Saturday, November 30, 2013

Stealing in Utopia

The Park Slope Food Co-Op is a place where I have never shopped and I doubt that I would be welcomed.  The NY Times reports a piece of irony.   Some of the Co-Op members are stealing from the collective and the graft rate is increasing over time. That's not cool man.   Perhaps the Co-Op should sell copies of Becker's Crime and Punishment?

Here is the Mission Statement for this Food Coop (source).
"The Park Slope Food Coop is a member-owned and operated food store-- an alternative to commercial profit-oriented business. As members, we contribute our labor: working together builds trust through cooperation and teamwork and enables us to keep prices as low as possible within the context of our values and principles. Only members may shop, and we share responsibilities and benefits equally. We strive to be a responsible and ethical employer and neighbor. We are a buying agent for our members and not a selling agent for any industry. We are a part of and support the cooperative movement. We offer a diversity of products with an emphasis on organic, minimally processed and healthful foods. We seek to avoid products that depend on the exploitation of others. We support non-toxic, sustainable agriculture. 
We respect the environment. We strive to reduce the impact of our lifestyles on the world we share with other species and future generations. We prefer to buy from local, earth-friendly producers. We recycle. We try to lead by example, educating ourselves and others about health and nutrition, cooperation and the environment. 
We are committed to diversity and equality. We oppose discrimination in any form. We strive to make the Coop welcoming and accessible to all and to respect the opinions, needs and concerns of every member. We seek to maximize participation at every level, from policy making to running the store. 
We welcome all who respect these values."

Tuesday, November 26, 2013

A Novel Undergraduate Environmental Economics Class

By clicking here, you can download all of the lecture notes, filmed videos, notes, homeworks and readings for my fall 2013 Undergraduate Environmental Economics class at UCLA.  Roughly 116 students will receive a grade.  That's a big class and I didn't have a graduate Teaching Assistant to help me.  One receives no extra "credit" for teaching such a big class.  Instead, there are more papers to grade, and more administrative emails to read.  The only glory of teaching such a big class is that the law of large numbers guarantees that I can identify some students who really want to excel and understand why the subject matter is exciting.   There were many seniors in the class this quarter who appear to be more focused on their job search than on the core material that I find so interesting.

Feeding the Homeless and the Urban Tragedy of the Commons

The NY Times would make King Solomon blush.  On the front page today is a story from Los Angeles' West Hollywood neighborhood.   This tolerant community (located six miles east of my UCLA neighborhood) is feeding the homeless.  When offered a "free lunch", many homeless are showing up to eat and they are hanging out before the meal and after the meal.   People who own homes in the neighborhood feel under siege and threatened not knowing which homeless may pose a danger to their own families.   The article hints that local home owners want the feeding to occur indoors or at some isolated area and then for buses to take the homeless away from their community.   Such an endeavor would raise the cost of providing for the homeless. It is no accident that the current system has evolved the way it has.  So, do the local property owners have rights? Or did the relatively low price they paid for their homes reflect the present discounted expected value that homeless people could be fed nearby?  

The larger issue here revolves around the uses of public land when perceived negative externalities exists.  Does the Coase theorem apply?  Where should a homeless feeding occur?  Should UCLA's School of Public Health use its campus to provide these meals and health care?    Who should pay to provide these services? What are the responsibilities of the homeless in return for receiving free food?  

Monday, November 25, 2013

All Hail Uber!

This blog post is a product endorsement.  No more taxi cabs for me.  Uber is now my Los Angeles car service company.   My wife, son and I have all downloaded their App which provides you with a map of how minutes away is its closest car.  You select its type (I suggest the Lincoln Towncar) and wait for your limo to pull up to the curb. No cash is needed because you have prepaid.   I pay a few dollars more as an extra tip.  The NY Times even mentioned the company today on its front page when discussing the hipster gentrification of San Fran.   This is a classy car service.

