I skim Joe Romm's blog because it offers some substance and it provides a sense of how "climate hawks" are attempting to attract attention for their cause.   His team blogged about a recent paper of mine without mentioning me or Nils Kok.

This recent blog post caught my eye. It claims that people who live in homes where there is a swimming pool consume 49% more electricity than those who don't.  It makes the nice point that this is likely to be a selection effect rather than a treatment effect and it establishes this point by looking at the differential in average consumption between "pool homes" and homes without pools by looking off-season at spring and fall and showing that this differential persists.

So, who self-selects to live in a home with a private swimming pool?  It could be a standard demographic story of households with more kids and more income gaining pleasure from having a pool and they consume more electricity.

What about environmental ideology?   Are Republicans more likely to live in homes with pools?  To study this, I took the data that Nils Kok and I used for our "green homes" paper  and merged it by street address to Aristotle data.  The Aristotle data provides information for home owners on their age and in California on their political party of registration.  Using this merged data set for recent home sales in Placer County, California, I ran the following regression.


areg Pool  Rep age, absorb(zip)


Linear regression, absorbing indicators                Number of obs =   13145
                                                       F(  2, 13118) =   12.74
                                                       Prob > F      =  0.0000
                                                       R-squared     =  0.0918
                                                       Adj R-squared =  0.0900
                                                       Root MSE      =  .35199


------------------------------------------------------------------------------
        Pool |      Coef.   Std. Err.      t    P>|t|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
         Rep |   .0196991   .0061828     3.19   0.001     .0075799    .0318182
         age |  -.0008377   .0002082    -4.02   0.000    -.0012459   -.0004296
       _cons |   .1930868   .0108083    17.86   0.000      .171901    .2142727
-------------+----------------------------------------------------------------
         zip |      F(24, 13118) =     53.221   0.000          (25 categories)


So, for 13,145 homes in Placer County --- I ask the following question ---- within a given zip code (note the zip code fixed effects);   who owns a home with a Pool?  According to this linear probability model, older people are less likely to own a pool.   Note the dummy variable "Rep" . This is a dummy that equals one if the head of household is a registered Republican and equals zero otherwise.  All else equal, Republicans are 2 percentage points more likely to own a pool.  The Pool ownership rate in this sample is 16% so this is moderate effect but it highlights that a type of ideological sorting is taking place.

What about "square footage" of the house?  Again, note that I"m comparing people who live in the same zip code so this is comparing people with roughly similar incomes.  The Republicans on average, live in homes that are 146 feet larger (see below) in Placer County.


 areg SA_SQFT  Rep age, absorb(zip)


Linear regression, absorbing indicators                Number of obs =   13143
                                                       F(  2, 13116) =   54.85
                                                       Prob > F      =  0.0000
                                                       R-squared     =  0.1452
                                                       Adj R-squared =  0.1435
                                                       Root MSE      =  909.08


------------------------------------------------------------------------------
     SA_SQFT |      Coef.   Std. Err.      t    P>|t|     [95% Conf. Interval]
-------------+----------------------------------------------------------------
         Rep |   146.5746    15.9695     9.18   0.000     115.2721    177.8772
         age |  -2.882094   .5377636    -5.36   0.000    -3.936189   -1.827999
       _cons |   2372.058   27.91508    84.97   0.000      2317.34    2426.775
-------------+----------------------------------------------------------------
         zip |      F(24, 13116) =     86.957   0.000          (25 categories)



The Big House with the Pool is part of the American Dream.  Does that attract you?  The liberals of Berkeley are likely to say "no thanks" while some in Texas would say; "hell yeah!".  When consumption offers private benefits but imposes social costs, who gorges versus who engages in voluntary restraint?

So, my point is that while standard demographics matter in explaining consumer choices that have implications for electricity consumption and co2 production.  Political party identification and environmental ideology also matter.  This point will be at the heart of the revised paper I present at the John Quigley Lincoln Institute Conference in October 2012.

