Tuesday, March 31, 2015

How Will the Aspen Forests Adapt to Climate Change? What Do We Lose if they Can't?

Justin Gillis reports that the Aspen Forests in the American West are threatened by climate change.  The causal mechanism is drought and heat.    For those who want to delve into these issues, read this piece.  Here is an important quote from the 2nd piece:


So what does the future hold for aspen in a warming world? The answers may depend in part on how the aspen reproduce. Aspen have two means of reproduction: Some are seed spreaders, and some are sprouters. In the East, where aspen are seeders — reproducing via cottony seeds floating on the wind — the future looks brighter. Like many trees, they may be able to simply move up in elevation to find suitable habitats in a warmer world. However, aspen is not a dominant species in these forests, nor is it likely to be in the future.

In the West, where aspen play a bigger role in forest composition, they might be slower to make the transition because there, they are sprouters, not seed spreaders. Most aspen in the West reproduce from the roots of existing trees, sprouting new trunks, called ramets, in a steady march across the landscape. Entire groves, then, can be clones of a single original tree.

The largest of these clonal groves ever documented is a 108-acre stand in Utah called “Pando,” Latin for “I spread.” The Pando Grove contains more than 40,000 trees and is estimated to have existed for at least tens of thousands of years. For a single clonal grove to be successful, it must have just enough disturbance to keep conifers from taking over, while escaping any grove-eliminating catastrophic events. Pando, in the rolling snow-covered plateau country of central Utah, has found that perfect place.

Groves of clones like Pando add a unique beauty to the landscape: They can be distinguished from neighboring aspen families during spring, when the trees leaf out, because a single clonal grove will usually leaf at the same time. The same visible distinctions are seen in autumn, when aspen turn their brilliant yellow and orange, sometimes directly adjacent to a grove that still retains its summer green.
Fall colors in the relatively drab West might be the single most attractive element of aspen to humans, but food and shelter are primary drivers for a multitude of animal species that call aspen groves home. Mice, voles, picas, rabbits, beaver, porcupine, deer, moose and elk all prefer aspen-dominated habitats. Ruffed grouse depend on them for forage, breeding and nesting. Goshawk, Cooper’s hawk, sharp-shinned hawk and pygmy owl nest and hunt and live there, too.
For these aspen-loving species, the forecast doesn’t look good. On the one hand, more droughts and warmer temperatures — conditions forecasted by most climate scientists for much of the aspen’s prime range — spell disaster for this moisture-loving species. There is little doubt that in marginal habitats — Arizona’s pine-oak woodlands, Colorado’s south-facing slopes, Alberta’s prairie edges — aspen is on its way out. Conversely, more forest fires could open new habitat for aspen, and some studies have shown an increase in atmospheric carbon dioxide aids aspen, producing longer roots and faster growth rates. The prevailing consensus, however, is that while some areas might see more aspen in the years ahead, overall aspen range is retracting. “I think aspen will have a more difficult time adjusting to climate change than many other species,” says Dr. Kathryn Ireland, who researched aspen decline in the Southwest at Northern Arizona University’s School of Forestry.
In many ways, aspen is a resilient tree, boasting two means of reproduction, high levels of genetic variability and productive living bark. It’s little wonder that P. tremuloides spans from the Arctic Circle to the Tropic of Cancer. In a changing world, however, its time of glory might be waning. A lauded study by Gerald Rehfeldt of the U.S. Forest Service’s Rocky Mountain Research Station used three future climate models to extrapolate aspen success for the remainder of this century. The verdict? More than half of current aspen stands in the central Rockies will no longer be there by 2060. The huge iconic groves of the Rockies will have to rely on high-altitude fires to clear out spruce forests adjacent to existing aspen groves, where new ramets can crawl uphill. Will they be able to keep up? Only time will tell."
Suppose that everything written in the above quote takes place, if nature abhors a vacuum; what activity will take the place of where these forests now stand?  How much do we value these forests in terms of their existence value?  What ecosystem services is this forest now providing us?  How could an empirical economist quantify this loss caused by climate change?   Does this loss of biodiversity offer us any benefits?  Will any economic activity expand into these forest areas?  Which cities are close to these areas? Will new cities pop up in these currently forested areas?

Sunday, March 29, 2015

My May 2015 LSE Lecture on Quality of Life and the Environment in China

I am a 1987 graduate of the LSE.  In less than two months, I return to the LSE to see my friends there and to give several lectures. One will be a public lecture  where I discuss the big themes of my China research.  Most of this research is joint with Siqi Zheng of Tsinghua.   One of my China pollution papers, which will soon be published in AEJ, is joint with Pei Li and Daxuan Zhou.