Some Economics of Bitcoins

In Econ 101, we teach that U.S dollars (not backed by gold) will be accepted as payment because the seller expects that somebody else will accept payment with the currency.   Where does this expectation come from?  What would chip away at this "confidence" in holding cash?  The short answer is expected inflation.  With Bitcoins, the producers are promising to mint a finite set and thus commit to no hyperinflation.   This will create value if there is demand for these coins.   Who will demand them?  In the structural IO literature, experts on cars estimate models of the demand for one make (say a BMW) versus another (say a Prius).  If the BMW and the Prius are close substitutes then all else equal --- a price rise for the BMW reduces its market share and increases the Prius' market share.    Companies compete on quality and pricing.  In the case of bitcoins, how will these coins compete?  Quality is one dimensional --- do people believe the currency will be redeemable for goods at a "good" ratio in the future?  

The difference between bitcoins and cars is that bitcoins represent a platform good.  If we all co-ordinate and use bitcoins rather than Peercoins, then there is a social positive externality.  Why?  A person who has an endowment of Peercoins and wants to buy something whose price is listed in bitcoins would need to exchange the Peercoins for dollars and then trade the dollars for bitcoins and then buy the object.  This extra set of transaction costs (measured in time and markups) would lead to distortions in the trading of the actual goods.  This suggests that the market economy would be stronger if there is a weeding out so that only one "bitcoin" survives the competition with other currencies threatening to enter if a hyperinflation takes place (this is the "optimal currency area").

An interesting game theory issue arises here of multiple equilibria concerning which brands of money will survive the competition. How will these different currencies compete against each other? The wild volatility of their prices suggests that traders are puzzled about the fundamentals here.  What are small initial moves a nascent currency can make (for example signing up Larry Summers or Bernanke to be on their board of directors) that would instill long run confidence?  

Finally, what is the social value of this competition?  The world has the $, the RMB and the Euro and all the other currencies, what is the social marginal product of introducing a "new good" to this set?  How would Jerry Hausman estimate the consumer surplus from this new product?

Friday, November 22, 2013

An Interesting Field Experiment

Soon, I will go to the University of Chicago and the University of Wisconsin-Madison to present a new paper of mine.    I went to the UW-Madison webpage to see what's going on at that Department and I read through this newsletter.  UWM has made the wise decision to appoint an economist as Chancellor (Rebecca Blank) and to appoint an economist as Dean of Social Sciences (Karl Scholz).  This is an interesting experiment that West Coast public universities should think about implementing.  Are economists good at efficiently allocating scarce resources? Are they benevolent planners?  We will find out but I predict that UW-M will become an even stronger university due to these wise management choices.

The University of California has ten campuses.  Unless I am mistaken, an economist is not the chancellor at any of these branches nor serves as the Provost and I don't believe that an economist is the Dean of Social Sciences at any of the branches and I don't believe that an economist is the Dean of any of the business schools or Public Policy schools with the exception of Richard Lyon at the Haas School of Business at UC Berkeley.  If this claim is false, please email me!  

Drinking and Talking

We know that we shouldn't drink and drive but should economists drink and lecture?   On Wednesday November 20th, I ran a field experiment.   I was given the opportunity to speak to a large number of Emeritus faculty members of UCLA.  I was the after dinner speaker and roughly 80 people remained to listen to my talk.  I focused on my 2014 book on pollution progress in China.  This is joint work with Professor Siqi Zheng of Tsinghua University.   The book is under contract with the University of Chicago Press.    Here is the audio of my discussion.

For folks who listen, you will note that I don't use powerpoint and I don't read from a prepared text. I had one page of notes and this is the talk that emerged.  

Thursday, November 21, 2013

President Obama's JPE Collection?

It looks to me that the President is showing the Chicago economists (Lars, Gene and Grace) his collection of JPE journals.  The third Nobel Laureate is hiding out in back.

Monday, November 18, 2013

Why is UCLA Ranked #61?

Here is a novel ranking of U.S "smart colleges".  Why is UCLA ranked #61?  Note that UCSD is #23, UC Berkeley is #31 and USC is also ranked #31.     There is a question of whether the sampled population is representative of all students at each school but this is an interesting approach.  I also don't fully understand how the authors collapse the five Lumosity Brain Areas: Speed, Attention, Flexibility, Memory and
Problem Solving into a single index. Do they simply average them?