Understanding differences in lifestyle choices between people as a function of ideology will become a more important subject at the intersection of economics, sociology and political science.  Such consumption differences (do you live in a Houston McMansion?) then affect voting behavior as self interested individuals are aware of the price they will pay for a real carbon tax.

For reasons I can't explain, I will teaching Summer School starting next week.  This 6 week course will meet 4 hours a week and will cover most of the basics of environmental economics.  So, what does that mean?  This blog post will sketch out my vision.

• Air pollution
• Indoor air pollution
• Water pollution
• Greenhouse gas emissions
• Why does the answer differ across indicators?

Topic Three: Are We Running Out of Natural Resources?

• Will the world run out of oil?
• Will the world deplete all of the fish and farmland?
• The economics of property rights and resource extraction

• Why is government intervention required?
• What is a pollution tax?
• What is regulation?
• The Economics of California’s AB32
• National Policy:  The Clean Air Act

• The demand for “green cities”
• The demand for green products such as the Prius and solar panels
• The supply of green products
• What is the role for government?
• What is the “rebound effect”?

Ambec, Stefan and Paul Lanoie, Does it Pay to Be Green? A Systematic Overview

Kahn, Matthew E., 2007. "Do greens drive Hummers or hybrids? Environmental ideology as a determinant of consumer choice," Journal of Environmental Economics and Management, Elsevier, vol. 54(2), pages 129-145, September.

• Quantity vs. quality of children and household fertility choice

• http://www.voxeu.org/article/climatopolis-how-will-climate-change-impact-urbanites-and-their-cities,  

http://www.uctv.tv/search-moreresults.aspx?keyword=matthew+kahn



We will have already spoken about carbon taxes and climate change mitigation under government in Topic 5 so this last topic allows me to focus on my favorite issue of adaptation and to highlight the implicit optimism in modern economics about the positive role that capitalism plays in our life.

If your research paper isn't listed above, do not worry.  In class, I speak about dozens of studies and why I like them without requiring the students to read them.  If you audit my class, you can see for yourself that the students are learning and are actively engaged.  While I will never be "teacher of the year", I am trying.

In an early May 2012 post, I instructed the readers of this newsletter to short Facebook.  I hope you followed my advice.  I did and now John Paulson and I are both gurus.   How can Facebook monetize its assets?  

What does it own?   On some level it is like Central Park in NYC.  I'm in Manhattan now so allow me to expand upon this lousy analogy.  In Central Park, you walk around with your friends talking and sharing and enjoying life.  But, imagine if everything you do in the Park is recorded and photographed.  There is a privatization of the commons.   The net result is that FB owns data about you and your social networks. 


If you have stable preferences and if your preferences are positively correlated with your friends' preferences as revealed by what they share in "the park" then FB should have a valuable asset to sell to micro advertisers.   But,  where does the ACLU figure in here?  Will people be allowed to opt out of having their data shared with for profit firms?  If the legal courts rule that there there can be an "opt out", what types of data self selection issues will this create?  Rather than having data for  a representative sample of Facebook users, in the "opt out" world --- advertisers would have a "funky" sample or non-representative sample of exhibitionists who are willing and eager to share their "likes" with spammers.


The second challenge for FB is the rise of the mobile device.  FB must figure out how to create ads that people actually like.  For example, suppose I like the Rolling Stones -- they must figure out how to embed a Toyota commercial into "Get off my Cloud" so that I listen to the song and hear the ad.   As TIVO showed, another company will figure out how to allow mobile device users to scrub out the ads if they simply take up time and space between content provision.


Perhaps the best chance for FB is to team up with the internal revenue service of different nations to identify tax evasion by identifying individuals whose consumption patterns appear to be much greater than their reported income profile.  


Another promising outlet for FB would be for it to foster "conspicuous consumption" and trade stocks based on the sociological waves it creates.  FB needs to set off fads and waves for the next hula hoop and then collect a % of the revenue for creating the initial conditions and amplification such that the social multiplier effect plays out.  FB then could start to short the stock of companies who product's cycle has "jumped the shark". FB would know this by plotting its own data.  FB could also do this in political markets. Think of the excitement about Obama in 2008.  FB could use its machinery to help elect future presidents and anticipate who will be the next President and trade on this endogenous information.