My year at the LSE (1986 to 1987) played a pivotal role in my early training.   From 1984 to 1986, I attended a liberal arts college.  There were no graduate students at my college.  Relatively few of the faculty were active researchers. Instead, these smart faculty taught and held office hours and served on campus administrative committees.   Few of my classmates were intellectual nerds who aspired to become professors.   In this setting, I became a cocky guy and a bit of "know it all".   At the LSE, I met students who had a better training than me and who were smarter than me.  The LSE attracts students from all over Europe and the Middle East and these individuals viewed life much differently than a dude from the suburbs of New York City.   Together, this was an eye opener.   By the end of my year at LSE, I had a much better sense of what pro economists really do and where at that moment I stood in the "ability" distribution.  I returned to my college for my senior year better trained and aware of the objective reality.  My very good exam grades at LSE must have played a key role in helping me to get admitted to Ph.D. programs.  This was my start and I've tried to make the most of the opportunity.

When I return to LSE as a 49 year old guy (and folks know that I'm a strange public speaker with a very distinctive style that most professors would never dare to use), I hope that there will be some 20 year old in the audience who is interested in the substance of my remarks and is slightly inspired to learn that economics continues to be a fascinating subject offering great questions, now better data, and very good job prospects for those who demonstrate the potential to push the frontier forward.  

Saturday, March 28, 2015

Air Conditioning and Urban Adaptation to Intense Heat

On Thursday night, I gave an after dinner talk for a group of NBER economists.  My talk focused on the impact of climate change on urban economic growth and urban quality of life.  I argued that urbanization and the system of cities will together greatly help us to adapt to the emerging threat of climate change.   Below, I provide my notes for my talk.

In today's Economist, there is a long piece about Minister Lee of Singapore.  He died this week.  Here is a direct quote from the piece:

"Among a number of 20th-century luminaries asked by the Wall Street Journal in 1999 to pick the most influential invention of the millennium, he alone shunned the printing press, electricity, the internal combustion engine and the internet and chose the air-conditioner. He explained that, before air-con, people living in the tropics were at a disadvantage because the heat and humidity damaged the quality of their work."

Note the optimism. Note the ability of a physical place to protect itself from a threat.  Economic development offers this possibility.  As air conditioners become cheaper, this same effect will be observed in every city around the world and the impact of climate change caused heat on death and lowered productivity will be sharply attenuated.

NBER dinner

·         Thank Don , remarks will be brief! 

·         Two major issues related to cities and climate change

·         1.  How does urban growth and a specific city’s urban form affect GHG emissions?    

o   Billions moving to cities.   Cities raise our income due to learning and specialization and trade
o   Engel curves and the resulting GHG emissions;   Davis and Gertler’s work,  cars everywhere,  fridge, air conditioner,  Catherine Wolfram’s work.  Growing urban middle class all over the world is buying energy consuming durables that improve their private quality of life but exacerbate the climate change challenge given that fossil fuels are used to produce the electricity for these products.    
o   Glaeser and I on carbon footprints for cities around the world that differ in climate and in compactness.  

·         2. How will climate change impact urban economic growth and urban quality of life? 

·         My thesis is simple;  urbanization greatly helps us to adapt to climate change especially within nations with a large system of cities that provide choice and competition. 

o   How far do cities go to protecting us?  That’s the empirical question. 
o   My remarks build on ideas I first presented in my 2010 Climatopolis book!   Also build on many NBER scholars’ recent work. 

·         The right micro approach is to adopt an expenditure function approach within a Gary Becker Household production function framework;

o   we seek to be safe, healthy and happy; 
o   how does climate change’s shocks and trends affect each of these?
o   For every shock that urban households can experience due to climate change, loss in consumer surplus? 
o   Role of capitalism and new products to protect us from  that shock

·         Income insulates us;  

o   Death Toll from natural disasters  -  my 2005 RESTAT paper

o   Heat waves -- The Greenstone and co-authors work on air conditioning reducing the “sting” of heat waves, USA 20th Century and true in India, my time in Singapore;  Cities and air conditioning go hand in hand

o   The urban poor and adaptation;  If income protects us, will those with less income be able to protect themselves?  As quality adjusted prices for sturdy housing, cell phone, air conditioning, fridge decline then even poorer urban people will have the capacity to protect themselves.

New Threats

  • Sea Level Rise in coastal cities such as Miami and New York;   Durable capital and endogenous maintenance;  Lego pieces and option value of disassembling;   Known unknowns and how plan for them
  • System of cities;  if coastal cities do a bad job adapting, skilled people will leave and urban growth in these cities will slow. This creates an incentive for local leaders to step up and be pro-active.
  • Zoning in cities.  Climate scientists will improve their modeling predictions and will identify where is "higher ground".   We need to change local zoning laws to allow for upzoning in safe areas.   Glaeser has noted that the whole world can live in Texas at medium population density.  There is enough land.   Yes, sea level rise will lead to the loss of coast line but there will be a pecuniary externality as higher ground land will rise in value.    A type of zero sum game.   

High Frequency Reoptimization and the Smart Phone

·         Matt Neidell's work on self protection and real time information;  Internet 

·         Frank Wolak work on dynamic pricing and keeping the grid from blacking out, same for water pricing;

Migration and Urban places versus people

·         Urban people versus urban places ;   

o   Those cities that do a bad job adapting will suffer home price loss (Rosen) , mayor will have less property tax revenue. 
o   Migration costs and voting with your feet;  Timmins and Kennan and Walker;   place based people how help them?    The elderly and the less educated face higher migration costs
o    FEMA creates spatial moral hazard  .  Why are we subsidizing living in risky areas?

