The Economist Magazine's March 13th 2021 issue has a great story about drone use and drone expenditure.

The piece starts by talking about Tom Cruise in the movie "Top Gun" and says that manned airplanes are expensive.  One justification for substituting such flights and instead using drones is to save costs.

Per hour of flying drones are cheaper than manned aircrafts (even if Tom Cruise isn't the pilot!),   But, the Rebound Effect lurks

 Since Drones are cheaper per hour of flying, the Military chooses to fly more hours.  The military's Demand curve slopes down and apparently is price sensitive.  So, the total expenditure on flights has increased as drones have replaced Tom Cruise!

This is the Rebound Effect in action.   When I teach environmental economics, I give the following example from my $2 textbook,  

Suppose that Matt always drives 10,000 miles.  If he owns a car that achieves 10 MPG, then he consumes 1,000 gallons of gas. If he owns a car that achieves 100 MPG, then consumes 100 gallons of gas.  In this case, there is no rebound effect. Now suppose that Matt's demand for driving (measured in miles) can be expressed as:

Miles Driven = 20000 - 20000*Price per Mile of driving

 If Matt owns a vehicle that achieves 20 MPG, then this vehicle consumes .05 gallons per mile.  If the price of gasoline is $2 per gallon, then Matt's price per mile when he owns a 20 MPG vehicle is 2 * .05 = 10 cents per mile = .1 dollars. Now, plug this into the demand curve.  Matt will drive his 20 MPG vehicle = 20,000 – 20,000 * .1 = 18,000 miles, and he will consume 18,000 / 20 = 900 gallons.  Now, suppose Matt is handed a vehicle that achieves 40 MPG.  Assuming the price of gasoline remains at $2 per gallon, then his new price per mile is 2 * (1 / 40) = 5 cents per mile = .05 dollars.  Plug this price into the demand curve to obtain Miles = 20,000 – 20,000 * .05 = 19,000 miles.  So, Matt drives more miles now, but his gasoline consumption now equals (19,000 / 40 = 475) < (18,000 / 20 = 900), so there is only a small rebound here. Note that the more elastic his demand for driving as a function of price, then he is more likely to rebound and consume more gasoline when he drives a more fuel-efficient vehicle.

 I really like Paul Krugman's NY Times piece from today.   It focuses on his predictions about the short term future of cities.   Here is a quote from the Nobel Laureate. 

"So the best bet is that life and work in, say, 2023 will look a lot like life and work in 2019, but a bit less so. We may commute to the office less than we used to; there may well be a glut of urban office space." 

In the early 2000s,  Ed Glaeser and I wrote two papers about the rise of suburban employment.  The papers are available here and here.

A majority of metro area people both live and work in the suburbs of the center city.  So, in the Boston metropolitan area; the City of Boston represents a small share of the land area, jobs and people in the local economy.

It is true that the city's culture and history are often concentrated downtown but is that a sufficient draw to create a vibrant place?

Urban economists have emphasized that cities are places of production and consumption.   While I appreciate the point about the "knowledge economy" and face to face interaction, I have always been more interested in the city as a place of consumption and quality of life.

For years, I have argued that cities with great quality of life have the foundation to have a strong economy.  Great quality of life depends on "God Given" attributes of weather and natural beauty but even cold places can be green consumer cities if they are safe, clean and maximize the city's natural synergies such as access to the water with the urban structure of the city (the transportation system and the housing stock).  

I recently released a co-authored  NBER working paper that argues that the real estate premium in our most productive cities declined in 2020 as some of us dispersed to the suburbs and other areas.  I believe that the real estate premium for high quality of life areas will only grow over time as Work from Home workers will bid up prices for real estate there and incumbent residents will enact housing supply regulations to limit new development.

Paul Krugman's quote suggests that he doesn't see Working from Home as a major part of our economy going forward for educated people. I agree with him in the case of young people but I believe that middle aged people and older will want the flexibility.  Such footloose people will be much more responsive to shocks to local quality of life. Center cities that suffer a degradation in local quality of life will experience a larger "elasticity" in response to lost college graduates who move away.

 I have moved my climate change economics blogging over to Substack.  

In February 2021, we published our urban economics book ;

You can read chapter One and watch several relevant urban economic growth videos posted here.

Next week, Yale University Press will publish my new book 

This book has already won a prize and you can learn more here.  

I am eager to market both books.  Email me at mek1966@gmail.com to arrange book talks.