Wednesday, May 07, 2014

Some News Coverage of the Kahn/Kok Walmart Paper

This article  discusses my recent NBER paper (joint with Nils Kok) on Walmart's electricity consumption.   Our paper's key point is that there are economies of scale in energy efficiency because of human capital.  Gary Becker might give me a B+ for this but let me explain.  Suppose that a MIT engineer can be hired for $5000 to provide advice for how to make a piece of commercial real estate more energy efficient.  An owner of a small store that has X square feet faces an average fixed cost of 5000/X for hiring this guy.  Suppose that Walmart controls 5000*X square feet. In this case, Walmart's average fixed cost of hiring this guy is 1/X.   Walmart's sheer size provides it with strong incentives to hire the best engineers because armed with one good idea from such an engineer it can be used at each of its stores.  

While John Kenneth Galbraith railed against "Big Capitalism" --- such Superstores are actually good for energy efficiency because of specialization of human capital within the organization (i.e having an energy manager becomes profitable for the big Walmart) and because they can finance hiring the very best engineers and use their ideas across all their square footage.