Urban Production and climate shocks disruption to the economy

·         Extreme weather events and team production, who must meet face to face to create output?  My conjecture is that the productivity impact of extreme climate events will shrink over time as more economic takes place in indoor cities which are insulated from such shocks.  Professors get more work done on a nasty day.  No team production , and thus can work at home.

·         Air conditioning in LDC firms;  as human capital rises;  firms will endogenously supply air conditioning.  My work with Josh Zivin on urban TFP in the face of shocks,  Chicago’s productivity on a very snowy day; who can work from home? Who really needs to go to work in this internet age? Extremely hot day   


The LDC Research

NBER Researchers are creating a new field of study that will become increasingly important;  cities in the developing world;  development economists have focused too much on farmers.

·         Farming    --- important to study which farmers in which nations are able to adapt to changing climate conditions. To make sure that urbanites have access to affordable food we need; futures markets and free trade across nations in agricultural goods. This allows for risk diversification. We also need crops that we can hold in inventory to smooth risk.  ; 

·         Orderly rural to urban migration in the face of climate shocks? Adaptability of farmers;  system of cities; many cities to choose from;  Borjas, Freeman and Katz and the ripple effects of immigration to cities as natives move from the immigrant port.

·         Ted Miguel's work on country side violence in Southern Africa exacerbated by climate change;  urbanization will help to diffuse this threat.


·         The Future of Bangladesh --- Acemoglu and Linn  --- induced innovation;   anticipated challenge creates profit opportunity

·         Not chanting that the free market will “solve all”,  Instead --- the role that urban economic growth plays in protecting us from an emerging threat.  Self interested “victims”?  investment under uncertainty --- reconsidered. 

Should Microeconomics Be a Requirement at UCLA?

The UCLA Daily Bruin sometimes reports polls of its readers' views.    While surveys may attract a non-random sample of respondents, note that 66% of UCLA students support water rationing. Note that "water pricing" isn't even included as an option for adapting to drought conditions.   A charitable chap might suggest that the third option "the state will find a solution" includes water pricing but I'm not that chap.    This evidence suggests that UCLA Economics needs to increase its "treatment effect" in educating our students about the allocation of scarce resources and the productive role that the price system plays in allocating such resources.  Starting in August, I will see first hand whether USC students exhibit a greater appreciation for market solutions to public policy challenges.


In a March 12 Los Angeles Times Op-Ed, Nasa scientist and UC Irvine Professor Jay Famiglietti explained how California only has one year of water left and no concrete plan to deal with the low water supply. How do you feel about this matter?
  • The low water supply is alarming, and the state should immediately start rationing water as Famiglietti suggests (66%, 194 Votes)
  • Though the information is alarming, before implementing water rationing, California residents should first try to decrease their individual water usage (20%, 60 Votes)
  • The state will find a solution to the low water supply before the situation becomes dire so no immediate action should be taken (9%, 28 Votes)
  • I don't know how I feel about this matter (5%, 14 Votes)
Total Voters: 296

Thursday, March 26, 2015

A Defeat

Have you ever written a book manuscript and submitted it to a leading academic press and received four favourable reviews all recommending publication? But then based on a negative report from a scholar who doesn't have an econ degree, your manuscript is rejected.  A bad day. An embarrassing day.   When this book is finally published,  perhaps in the year 2067, you will see that it is quite good.

UPDATE:  If you don't believe me, watch the podcast of my May 26th 2015 Public Lecture at LSE.  I am eager to use this opportunity to show that our work is both very high quality, policy relevant and fascinating.

Five days have now passed.  The market for good books is competitive. We now believe that we have found a new publisher for our book.  If all goes right, it will be published in September 2015.  We will see if my USC colleagues read this book.

Cambridge, MA

Boston is a cold city. I lived here for 8 years over two different time periods. now I'm just another guy renting a room at the Sonesta Hotel. it is 90 degrees today in Los Angeles and I'm not used to wearing a coat. I'm not used to seeing dirty snow on the ground and I'm not used to cold rain. I had forgotten about gray skies.  There are some good active economists who work in Boston.   Face to face communication still has value.  Not for networking (I am too old for that), instead I am here to learn.

Monday, March 23, 2015

Celebrating Lee Kuan Yew's Life

The NY Times editorial board has mixed feelings about Lee Kuan Yew's legacy.  During his decades of leadership, Singapore's poverty rate plummeted and the nation/state is now strong and prosperous.  For a nation so close to the equator,  scholars such as Jeff Sachs must be surprised by such a nation's economic growth.  Leadership matters.  During my two trips to Singapore (and I have spent 4 weeks there in total), I saw a nation whose leaders embrace economic incentives.   Road pricing takes place and public transit works smoothly.  The streets are clean and safe.    Despite these accomplishments, the New York Times throws some punches.

A NY Times quote:   "He was also an autocrat who silenced critics and sent opposition leaders to jail, suppressing dissent and intimidating the press."