A Physics Lesson

While I am not a good physicist, I have great hopes that my son will be.   As a regular reader of the NY Post, I'd like to share one physics lesson for you.  In high school football, what happens when a 400 pound running back collides with a 110 pound defensive back?  

Meet the 400-pound high school running back

When Do Boycotts Succeed?

The NY Times reports evidence that China is not "small" in media markets.   Its credible threats yield outcomes that it prefers.  Economists haven't done enough work on this relationship between economic growth and "political muscle".   Such research would be likely to conclude that the global distribution of economic growth is crucial because some "arms race" issues across countries arise.   If political clout grows in proportion to economic growth, then the fast growing economies will be able to shift the terms of trade (and even property rights) to their advantage.   For example, if China's economy grows at 7% per year and Japan's economy grows by 1% a year, if each nation invests 10% of its resources in its military then China will quickly have a military with more soldiers (labor) and more ships (capital).  Assuming they have equally qualified generals (and based on order statistics China would have better generals), the stronger nation will have the upper hand in bargaining games where war could break out if the bargaining issue is not resolved.  

Sunday, November 17, 2013

Urban Marriage Markets

This article tells the story of how a UCLA trained doctor married a punk rocker.  Her parents had many questions about this dude.    Are they a power couple?

Saturday, November 16, 2013

Hollywood Celebrities who Install Wind Turbines in Upstate New York

For environmental economics and urban economics teachers, here is a funny land allocation problem.   The NY Times reports that the Hollywood celebrity Judd Hirsch (think of Taxi and Independence Day and Numbers) is building wind turbines on his upper New York State property and this is making his neighbors nuts.  This is a classic "pick your poison" case.  Is the important externality here the GHG emissions reductions or the local noise and impact on local quality of life?  What would Coase say?   For those of you who closely follow my research, you know that I've already published a paper on the broad topic of the impact of commercial wind turbines on rural areas.  My setting was West Texas.

Friday, November 15, 2013

UCLA's Sustainability Grand Challenge

UCLA has just announced an exciting grand challenge 
"In a kickoff event at UCLA's Royce Hall, Chancellor Gene Block will describe the ambitious project, "Thriving in a Hotter Los Angeles," whose goal is for the Los Angeles region to use exclusively renewable energy and local water by 2050 while protecting biodiversity and enhancing quality of life."

Among the goals of "Thriving in a Hotter Los Angeles" are:
  • A smart electrical grid that works with renewable energy sources, and smart metering systems that enable homes, businesses and electric cars to feed energy back into the system.
  • More efficient energy production and storage technology.
  • A carbon-free transportation infrastructure and public transit system, with greater options for bicyclists and pedestrians.
  • Solar energy on every rooftop.
  • A decentralized water treatment and supply system.
  • More efficient and affordable technologies for capturing and cleaning wastewater, stormwater and other urban water.
  • Developing environmentally friendly technologies for desalinating ocean water.
  • Policies that encourage homeowners to use low-water landscaping, rainwater catchment systems, and systems to capture, purify and reuse graywater.
  • An increased number of underpasses for wildlife and crossings to connect and enlarge wildlife habitats.
  • Supporting native plants and animals with green rooftops, native gardens, neighborhood green spaces and other land-use strategies to break down barriers between urban and natural space.

Some Economics Questions;

1.  Given that the Los Angeles building stock already exists and it is old, what is the cost of retrofitting such buildings to embody this new technology?  How much cheaper would it be to install this smart electrical grid if Los Angeles were to be built from scratch?
2.  Many Beverly Hills residents are using NIMBY concerns to block the Westside Subway.  Will similar issues arise with the installation of this new green infrastructure?    For example, where will these "decentralized" water treatment systems be built?  Will they be local disamenities or will LA residents be happy to live near them?
3.  If no more gasoline is used, then Los Angeles residents will not be paying gasoline taxes, how will Los Angeles finance the building and maintenance of its roads in the year 2050?
4.   Given that Los Angeles has more than 12 major employment centers, buses would appear to be a better public transit technology than subways (which focus on bringing people through a hub and spoke system).  Will Los Angeles introduce dedicated bus lanes and road congestion pricing so that "green buses" can achieve the win-win of moving at high speeds?
5. The main policy that will encourage homeowners to use lower water landscaping is to raise water prices!   Does the LADWP have the stomach to do this?  

