Environmental and Urban Economics

As Elon Musk's Tesla ramps up production of the Model 3, will the firm enjoy large learning by doing gains in productivity (and lower costs due to "pin factory" specialization by parts suppliers due to economies of scale) or will quality decline due to the "big rush"?  Do serious IO economists have a prediction to make here regarding whether there is a quantity vs. quality tradeoff in differentiated product markets for new goods.

Recall the WW 2 battleship case.

Thompson P. How much did the liberty shipbuilders learn? New evidence for an old case study. Journal of Political Economy. 2001 Feb;109(1):103-37.

"This paper offers some new estimates of the contribution of learning to the rapid increases in labor productivity observed in the construction of Liberty ships during World War II.

For years, I have argued that climate change will boost real estate prices in regions of the U.S that prove to have an edge in adaptation (i.e relatively cool summers and warm winters).  I published my paper back in 2009 and then several other teams started doing similar work.

My wife asked me; why don't we make a $ bet on the places that you are optimistic about.

Economists have taught zillions of students that if investors are risk neutral and forward looking that the value of a piece of real estate today is the expected present discounted value of its future rents.   As North Korea's ability to shoot nuclear missiles improves, will real estate assets in the Western U.S drop as this "new news" is reflected in prices?   This Fox News piece suggests that people in Japan are investing in precautions.

Read this piece.  It suggests that we will face increased "fat tail" risk in the future as climate change will raise the probability of several different corn regions having low output crops.  How will capitalism help us adapt to this potentially serious problem?

1.  Storage.  Don't forget Hotelling's Rule.  Expected high prices in the future create incentives to store the commodity during boom times.  Here are some technical details on corn storage.

Here is MTA's 2017 budget.  It will spend $17 billion dollars to keep the New York City region's buses and subways moving. That's a lot of $!  Look at the pie chart on page I-1.  Only 23% of the budget is spent on capital goods.  60% is spent on labor and 17% is spent on paying back past debts (these debts in turn must be mainly caused by past labor expenses).    On average, 8.8 million people ride this system each weekday (see page II-11).  The MTA has 69,000 total employees.

Politico's piece is interesting.  If Larry Summers and Glenn Hubbard were members of Congress, would we have "better" tax policy?   If climate scientists ran the Energy Independence and Climate Change Sub-Committee, would "better" policies emerge?  For example, would we be more likely to have a carbon tax now?   The Arrow Impossibility theorem would appear to be relevant here.

While the Sports Section doesn't have any new NBA news, the NY Times has published two really interesting pieces related to major themes in urban economics. One focuses on the garbage problem in the NYC subway and the other examines the challenge of high property tax payments (as a function of current market value) in Detroit due to falling home prices combined with "sticky" earlier property value assessments.

The USC fall semester starts in about 4 weeks.  Our football team is ranked #4 in the pre-season and the economics department is ranked #22 (on USA REPEC).    The University is investing to upgrade the building capital stock. Here is the new University Village.   I took this photo today and I like what I see.  I walked past the new McCarthy Honors College and I hope my son considers living there in two years when he goes off to college.

Zillow reports that the median home price in Alabama is $126,000 while in California it is $500,000.  Why?  The NY Times reports today on this issue.

In this self serving blog post,  I want to point you to my demand side papers that explain why California home prices are so high and my supply side papers.

Demand Side:

Kahn Matthew E., 1995. "A Revealed Preference Approach to Ranking City Quality of Life," Journal of Urban Economics, Elsevier, vol. 38(2), pages 221-235, September.

When I walk around the Venice Beach area, I see plenty of two story buildings and homes that could be knocked down and rebuilt with 6 story and taller buildings. The WSJ poses a great puzzle today on why more housing isn't being built in this paradise.  My friends Issi Romem and Jed Kolko are both quoted.