It is clear that the NY Times yearns to have Jeb Bartlett as the world's leader.   For those who can't remember the West Wing TV show of the 1990s let's listen to Wikipedia.

"Bartlet attended Phillips Exeter Academy, where his fpather was headmaster. Bartlet scored a 1590 on his SAT. Later he retook the exam, and received the same result, something both Leo McGarry and Dr. Stanley Keyworth find humorous.[8] He was accepted to Williams, Harvard, and Yale, but instead chose to go to the University of Notre Dame, as he was considering becoming a priest, though decided not to after meeting his wife.[9] He graduated summa cum laude with a B.A. in American studies and a minor in theology. He received a Masters and Ph.D. in economics from the London School of Economics, as well as an Honorary Doctorate in Humane Letters from Dartmouth College, where he was a tenured professor prior to entering politics.[10] He speaks four languages, including Latin, English, and German.[11][12][13] He is a Nobel Laureate in Economics, and is generally portrayed as a macroeconomist sympathetic to Keynesian views. He was required to split his Nobel Prize with another economist, a much more conservative Japanese man whom Bartlet respects but does not particularly like. He is the author of a book entitled Theory and Practice of Macroeconomics in Developing Countries,[10] and his research in economics is described as being focused on the developing world.  Bartlet's wife, Abigail Barrington, is a thoracic surgeon and they have three daughters: Elizabeth Anne Westin, Eleanor Emily Bartlet, and Zoey Patricia Bartlet."

Have the people of Singapore suffered under the long leadership of Minister Lee?  What do their indifference curves defined over personal liberty versus per-capita income look like?   For those who say, "give me liberty or give me death",  do they mean that?  How many people in Singapore would say this?  Or is this a statement made by intellectuals sitting comfortably in their spacious living rooms in New York City?

Sunday, March 22, 2015

Essential Heterogeneity and Comparing "Treatment Effects" from Randomized Trials versus Observational Studies

A highly cited paper published in 2000 in the New England Journal of Medicine reports that;


There were 136 reports about 19 diverse treatments, such as calcium-channel–blocker therapy for coronary artery disease, appendectomy, and interventions for subfertility. In most cases, the estimates of the treatment effects from observational studies and randomized, controlled trials were similar. In only 2 of the 19 analyses of treatment effects did the combined magnitude of the effect in observational studies lie outside the 95 percent confidence interval for the combined magnitude in the randomized, controlled trials.


We found little evidence that estimates of treatment effects in observational studies reported after 1984 are either consistently larger than or qualitatively different from those obtained in randomized, controlled trials.
Under what models of human behavior will randomized field experiments and observational studies yield the same "treatment effects"?   The answer hinges on the underlying population heterogeneity and individuals' knowledge of their type (i.e where in the bell shaped Normal are they?)
Consider the following model of attending college.
Each person must choose whether to go to college.  There are high and low ability people and these types are exogenously determined. 50% of the population is high ability and 50% is low ability.
If a high ability person goes to college, he earns $0 in year  1 and $100,000 per year. If he does not go to college, he earns $25,000 each year.  If a low ability person goes to college, he earns $0 in year 1 and $50,000 in year 2  and if he doesn't go to college he earns $20,000 per year.
Assume that the cost of college is $X  and the interest rate is 0%.  
If people select whether to go to college and people live just one year after graduating from college, a  high ability person will go to college if   100000 - X> 25000 + 25000   ,  a low ability person will go to college if 50000 - X >  20000 + 20000 
Each person knows his type but the statistician seeking to estimate the returns to college does not know who is who in the population and doesn't know that 1/2 of the population is high ability and 1/2 of the population is low ability.
Let's look at several cases;
1. RANDOM Assignment to college  --- in this case, the econometrician would estimate that the mean earnings given that you go to college = .5*100000 + .5*50000 = 75000.  The mean for the control group (those randomly assigned to not go to college) = .5*25000 + .5*20000 = 22,500. So the average treatment effect of going to college = 75000 -22500 = 52500.
2. Now suppose that people know their type and self select whether to go to college but the researcher doesn't know this.   Suppose that X = $15000.  So tuition is 15,000.  Convince yourself that no low types would go to college (this is a Spence Separating equilibrium) and all the high skill guys will go to college.  In this case, the treatment effect of going to college will be calculated as;
E(earnings | attend college ) = 100000  and E(earnings | not attend college) = $20,000 so the treatment effect from the observational study is $80,000.  But, this is an "apples" and "oranges" comparison.
Note that the observational study's finding given a tuition level > field experiment's finding.   But, the abstract at the start suggests that this is not true.   Convince yourself that if we at random manipulate $X (the tuition) that the treatment effect from the observational study will change.  For example if tuition is set at X=$1000 , everyone will go to college and there won't be a control group!
Essential heterogeneity is the case where economic decision makers base their decision to take the treatment based on what they expect to gain from taking the treatment. If economic actors differ with respect to their treatment effect and they know this, then the econometrician seeking to recover the distribution of treatment effects across a diverse population has a serious problem.  Heckman has showed how to solve this problem if you can continuously vary the X above but I doubt that the medical researchers have thought about this issue.