So, FB's best chance is to morph into being a hedge fund that uses its micro data to anticipate trends.  Perhaps it should merge with Goldman Sachs?

Ronald Coase must have enjoyed this article in today's NY Times business section.  My 10 year old son restated the Coase Conjecture to me after reading the article.  Here is its the lead sentence; "It looks as if many people are so sure the next iPhone is going to be good that they are not buying the ones Apple is selling now."  So, the expectation of product quality improvement leads to delayed expenditure today!    For those of you who have forgotten their intermediate micro;  here is the Coase Conjecture.

I am in Cambridge MA in a hotel filled with economists.  There are hundreds of economists who are all talking, talking, talking.  In earlier years, I was one of the young guys but that is no longer true.  Now, I'm one of the older guys.  At lunch today,  I talked to one of the younger guys about his work on persuasion and the contentious issue of climate change.   Jesse Shapiro told me about his new paper.

Here is his abstract:


"A neutral expert sends an informative message to an uninformed voter. An interested party
can pay a cost to replace the expert’s message with its own. The more informed is the expert,
the greater is the interested party’s incentive to replace the expert’s message. In equilibrium,
making the expert more informed has no effect on the voter’s beliefs and strictly reduces social
welfare. The model thus implies an endogenous limit on how credible a purported expert can
be. I apply the model to public skepticism about climate change."

So, here is the nasty intuition.  Before I spoke to Jesse, I had naively believed that climate scientists such as my colleagues at the UCLA Institute of the Environment  would make progress understanding "the truth" about climate changes and through blogs and other forums such as PBS would educate the public about what they know and how they know it and this iterative learning process would lead to convergence over time such that by the year 2025 or so that we collectively would agree on what is "the new normal".  This learning would mean that we all agree that the probability of unlikely events has increased such as what is the probability that there will be an extreme flood in a given month or extreme heat waves.  The climate scientists would educate us about the causal links between global CO2 levels and the probability of nasty random events such as heat waves and droughts.

Shapiro's starting point is that interest groups who oppose carbon mitigation can invest their $ to pay their own experts to muddy up the water by encouraging this counter-group to launch their own efforts to disagree with the climate scientists.  If the public doesn't know "who is an expert" and views all Ph.Ds as perfect substitutes then the public is less likely to be nudged by objective progress made by the "real" climate scientists.   This interest group competition in the market for ideas is interesting and important.

On another note, a good friend of mine gently nudged me here to think about posting fewer blog entries about my book.  I believe he believes that such posts have reached diminishing returns.   Maybe there has been a convergence of beliefs about this point?

Finally, I have reopened the comments section of my blog now that I have the sense that students no longer read this blog.  It turns out that a number of my friends read this blog and I will try to raise my game to deliver some good ideas and some funny ones!

UPDATE:   I forgot to mention in my discussion of the Shapiro paper that his paper has implications for "free markets".  His results suggest pessimism about there being a Congressional effort to mitigate carbon emissions (because the ideological divide on carbon mitigation will continue).   But, don't forget about "free markets".   Building on my usual Climatopolis optimism,  I believe that there are private entrepreneurs who are sophisticated enough to know a "real climate scientist" when they see one.  If these entrepreneurs become convinced of the new challenges we will face, they will devote their time and effort to start coming up with solutions.  These solutions could earn them a fortune in our hotter future!  