So, I'm highly optimistic about this Grand Challenge and it is clear to me that economic analysis will be a key tool in guaranteeing that this optimistic vision for LA's future becomes a reality.  

Tuesday, November 12, 2013

Four Environmental Economics Links

While the NY Times doesn't report any NBA news today, it is filled with other interesting stuff.  

1.  The local externality imposed by New York City's old garbage trucks.   Yes, these trucks pick up the garbage but they emit plenty of particulate matter and cleaning this up will cost millions.  Who should pay that bill?

2.  A new sustainable beef business is launched in California.  Perhaps green products can thrive under specific circumstances.

3.  The horrible news from the Philippines related to the death toll from the typhoon  highlights the importance of economic development and providing trusted information to nudge coastal households to live in higher quality structures and to move to higher ground before storms hit.

4.  The Wall Street Journal has a great section today called;  "The Power of Tomorrow" focused on the future of different energy sources and the market  and political barriers they face to enhance our energy supply.

Sunday, November 10, 2013

Outsourcing in Cities

Catherine Rampell has written an excellent piece about how we allocate our scarce time.  Note that neither the word "city" nor "population density" appear in her article.  Robinson Crusoe would not have had the option of outsourcing his cooking or dry cleaning.    Outsourcing and urbanization and specialization go hand in hand.  

Saturday, November 09, 2013

Conspicuous Consumption in Los Angeles

I was in a West Los Angeles parking lot next to where my son takes fencing lessons.  While I agree that this is not a location chosen at random, take a look at the makes of these three parked cars.  From left to right, I see Tesla, Lexus, Tesla.    Why do the wealthy live in Los Angeles?  Is it because this is a productive place?  Are these folks rich because they live in Los Angeles?

Fixed Effects

A psychologist reports that those who smiled in their College yearbook photo were much less likely to subsequently divorce than those serious people who didn't smile.  The causal effect here  is likely to be due to a 3rd variable; "stress and attitude".  Is it the case that easy going people are more likely to smile and live a happier life?

Why do I like this finding?

The Evolving Geography of China's Industrial Production

In joint research, I have just released a new NBER Working Paper that examines the causes and consequences of shifts in the economic geography of China's industrial production.   Led Zeppelin recorded a famous song called; "The Song Remains the Same".  This applies to this piece of my research.  Back in 1999, I published a JUE paper using U.S data examining the air quality benefits of Rust Belt decline. Cities such as Pittsburgh experienced sharp improvements in quality of life.  

My new paper argues that a similar dynamic is now playing out within China.  Coastal rich cities feature high land prices, high labor prices and increasingly stringent environmental regulation.  These factors encourage land intensive manufacturing to leave these cities and to move to Western China and to leave China.  The powerful central government and local Western Mayors are offering incentives for such factories to move West.  This migration brings about some income convergence across regions but also impacts the spatial distribution of pollution and quality of life.  We survey the emerging literature on China's industrialization and present a lot of new empirical evidence in this paper.

The Evolving Geography of China's Industrial Production: Implications for Pollution Dynamics and Urban Quality of Life

Siqi ZhengCong SunYe QiMatthew E. Kahn

NBER Working Paper No. 19624
Issued in November 2013
NBER Program(s):   EEE   IO   ITI   POL 
China’s rapid economic growth has been fueled by industrialization and urbanization. Given its export focus, this industrialization was spatially concentrated in the coastal eastern cities. Over the last decade, a spatial transformation has taken place leading to a deindustrialization of the rich coastal cities and sharp industrial growth in the inland cities. This survey examines recent work that studies the economic geography of industrial production, per-capita income, pollution and quality of life in China’s cities. We focus on the interaction between firms, local governments and the central government that together determine the new economic geography of industry and pollution within China.