Humanities Majors, Moral Hazard and Student Debt Default

Read this piece in the NY Times by Prof. Susan Dynarski about the huge amount of student debt and then ponder the following issue.   Suppose a university graduate runs up a $50,000 debt majoring in the humanities at some university.   She then has trouble finding a "good job" and subsequently defaults on her loan.   Unlike in the case of car loans or home loans, the lender can't claim the collateral.  What went wrong here? Do we blame "the Macro economy" or did the debt contract induce many young people to major in fun stuff that doesn't teach marketable long term skills?

Given that the median young college graduate earns $46,900 per year,  this person would clear after taxes roughly $32,000 per year and could pay back $6,000 in debt and thus be clear of her debt in roughly 12 years.

So, the debt challenge appears to be an issue for the left tail of the distribution.  Either this group's parents can't help with the debt or their job market after their undergraduate experience is such that they are not earning enough to cover their debt.

What did they major in --- in college?     Take a look at this picture from The Economist

Your choice of major matters in determining your lifetime earnings and thus your future loan default rate. I would make an even smarter point that this differential will grow even larger as the market for lawyers continues to deteriorate. In the past, people could major in history or English and then go to law school but that option will not be attenuated and this will increase the STEM and Economics wage premium.

I wonder if more young people would major in more high payoff fields if they knew they couldn't default on their loans.  What is the punishment for defaulting on student loans?

This website lists some costs to the borrower from defaulting but this doesn't look like such a loss relative to shedding a $50,000 debt.    The self interested rational strategy is to default and this suggests that moral hazard and major choice is a serious issue.

An economist would argue that the interest rate should be higher for those who major in riskier subjects such as the Humanities.  Would this price differentiation create adverse selection?  How can a debt contract be designed for those who choose to invest their time and human capital in low economic returns fields?    Would the Humanities faculty say that these students should pay less tuition?

I am an applied economist.  Let's see some data on major choice by loan defaulters.  My hypothesis is that econ majors and STEM majors have much lower default rates.  This due both to selection and treatment by the major.  Let's do some data analysis here!

UPDATE:  I minored in history in college but I also took several mathematics courses, statistics and econometrics, and learned computer programming.   My point is that college students are young adults and they are responsible for their own choices. If they choose to avoid quantitative classes that would provide them with the skills to manipulate "Big Data"  after they graduate, they cannot claim that they were duped during their undergraduate years and now regret their choices.   The ability to form a hypothesis and to rigorously test it should be probably be the only requirement that every university has on its books. For example, GIS is a very useful skill that can be used in very creative ways.

There are two other margins here.  How many of the defaulters attend one of these for profit colleges?  If the borrowers knew they couldn't default, would fewer of them attend such colleges?  Also, for humanities majors --- if they studied STEM material how much would they gain from it?  I understand the concept of comparative advantage.  How would humanities students perform in STEM classes?  Would they gain from these classes?

Saturday, March 21, 2015

Spring Teaching

My UCLA teaching is now completed.  In the Spring 2015 quarter, I will teach a 20 person pass/fail Freshman Fiat Lux focusing the economics of adapting to climate change.   The class will meet 5 times for two hours each on occasional Fridays. I don't view this as "teaching". All of the students will pass the class. There will be no exams, no grading and no papers. Instead, I will talk and they will ask me questions. I will figure out who is smart and awake in the room and I will focus my discussions on getting this subset of students to think and engage.

Our main focus will be how capitalism helps us to adapt to the known unknowns of climate change.  I will evoke Julian Simon and convey an optimism to the students about the power of free markets to improve everyone's quality of life and the overall standard of living. Milton Friedman's ideas do not receive enough attention at UCLA.   As UCLA's leaders look to Sacramento and the Governor to send us more $, we do not think hard enough about what is the "golden goose" that provides the governor with the funds to allocate to his pet projects such as High Speed Rail.   We need to prepare our students to succeed in the private sector.  We need to encourage our students to become leaders in the private sector.  My Fiat Lux will explore (and celebrate) the role that the private sector plays in improving our quality of life.  I predict that these 20 students (perhaps my final 20 Bruin students) will finish my short course in June 2015 with an increased appreciation for the power of capitalism as a force for good in achieving our sustainability goals.

HNRS 19, Seminar 3  Schedule of Classes
Thriving in Hotter Los Angeles: An Economist's Perspective

Climate change adaptation will become a crucial public policy issue over next few decades. Those cities successful in adapting to new emerging challenges posed by climate change will have a bright future. Is Los Angeles up to challenge? We will approach this question from perspective of social science. Students learn about the power of free markets to improve the quality of life of all people including the  rich and poor. Class meets on April 3, 17, May 1, 8, and 15 in 2278 Public Affairs Building.

Matthew E. Kahn is a Professor at the UCLA Institute of the Environment, the Department of Economics, the Department of Public Policy, the UCLA Anderson School of Management and the UCLA School of Law. He is a research associate at the National Bureau of Economic Research and the IZA. He holds a Ph.D. in economics from the University of Chicago. Before joining the UCLA faculty in January 2007, he taught at Columbia and the Fletcher School at Tufts University. He has served as a Visiting Professor at Harvard and Stanford University and the National University of Singapore.

Thursday, March 19, 2015

The Economics of Drone Warfare: Labor to Capital Substitution and Credible Threats from Democracies

Amy Zegart served on the UCLA Public Policy faculty for several years.  Today, she has published a thought provoking piece about drone warfare in the WSJ.  She paints a picture of future "aircraft carriers in the sky" such that the Mother Ship launches thousands of little unmanned ships that fly around an pinpoint their targets and collect detailed real time data.

Note that investment in drones represents substituting labor for capital.  The expected cost in terms of lost lives of our soldiers declines as there are no more "boots on the ground".  Such human soldiers can die in combat and the photos of our troups being hurt zaps the will of Democracies to fight.  If we now can "send in the drones"  (Do you remember the song "send in the clowns")  ,   will we more eager to fight and to keep fighting?   I'm assuming that the fight is not occurring on USA soil.

What is the price elasticity of demand for war?  How much do drones lower the price of fighting war?  If 50,000 US soldiers died in Vietnam and a statistical life was worth $3 million dollars each then --- the loss in life was worth $150 billion dollars and this doesn't include the injured or the capital costs we paid.  

Does Zegart predict that the US Military will shrink in employment size such that we need fewer soldiers? This would sharply reduce the cost of military service provision.  Fewer pensions, veteran's administration hospitals, fewer court-martial lawyers and judges.  Drones just fly around.  They don't need to be trained, or nursed back to health.

In the language of economics, what is our military's marginal product of output from an extra drone versus soldier. I believe these inputs are substitutes. Am I correct?  How does the U.S military produce peace and safety for us?

Now a game theorist would add that if the USA can commit to fight with unlimited drone attacks, then perhaps there will be fewer fights because of the deterrence effect.

The rise of drone warfare would appear to give democracies an upper hand relative to authoritarian states because democracies are more likely to have domestic squabbles (think of the Berkeley's views of the Vietnam War in the 1960s) and this undermines the Leader's strength in international negotiations (ask Nixon and Kissinger).  

So, the point of this blog post is the following;

1. drones will reduce the cost of protecting the United States because we will substitute from labor to capital in our military production function.
2.  Democracies will invest more in drones
3. Drone armored Democracies will talk tougher than democracies whose armies rely on "boots on the ground"

Does this make the world as a whole safer?   We need a game theorist here to solve for that equilibrium.

Tuesday, March 17, 2015

Raise California Water Prices

The NY Times has done it again.  One of its top reporters discusses drought at length without mentioning water prices!  Why do intellectuals fear the economists?  We don't bite but we also don't offer free lunches.  Raise water prices and allow the magic of the market to play out.  Where in the Constitution does it say that the people of California have the right to pay .5 cents per gallon of water?

UPDATE:  Water expenditure represents about 2% of the typical urban household's budget.   Suppose that water prices rise 50% in California.  This would be a huge increase in price but even in this case the "income effect" of this price increase would be small for households because water is such a small budget item.  Multiply 1/2 * .02 and you get .01.  A 1% reduction in housing income in California in return for no more discussion of "drought" and "rationing".  That's a pretty good deal!

Back to Research

Over the last 5 weeks, I have been teaching four times a week as I taught on Mondays, Wednesdays and Fridays and on Saturdays (for 7 hours each time!).  I'm on the verge of being done.   I report to work at USC in mid-August.   What will I do for next 5 months?

I expect to meet the following performance targets;

1. Siqi Zheng and I will publish our book about Pollution in China
2. Siqi and I will finish two of our new China Industrial Parks papers
3. I will revise my book review of Jeff Sachs' new book for the Journal of Economic Literature
4. I will finish my co-authored paper on the urban economics of pre-K investment.
5. I will revise my co-authored paper on the joint adoption of solar panels and EVs and their role in decarbonizing the suburbs and encourage suburbanites to vote for low carbon policies.
6.  I will finish my co-authored field experiment on increasing block tariffs and electricity consumption.
7.  I will write a first draft of my new paper on the sorting of Liberals across cities and the implications for environmental and early child investment.
8. I will write a first draft of my paper on factory TFP impacts of climate shocks.
9.   Dora Costa and I will finish our two urban history papers
10.  I will finish my two co-authored papers on hotel electricity consumption
11.  I'm very excited to co-author my paper on bus privatization
12.  I have several smaller almost papers that I need to wrap up.

So, in August 2015 --- I'll have a fair bit of new things to blog about.

Sunday, March 15, 2015

Successful Children of UCLA Faculty

I wonder what my son will grow up and do.   The NY Times reports that the bassist for Sonic Youth's father was a Professor of Sociology at UCLA.   Professor Wayne C. Gordon is remembered in this tribute:

"Until the early 1970s Wayne taught the seminar in Sociology of Education, and carried a heavy load of doctoral advisees. He was not a great lecturer but, in small seminars, a delightful teacher: "humaneness with intellectual toughness," as one of his students put it, sounds about right. Wayne liked to make his classes laugh. One of his favorite jokes was about the Federal income tax form. He said it should have only two lines.

                                          First line: "How much did you earn last year?"
                                          Second line: "Send it in!"

Wayne was a bit of a ditherer where deadlines were concerned. And his memory was often at sea. A colleague once offered Wayne a cigarette and he started smoking it until he remembered he didn't smoke. Wayne possessed a sharp intellect and a wit as sharp as his intellect. To junior faculty, his advice was, "Don't find any meaning in your life until after tenure."

During the turbulent 1960s, Wayne was sympathetic toward those faculty and students who were proactive about effecting changes within the school and the university that were more student-centered, as well as toward those calling for social and cultural change in the larger society. But Wayne also had sympathy for the Old Guard who were troubled by student and faculty activism. His approach was always to go around those with whom he disagreed, never through them, and always with humor. To a group of students camped in his office and insisting that the Vietnam War be ended, Wayne said: "OK. I agree the war should be ended. Where do I sign?" Wayne was always a great fan of his daughter Kim, performance artist, bass player, vocalist and co-founder of the avant-garde rock group, Sonic Youth.

Wayne was an accomplished fisherman. He loved to travel to his cottage on the Klamath River in northern California, for steelhead and salmon fishing. Afterward, he enjoyed entertaining small parties of faculty at his home in West Los Angeles. Wayne cooked (or grilled) the fish "Tex-Mex style", seasoned with condiments from his very own herb garden in back of the house."

I think that Wayne and Kim are a lot like me and my son.  I'm going to suggest to him that he use his giant hands to play the guitar and focus on music making.

Friday, March 13, 2015

Contrasting Quality of Life in San Francisco vs. Los Angeles

I have a painful revision I need to work on so I'm procrastinating and as I cruised the Internet I found this funny quote contrasting San Fran and LA.  I think this is all you need to know.

"SF is for those who love living in the suburbs, since it is a suburb of San jose. It's also for those who love living around people who think it's arguable whether old guys should be able to hang out in the middile of town naked.
So yeah, LA is better in every way."

Thursday, March 12, 2015

A Review of Public Transit in Los Angeles

I live in Westwood on the West Side of Los Angeles.  Today I had to travel about 11 miles to the City Center.   I thought about calling Uber but then I decided to run a field experiment.  While I won't publish this in the QJE, I would like to tell you about my adventure.  I walked to the corner of Wilshire and Beverly Glenn. It was a sunny beautiful day today and I arrived at the bus stop and sat on a bench. The other people waiting for the bus were scrolling through their cell phones.  The 720 Express bus arrived and I got on.  I already own a "tap card" and tapped my $1.5 fare.  My bus quickly went into Beverly Hills, through West Hollywood, into Hollywood and kept going East.  As we got closer to the city center, more people boarded and got off and this slowed us down. The street density also increased and this slowed us down.  We finally got to Wilshire and Vermont and the bus driver ordered us off the bus about 2 miles from the downtown destination where I need to go.  I typed in my address at that time and my final destination and Google Maps told me to take the blue Metro line (the subway) two stations to Figueroa Street.  Once I arrived on Figueroa, I was still lost but Google then told me where to walk and I found it.  So, the total cost of my trip was my time and $3.  I was impressed that I could take public transit.  While on the bus, I listened to my KC and Sunshine band album and I read two .pdf papers on tablet and wrote down some revision notes on two of my papers. I actually got a fair bit of work done on the bus.    Given that my commute will get longer when I'm working at USC, this was a useful field experiment.

The Los Angeles 720 Bus was clean and with the window open it was a nice pleasant trip.  The subway was low density and there weren't any crazy people acting up. I even figured out how to add $20 to my tap card without asking the lady working there for help. For me, that's a major accomplishment.  LA Public Transit is actually pretty good. While I didn't see many other Professors on the bus, I think we should ride it.     As you know, I"m an expert on public buses.   Don't forget my first bus paper  (which will be published soon in the Journal of Urban Economics) and my second bus paper will be even better.

Wednesday, March 11, 2015

My Keynote Talk at USC Tomorrow

For those who won't be in LA tomorrow, you can download my slides for my talk tomorrow here.   I will be giving a Keynote at USC's 2015 Real Estate Law and Business Forum.    My friend Professor Enrico Moretti of UC Berkeley was kind enough to share several of his slides with me and I will base 1/2 of my talk on his excellent material.   My talk is titled; "The New Geography of Jobs".   I will link my research interest on the geography of urban quality of life to where jobs (and high quality jobs) pop up.

Today, I gave what might be my last undergraduate lecture at UCLA.   It has been a wonderful nine years teaching these students but I'm eager to see how the USC students compare to the Bruins.   My USC classes will be capped at 50 students and my Trojan students will all be economics majors trained well in micro theory and statistics.  I will push this group to excel and we'll see if they are up for the challenge.

Monday, March 09, 2015

Yik Yak and Taxing the Status of the 1% on College Campuses

The hip NY Times has discovered Yik Yak .   Undergraduates are using this website to anonymously speak their minds. I doubt that much of the chatter on this website focuses on economists.  Does Yik Yak's anonymous free speech impose a negative externality? On whom?  Permit me to offer some economic analysis of Yik Yak.

