aggressively protecting their infants and themselves — than women who bottle-feed their babies or non-mothers, according to a new study in the September issue of Psychological Science, a journal of the Association for Psychological Science."

Alan Krueger is a great choice to lead the CEA but is it his job to figure out how to "create jobs" for the U.S economy?   I don't think so.  The NY Times wants us to have more manufacturing jobs and it has vehicle batteries on the the brain.   Such Michigan investments may help but the jury is still out on whether industrial policy is a wise investment.  Can you pick winners?  At the horse track maybe, but in a multi-trillion dollar economy?

Fortunately for the world, Erin Mansur and I have written an applied paper investigating where U.S manufacturing agglomerates.  If you want more manufacturing jobs, then you need to vote for;  1. low industrial electricity prices,  2.  lighter labor regulations,  3.  careful enforcement of the Clean Air Act.

To be a little bit more precise,  industries that are energy intensive avoid high electricity price areas.  Industries that are labor intensive avoid union states and industries that are pollution intensive avoid areas that are not in compliance with the Clean Air Act.

A cleaner test of our findings would be if counties in the United States could be randomly assigned their bundle of industrial electricity prices, labor regulations and Clean Air Act regulations.   Suppose that the random assignment would last for a fixed amount of time such as five years.   Firms would recognize this policy commitment and would choose their profit maximizing locational choice and the number of jobs they would want to create.  From observing where firms locate and their job creation as a function of randomly assigned policies, we would have air tight evidence on the role that these 3 factors play in determining the geography of jobs.  Will Alan Krueger endorse this experiment?

So, under random assignment; some U.S counties would have low energy prices, low labor regulation and low environmental regulation while others would feature the opposite  If we make this discrete, counties would be randomly assigned to 8 mutually exclusive and exhaustive categories (high or low prices, high or low labor regulation, high or low environmental regulation).

I am taking the field experiments literature quite seriously but I'm applying it to "macro policy".

My mom still hopes that I will become an urban planner while my father wants me to enroll at his medical school..  She wants me to be useful but my human capital is no longer putty as it has turned into clay.  While the public hopes that economists think deep thoughts about job creation and the merits of Keynesian policies, most economists are working on a wider range of issues.  The 2012 AEA Meeting Program in Chicago    is now posted.  You will learn much about academic economics in the year 2011 if you skim through the titles.

Here is an atypical session.

Jan 07, 2012 10:15 am, Hyatt Regency, Regency A
American Economic Association

Do "green buildings" sell and rent for a price premium?    This LA Times article  discusses some recent research on this topic including my solar paper (joint with Costa, Dastrup and Graff-Zivin).  Using hedonic pricing techniques and data from Sacramento County and San Diego County in California, we find that solar panels increase a home's resale price by roughly 3.5%.   John Quigley and co-authors such as Nils Kok have written several papers  documenting that commercial real estate that is certified as "green" either by LEED or Energy Star sells and rents for a price premium.

The economics of this energy capitalization is pretty straightforward.  Some predictions;

1. If the price of electricity is higher in a local area, then the energy efficiency price premium will be larger.

2. If environmentalists live in such an area (i.e Berkeley), there will be more "green buildings" built.  Whether the price premium will be larger hinges on the shape of the supply curve. If there are many green architects working in liberal/green areas, then the higher demand in such areas may not translate into a price premium (hint: think of a flat supply curve).

3.  Many energy efficiency strategies are hard for a potential buyer to detect.  A potential buyer of a home is unlikely to ask the previous resident for his typical electricity bill. Even if such a nerd requests such a document, family j may learn little about what its energy bills will be from seeing family m living in the same house.   In the absence of "energy labels" for homes that certify its energy efficiency, residential energy efficiency is unlikely to be capitalized into resale values. Holland and Singapore have introduced such ratings systems and Nils Kok and John Quigley have evaluated these.

4. If the price of electricity is high, then new construction will be more energy efficient.  See Costa and Kahn 2011. 

This has been a tough week for the Northeast; one quake and now some heavy rain.    I'm sitting in sunny, cool Berkeley reading posts such as this one and looking at flood maps such as the one below.



I would be shocked if this hurricane causes deaths in the Northeast.  The early warning system has alerted people to take this storm seriously and the wealth of the U.S allows us to afford a building stock that can take a punch.   Of course, there is a lot of property located on the Northeast coast and I'm sure that many of these homes and structures are made out of inferior materials.

If this storm does cause significant property damage, then the people of the East Coast will have to take a close look at why this took place.  What types of building materials couldn't take the punch?  Why did people use such materials?  Will they continue to use such materials to rebuild after they learn that tough storms can cause damage.  The silver lining of these shocks is that we learn about what are the weak spots in our defenses and this "wake up" call alerts people to how they must invest to play better defense against Mother Nature.  We choose how much damage natural disasters cause by where we choose to live and how we live.

Think about a chain of retail stores such as a Starbucks or Safeway.   What is the optimal spatial distribution of these stores? If you place two Starbucks close to each other, do they end up cannibalizing each other's business so that total Starbucks' sales do not rise much but Starbucks pay the costs of running two stores and employing two sets of workers?  If the Starbucks CEO worried about this then he wouldn't operate two stores close to each other.

So, this was a long winded intro for this recent article about Safeway introducing a second supermarket in the general Rockridge area (about 1 mile from Berkeley).

Data can be useful.  The Safeway had data on who shops at each supermarket and from their customer "barcodes" (that offer savings if you sign up and give your zip code of residence) --- a good GIS researcher can map out where the customers live relative to where the store is and here is the punchline;

"Based on this information, Safeway concluded that the College Avenue store's customers live within an average of 2.7 miles from the supermarket. The distance between the two stores is exactly 1.2 miles. In other words, Safeway's own tracking data shows that it will be relying on many of the same customers to keep two massive supermarkets afloat."

This smells like cannibalism to me.  I would be happier with Safeway's MBAs if somebody could make a map and show that there is a competitor supermarket close to where the new supermarket will be built. Is Safeway competing with itself here or does it have a plan to lure new business (from where?) or to lure it from another supermarket?  How will this phantom supermarket respond to the new competition? If they drop their prices then consumers win but the Safeway will end up with low profits and will regret having opened the new store.

We want more jobs in the U.S and this Safeway will employ new workers but the issue arises, how do managers make decisions concerning how they predict what will be profitable new entry decisions?  What does Safeway know (that makes them confident to make this multi-million dollar entry investment) that the author of this article doesn't know?

Here  is a cross-post that I wrote for the UCLA Ziman Center's new real estate blog. If you skim through the blog entries, you will see a diverse set of faculty and students writing for this blog.  We are trying to highlight that UCLA is a hub of real estate research activity.  The faculty are spread out across the Business School, Law School, Urban Planning and the Economics Department and we don't have a Ph.D. course or sequence.  Despite this "sprawl", we are thinking hard about how to use the Ziman Center to co-ordinate real estate research across the campus and how to create something larger than "the sum of its parts".  

Here is a clash of two titans named Krugman and Rogoff.  Dr. Krugman says that it is cheap for the U.S to borrow right now and that there must be some NPV>0 projects that the federal government can invest in --- so we should increase our debt to stimulate the economy now.   Rogoff appears to want to reduce our debt overhang by igniting some moderate (6%?) inflation.  The Chinese will be grateful for that!

I disagree with these esteemed scholars.  I propose that the Obama Administration adopt four policies.  First, the minimum wage is abolished.  Second,  the earned income tax credit is expanded.  Third, we sell off 3 million passports to the top international bidders immediately.  Fourth, employers can fire workers without cause.      

The combination of these four policies will reduce unemployment, increase home prices, reduce foreclosures and reduce the federal government deficit.  I don't mean to be heartless with respect to policies #1 and #4. Instead, I'm trying to make employers more comfortable with taking risks of hiring workers during uncertain times. If you know you can fire bad workers, then you will be more comfortable ex-ante hiring workers whose productivity you are uncertain about.  The labor market is a "matching market" similar to the marriage market.  Firms must decide whether a worker is a good match for a particular occupation and firm. Firms won't experiment if they anticipate that they are stuck with any worker they actually hire.

The Northeast has survived its 5.8 scale quake and will learn from the experience.  The first earthquake I experienced in Berkeley made me think that a subway train was about to arrive.  But, then I realized I wasn't in NYC and that it must have been a quake.  There are always silver linings of such shocks.   I hope my parents and brother enjoyed the excitement?

The population of the Northeast will take a fresh look at potential investments to lower the damage caused by future shocks. That's adaptation!    Richer people and richer cities and nations have more resources to adapt.  This is why the death toll from natural disasters is lower in richer nations.    To adapt to future shocks, we must keep getting richer.

The following quote was presented in today's San Francisco Chronicle.


Read more: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/08/22/DDH11KOI98.DTL#ixzz1VrsQm9lj

The quote actually is related to my own research on environmental ideology (see this).    Open up a microeconomics book and you won't find the word "ideology" mentioned in the consumption chapter. Instead, you will see a long discussion of budget sets (what people can afford to buy) and you will see indifference curves (which represent a consumer's willingness to tradeoff one good for another).  The author will not tell you where the consumer's preferences come from.

In my "new vision" for micro theory, households differ with respect to their intrinsic ideology.   It remains an open question where this ideology comes from.   Consumers know their ideology and act upon it.  In the case of my work on "green products", those with a liberal ideology are more likely to engage in voluntary restraint and want to purchase the Prius, solar panels, carbon offsets and in general live a "small footprint" lifestyle even if there are not explicit Pigouvian taxes for polluting.

Now, how does this relate to Homophobia?   If you are willing to assume that liberals are less likely to be homophobic and if liberals tend to drive the Prius (which they do), then it follows by transitivity that Prius drivers should be pro-gay rights.

Note that driving a Prius doesn't "make you" pro-gay rights, instead a 3rd cause (liberal ideology) drives both behaviors.

This correlation between ideology and Prius ownership would weaken during a time of high gas prices or a time when gas prices are expected to rise.  In this case, we would see more people (regardless of ideology) buying fuel efficient vehicles.   For the subset of people with extremely long commutes, they will also buy the high MPG vehicle regardless of their politics.