Friday, November 08, 2013

Free Riding and River Water Pollution in China

In September 2013, I visited the National University of Singapore and had the opportunity to work with two economists at their Institute of Real Estate Studies.  Pei Li, Daxuan Zhao and I have just released this new NBER Working Paper.  

Pollution Control Effort at China's River Borders: When Does Free Riding Cease?

Matthew E. KahnPei LiDaxuan Zhao

NBER Working Paper No. 19620
Issued in November 2013
NBER Program(s):   EEE   PE   POL 

At political boundaries, local leaders often have weak incentives to reduce polluting activity because the social costs are borne by downstream neighbors. This paper exploits a natural experiment set in China in which the central government changed the local political promotion criteria and hence incentivized local officials to reduce border pollution along specific criteria. Using a difference in difference approach, we document evidence of pollution progress with respect to targeted criteria at river boundaries. Other indicators of water quality, not targeted by the central government, do not improve after the regime shift. Using data on the economic geography of key industrial water polluters, we explore possible mechanisms.

So, our study builds on Hilary Sigman's classic AER paper where we demonstrate the role of leaders and their power in China to change the status quo.  As usual, the key issue focuses on incentives. What incentives does the leader face to address the issue? Are there unintended consequences of the new policy choices that are made?

The Efficient Allocation of Rural Land in Upstate New York

Back in the mid-1980s, I attended Hamilton College. I would take the Amtrak train from Westchester to Utica and as the train traveled North and West, I would see decaying manufacturing towns in upstate New York (think Schenectady --- whose population has declined by 25% over the last 60 years) and farmland.   At the time, I wondered about why so much space was offering so little value to the U.S economy.  Flash forward to today and I just read this great WSJ opinon piece by Fred Siegel.  For economists who teach environmental or urban economics, this is a great teaching tool.  Siegel tells a story of conflicting visions for how upstate NY land should be allocated.  

On the one hand are the "liberal NYC landed gentry" who live in Manhattan and have bought large 2nd homes in upstate New York (i.e people such as Sean Eldridge profiled in this story).  Siegel tells a story of how these land owners have formed a coalition with liberal university students and faculty at upstate NY universities to oppose fracking activity.    Is upper New York State a place where produce things (besides for apples)?  Or is it a place for the rich to retreat to for serenity?

In contrast, there are pro-fracking land owners in upstate New York who tend to be poorer and more conservative.  So, should we ask Joni Mitchell?  What is the right balance between preserving versus using land?  If there are cross-parcel externalities associated with fracking, what safeguards should be built in to protect the property rights of land owners who choose to not lease their parcels for fracking?   Could the frackers post a bond?  Could their be random audits to see if fracking equipment safety protocols are being followed?

Safety Net Convergence? Will France Imitate Texas?

This article is worth reading.   For decades, France has ignored Milton Friedman's logic and has heavily taxed its economy to provide for a generous safety net.   The Socialist President of France is well aware that this is not sustainable and he must choose which "neo-classical" set of policies in order to simultaneously reduce his nation's budget deficit and stimulate long term growth. On one level, this is funny and on another level it is sad.  Perhaps he should consider visiting Texas to learn about a different vision of the good life?   For those who want to see some economics research on the taste for redistribution read this IZA Working Paper.

Wednesday, November 06, 2013

Climate Change Adaptation and Big Data

The New Yorker Magazine tells an optimistic story about how "Big Data" will help farmers cope with climate change  and climate risk.  In a nutshell what the article argues is an analogy;   Baseball's Billy Bean (think Moneyball) is to Baseball what Jeffrey Hamlin is to farming.  Both use analytics to achieve efficiency increases given limited resources.   Human ingenuity increases our productivity and helps us to adapt.  This is the Climatopolis logic and this is how Jeffrey Hamlin will grow rich and you will still have food on your table to eat.   Elizabeth Kolbert should read her own magazine!