Krugman's blog piece on climate change adaptation is worth reading.   Here is a key quote:

"My first-pass answer is that we have a global economy that is adapted to historically normal climate — not just in terms of what is grown where, but in terms of where we locate our cities. In the long run, after a couple of centuries’ worth of urban development and infrastructure has been drowned by rising sea levels and/or made useless because previously habitable regions need to be abandoned, we might be able to reconstruct an equally productive economy; but in the long run …"


As the case of Las Vegas shows, we (even ignoring China) are completely capable of building new cities in 30 years or less.    Krugman is right that cities are long lived durable capital but this capital depreciates over time and the forward looking investor must decide whether to invest in maintenance or not.  I believe that homes built in the 1950s in Detroit in the year 2012 are in worse shape than those near Dr. Krugman's home in Princeton. Why?  This isn't a law of physics -- instead it is a question of depreciation and optimal maintenance investment.  The home owners in Detroit are aware that if they invest $25,000 today to improve their roof that this won't offer a payback in the future in terms of the resale value of the home.  The home owners thus don't make an investment that the Princeton home owners routinely make and the net effect of these "small ball" decisions is that the housing capital stock of Princeton looks a lot better than the Detroit homes even though they were built at the same point in time.  


Krugman ignores that our economy is an urbanized economy and cities insulate us from many of climate change's blows.  As an expert on international trade, he knows that the key issue related to the food supply is international correlations in yields.  If there are places on the planet where food can be grown in our hotter future with wackier more variable rainfalls then agriculture will move there and export back to the rest of the world. He also has forgotten about storage and inventories and futures markets.  If we know that the variance of climate shocks has increased then food and commodity storage technologies become more valuable.     


For a brilliant guy, he has given a lazy answer about the economics of adaptation to climate change. I worry that he is trying to use his clout (which he has plenty of) to downplay adaptation prospects because he wants mitigation now.  I want mitigation now but we need to be honest about what happens to the global economy when we don't mitigate.  As I discuss in Climatopolis,    we are going to have a smooth adjustment path to climate change over the 21th century as we simultaneously adapt and eventually mitigate our carbon emissions.  This latter effect will take place because we won't like the "new normal" and this will nudge voters to enact costly carbon pricing.    The "price" of decarbonizing will decline due to technological change (thanks to efforts such as California's AB32) and international trade with nations such as China and India who will export cheaper low carbon products.   The net effect is that even Republicans will eventually vote for a carbon tax bundled with a reduction in income taxes.  So global CO2 will rise but not to 800 ppm. Capitalism will allow us to adapt to the new normal thanks to international trade and futures markets and new entrepreneur's efforts to provide products that help people to cope with the new risks.   This was a key theme of my 2010 Climatopolis book.  For a 7 minute video about my optimism that free markets will help us to adapt to many of the challenges of climate change; watch this.

As a proud Keynesian,  shouldn't Dr. Krugman celebrate the "silver lining" of the stimulus benefits of building new cities in geographic areas that are less at risk from climate change?   Rather than burying bottles filled with cash and having the unemployed look for them, we could have this crew get to work to build the more resilient cities we will need in the future.  Real estate developers will have the right incentives to locate the geographic areas whose quality of life will suffer least and to start to build the capital stock to create the future Las Vegas and Phoenix in such areas. 

Some background.  Back in 1993, Chris Acito and I attended a Public Enemy concert.  Fast forward to July 19th 2012 and on my Amazon Kindle,  I watched Flavor Flav's Roast on Comedy Central.  I enjoyed it very much.  I was unaware that I'm an important blogger. My 5 readers won't be surprised but I just received an email inviting me to interview Flavor Flav.   What could Dr. Kahn and Dr. Flav talk about?  Econometrics?  Nasty university politics?  Book writing?  Brigitte Nielsen?

Here is the email I received:

Dear Matthew Kahn :

When it comes to rapper and reality-TV star Flavor Flav, always expect the unexpected! This is exactly what passengers discovered recently when Flavor Flav took over the PA system on three inbound flights to Las Vegas to remind everyone to visit his House of Flavor restaurant while in Vegas for some of the best specialty recipe soul food (and fixins’) ever!

Please read the following press release and let me know if I may schedule an interview with this always-entertaining celebrity who knows how to fire up an audience. Thank you.

