This blog post builds on my last post on a related topic.      My critics say to me;  "Matt, our centers of productivity are located in coastal places and these places face ever increasing climate risks.  In a Paul Krugman  style "History versus Expectations" economy, we have built our productive hubs in places that are now under siege and our economy could be wiped out by future punches."  Note that these persistence pessimists downplay the role of Expectations.  Lucas lives on.  Capital is finite lived and there is always a new generation of young people.  They don't need to follow the herd and sink as the seas rise.  

My counter-points takes several forms;

First, I can point to my 2017 JUE paper on Chinese Industrial Parks.  These recent phenomena highlight how new centers of local economic productivity can quickly be built. Yes, China's government has certain unique powers that U.S governments don't have but are you so pessimistic about the ability of private firms to co-ordinate activity and move to higher ground as they anticipate threats to where they currently locate?

Second, as I discuss in my 2022 Work from Home (WFH) book, the rise of WFH  will only increase our resilience to climate shocks for those who are eligible to work in such jobs.   WFH eligible workers have strong incentive to move to "higher ground" and service worker will follow them (the Moretti local multiplier effect revisited!).  

Third, forward looking firms have strong incentives to anticipate the new risks they will face and to invest in the fixed costs to continue to be productive.  See my 2016 paper with Josh Graff-Zivin.

Fourth, I can point to the Davis and Weinstein key work on city resilience in the face of enormous shocks.  The death toll from natural disasters declines with economic development (see my 2005 RETAT paper).   Was Nietzsche right?  What doesn't kill us makes us stronger?

Fifth,  U.S cities compete against each other to attract productive firms. If a firm such as Amazon is not productive in a specific location, it will look around the nation for alternative locations as a HQ2. This competition fuels resilience.  Competition is a key idea that is missing in the recent climate economics literature.  IO economists study the benefits of competition but environmental economists do not.  The latter are implicitly assuming that all firms and people are stuck in place.  Is persistence really that persistent? 

My work on climate change adaptation focuses on both people and places.  As I discuss in my 2021 Yale Press book, we need to hold more real options and not lock in to any one place. My book fleshes out all of the points I make in this blog post.  The ability to reoptimize as we learn about the spatial distribution of risks is crucial for adapting to the very serious challenge that we face.

When one drops the macro approach to measuring climate change damage (see Nordhaus and Weitzman) and introduces geography, the adaptation margins actually increase to almost infinity given the number of locations, building types, construction materials and permutations with club goods that can be used in the face of every location specific climate threat.   Such adaptation is costly but how costly in an economy featuring learning by doing and global supply chains?    This is the exciting research agenda that merits new work.