Tuesday, November 05, 2013

Redistribution in Cities: The Case of Mayor De Blasio

While Google doesn't have it recorded,  roughly 15 years ago, Ed Glaeser, Jordan Rappaport and I wrote a paper titled "Redistribution in Cities".   With the election of the new progressive mayor of NYC, this paper merits a second look.  Using data from the Census of Governments, we studied the determinants of which cities spend the most on health, and welfare.  A New York City version of the paper is published here.     Our work focused on the simple idea of product differentiation and substitutes.  A progressive mayor can redistribute if the tax base can't flee.  Are there other cities in the United States that are "close substitutes" in the minds of the 1% for New York City?  If Woody Allen and Mia and "their" son are willing to move to Philly, then Mayor De Blasio won't be able to raise taxes much without learning about the Laffer Curve.  If NYC is a monopolist then he will be able to tax his golden goose without experience a revenue drop.

Monday, November 04, 2013

An Unusual Day in My UCLA Environmental Economics Class

I've been a professor for 20 years now so I'm seldom surprised by what goes on in the classroom.    Today was funny.  If you click here and go to the November 4th 2013 lecture,  you will first hear me say some crazed stuff about negative externalities and the case of undergraduates kissing at Stanford and spreading infectious disease.  You will then listen to several sets of my students giving excellent presentations on "green products". I asked the students to answer the following;
Select a company that you believe produces a “green product”. Answer the following questions using Google research,

1. What environmental externality is mitigated by consuming the product you chose versus consuming a “conventional” alternative?
2. Are consumers willing to pay a price premium for this product?
3. Would your product be sold if there was no government to offer it special subsidies or other incentives?
4. Are you optimistic that sales for the product you picked will rise over time? Why

If you watch the video, you will see some of my excellent students present their findings from their homework assignment.  Undergraduates do not get enough practice with public speaking. This 120 person class gives them a large audience and I thought my students did a great job.

At the end of class today , one of my students approached me and told me that I remind him of his grandfather! He told me that his grandfather is very smart and quite opinionated.  I've reached an age (47) where I am certainly willing to be compared to a grandpa. This young man was kind enough to give me a copy of his grandfather's recent book.  Robert V. Wills has written a book titled "A View from the Hill" Trading the Courtroom for the Ivory Tower.  I am going to read it right now and here is its Amazon link.

Saturday, November 02, 2013

Climate Change and the Food Supply

The NY Times has a lead article saying that the IPCC says that climate change will reduce the food supply during a time of global population and income growth and this will lead to higher prices for food and hence increased starvation risk for the world's very poor.

Suppose that everything the IPCC says will happen will indeed happen (and the reported price effect actually looks quite small but let's pretend that the reporter got the magnitude of the effect wrong).  What happens next?  To predict true doom and gloom, you need to believe the following;

1.  Under new climate conditions, farming cannot be productive in current cold places such as Russia and Canada that will now have warmer winters.  Instead, farming remains where it currently is and just dries up in the heat and drought.
2.  Human ingenuity and new GMO entrepreneurs will not figure out ways to increase agricultural yields.
3.  People's tastes for foods are such that we are unable or unwilling to substitute to varieties that can be grown under new climate conditions.
4. The world's very poor do not enjoy the growth miracle that has lifted hundreds of millions of people out of poverty in China and in many parts of Africa so that they do not have the income to buy foods at higher prices.
5. The world's engineers do not figure out ways to recycle water and to enhance our stocks of key agricultural inputs.
6.  Global population growth continues to rise sharply.
7.  Consumers in the rich nations (who are increasingly obese) do not respond to price incentives by reducing their consumption and allowing others in the rest of the world to eat these calories.
8.  Shifting global demographics such as the aging of the world's population doesn't reduce the average number of calories that  a person eats each year.

50 years from now readers of this blog will see me write a post on November 2nd 2063 highlighting that each of these 8 claims is proven to be false.

Since the IPCC is dominated by non-economists, basic economic ideas such investment under uncertainty and rational expectations do not enter the predictive models these scientists supply.  Implicit in IPCC research is a mass behavioral economics vision of myopia.  In the real world, self interested people form their best guesses of the future and reports such as the NY Times article today help to guarantee that their pessimistic predictions never occur.  As I explain in Climatopolis and repeat in points #2 and #5 above, expectations of future scarcity create necessary conditions for entrepreneurs to smell big profits and this is the start of averting doom.