Rassa Eddie
Flavor Flav's House Of Flavor Restaurant
3333 S. Maryland Parkway
Las Vegas, NV 89169
Email: PR@flavorflavhouseofflavor.com

FOR IMMEDIATE RELEASE

Flavor Flav ‘Hijacks’ Two More Airplane Intercoms This Week To Plug His Las Vegas Restaurant

Las Vegas, NV, July 20, 2012 - Passengers on a total of three recent inbound flights to Las Vegas from Burbank, Phoenix and New York, received a pleasant surprise when the voice of Flavor Flav came over the PA system to tell them he knew just where they could grab some great tasting food while in Vegas. And he should know! Flavor Flav was plugging the great food served at his Las Vegas restaurant House of Flavor.

After informing the passengers on just how hot it was in Vegas, he asked them to thank the flight attendants and pilots for their service. And, just in case they didn’t know where to eat during their stay, he reminded them to visit Flavor Flav’s House of Flavor restaurant at 3333 South Maryland Parkway – making everyone’s mouth water by reciting all the delicious menu features.

Flav signed off by leading the whole plane in a chorus of "Flavor Flaaaaaaaaav," which was a huge hit with passengers who have been writing in to his restaurant thanking him for the entertainment.

Flavor Flav’s House of Flavor is a celebrity-centric Las Vegas take out restaurant with a quick-service menu specializing in smoked barbecue and fried chicken. The menu also includes barbecue spare and baby back ribs, hot links, barbecue chicken, fried chicken and Flavor Flav's signature red velvet waffle - indulgent and delicious. The restaurant is decorated with memorabilia from Flavor Flav's multi-faceted career as a rapper hype man, reality-TV star and entertainer for audiences around the world. Patrons of the House of Flavor might also expect celebrity sightings.

Flavor Flav is an iconic figure domestically and internationally, having made appearances in over 77 countries to sold-out audiences. Most recently, fans will have spotted him starring with Elton John in the Pepsi Super Bowl commercial premiere; the Super Bowl XLVI broadcast set a record with 111.3 million viewers on February 5, 2012.

According to VH1, 7.5 million viewers tuned in for Flavor Flav’s season finale of Flavor of Love 2 that went down in VH1 history books as the network’s highest rated telecast ever, propelling the episode to the #1 telecast on cable for the night and the #1 non-sports telecast in all of basic cable for the entire year.

The Flavor Flav Comedy Central Roast was the most-watched, #1 highest rated show ever among men ages 18-34. The star recently donated a signature Clock which is displayed in the Enduring Traditions Exhibit Hall of the Grammy® Museum. Flavor Flav’s Clock is also on display at both the Rock ‘n Roll Hall of Fame Museum and the Hard Rock Café.

###

TIP SHEET:

Time Magazine calls Flavor Flav “rap’s greatest hype man of all time turned Reality-TV Star.”

This article claims that Canada's wine makers are innovating and experimenting and planning to adapt to changing climate conditions.  Some will succeed and some will fail.  Wine drinkers won't buy the products of those who fail to adapt.  That's capitalist competition at work and a cute example of how capitalism allows to cope with the evolving challenge of climate change.  

Joe Romm says "yes we can".  Is the U.S 7.7% decline over 6 years impressive?   Recall that greenhouse gas emissions are a world public bad.  The key statistic to track is the globe's production of greenhouse gas emissions.  Using data from the World Development Indicators, here is the per-capita CO2 graph over time.  Note that all three lines have a positive slope.  The world's per-capita emissions are rising.  China's emissions are sharply increasing after 2001 and India's per-capita emissions are rising linearly.   Keep in mind that "population" is also growing.


This graph is the main reason that I wrote Climatopolis.   I would be more likely to agree with Dave Roberts and Joe Romm about their carbon mitigation optimism if they could tell a convincing story about how carbon mitigation efforts in the U.S (such as the power generation transition from coal to natural gas) will affect choices by India and China and other developing nations who are now building their power plants.

The Chronicle of Higher Education asks the right question.  The CEO of the company admits that he hasn't figured this out and he is a Stanford Engineering Professor!  Perhaps, he should walk over to Stanford GSB's new building and find an economist.  What would David Krebs say?  Pop-up ads?

To quote the Chronicle: