Thursday, September 04, 2014

Dust Bowl Economics and Climate Change Adaptation

Joe Romm reminds us that drought affects places.   He does not mention that allowing water prices to rise is a straightforward adaptation strategy.  What happens to people who live in places that experience "dust bowl" conditions?   Rick Hornbeck's 2012 AER paper shows that many people moved away from the Dust Bowl affected counties.

This raises two deep economic issues.  How costly is it to migrate away from one's origin area as you leave your friends and your familiar circumstances?  Second, what opportunities are created for you when you do move?    Consider an extreme example of a lazy genius who would discover a cure for cancer if he got up from his sofa.  The Dust Bowl evicts such a guy from the sofa and he goes on and does great things.  Consider the universe of people who lived in Dust Bowl affected counties, the interesting thought experiment is to study their earnings dynamics as some of them move.  How much did they suffer (or gain) in terms of lifetime PDV of earnings because they did move?    Writers such  Romm and Hornbeck focus on physical places such as affected counties.  From a welfare perspective, we care about the people and migration breaks the link between the two.    The key economic concept here is willingness to pay; how much would the people of the Dust Bowl have been willing to pay for the Dust Bowl not to have occurred?   The ability to migrate reduces this willingness to pay.

But, returning to natural resources again.  Water pricing will be the mechanism through which we get supply and demand back in balance again and trigger directed R&D for augmenting our water supplies. The Dust Bowl people of 1930 didn't have the science knowledge that we do. Human Ingenuity guarantees that the past does not repeat itself.