Point #1:  The campus 1% will be the target of most of the anonymous comments.   I mean the high status 1%.   Suppose that Matt is a nobody at Big State Univ.  Is anybody going to talk about me on the Yik Yak? Such posted comments won't set off any social interactions or buzz.  Real buzz and traffic will be generated by posts about the prettiest young lady on campus or the star football player.  Well known professors on campus may also generate some postings?   In this sense Yik Yak redistributes status away from the 1% to the rest of the campus as the 1% are cut down to size.

Point #2:  It is obvious that such websites solve a co-ordination problem. People have always gossiped but they have done so in small groups.  Transaction costs have slowed down the spread of rumors.  So in the absence of Yik Yak, if I tell Sally that Frank loves Betty, it will take a while and effort for Sally to tell others.  When we have a low cost diffusion technology such as Yik Yak, the spread of rumors accelerates. This creates ugly scenarios where dangerous rumors spread that can have lasting impacts.  But, does Yik Yak offer any social benefits?   Does Yik Yak generate enough private consumer surplus to offset the potential negative externalities it imposes on people? Would the Coase Theorem state that it should shut down?  How would the losers payoff the owners to shut it down? How would they co-ordinate?

Point #3:  Is this free speech too cheap? If you had to pay 20 cents to post an anonymous comment, would there be fewer nasty comments posted on the website?    When social interactions lead to nasty outcomes (such as an angry mob), what is the right incentive to stop this bad equilibrium from happening? When a violent mob forms, the police sometimes have to rough up one person to signal their credibility that they will fight back.

Point #4:   The more people who login to Yik Yak, the greater are the incentives for anonymous posters to post even wilder comments about well known people.  So, this is a multiple equilibria game.   Returning to my point #1 above, what are the rights of the campus superstars?  Or, will some judge claim that they are in the public domain and the common people can attack them without crossing the line into slander and libel?  Here is some discussion of the formal law.  If anonymous posters face some threat of legal action (I don't know how this could happen) this would provide some incentive to tone done the postings.

Sunday, March 08, 2015

Excessive Self Confidence Exuded by Book Reviewers

Robert Putnam has published a new book called "Our Kids".  It is reviewed in the NY Times today by Jason DeParle.  Read DeParle's review and you see a certainty about how the world works that I find extraordinary and immodest.  Humility and recognizing that we "know that we don't know" is an attribute that I admire in people.  The key to social science is to devise a research strategy so that we learn more about what we do not know.    

A couple of quotes from Mr. DeParle;

"You’d never know from “Our Kids” just how radically income inequality has grown; how much influence the wealthy now exercise in politics; and how well they protect their stakes. (We do hear a lot, by contrast, about the importance of family dinners.) To frame inequality, as Putnam largely does, as a product of inadequate empathy and weakened civic institutions is to overlook the extent to which it’s also a story about interests and power."

Education is supposed to help level the playing field. Horace Mann called it the “great equalizer.” Now it’s closer to the great fortifier — compounding the advantages of class, since the affluent come better prepared and more able to pay. A few decades ago, the gap between rich and poor kids in finishing college was 39 percentage points. It’s now 51 percentage points. Even poor kids with high test scores are slightly less likely to get degrees than rich kids with low scores. Putnam rightly calls this “shocking.”

Putnam more than makes his case; no one can finish “Our Kids” and feel complacent about equal opportunity. Still his perspective is modestly skewed by two tendencies. One is nostalgia. In terms of college access, Putnam says there was “no trace of bias against kids from humbler backgrounds” in 1959 when he graduated from high school in Port Clinton, Ohio. None? “Few of our families were poverty-stricken,” he writes, though child poverty was 7.4 percentage points higher nationwide than it is today."

So, if Mr. DeParle became our benevolent leader --- how would he narrow the opportunity gaps?  If public education is currently not doing a good job for the vast share of its students is he willing to experiment by radically changing the production process?  Eliminating public school teacher tenure, fighting the teachers' unions and allowing schools to experiment with ways to educate students using technology and different styles of learning?   In return for adopting such a more flexible system, if Conservatives agreed to a sharp increase in universal Pre-K --- would Mr. DeParle accept this deal?   He has a very cynical world view that the human capital production process cannot be reformed.  

Competition raises the quality of products and lowers their price of service delivery.  Both in the public sector's delivery of K-12 education and in the delivery of health care, we need to introduce more competition and experimentation.  

Friday, March 06, 2015

The Smart Phone's Role in Adapting to Natural Disasters

Connecticut's leaders recognize that the state's residents will face future disasters.   Gov. Malloy's team has created a real time App for helping residents  "find pharmacies, locations to receive dialysis, grocery stores and gas stations in the case of a natural disaster, storm or other type of emergency."  Such an App would be even more useful if it provided real time information on inventories at such stores. For example, if the closest 7-11 has run out of water for purchase , will the App say that its inventories have been depleted?  Who would have an incentive to update the App to signal to me that I'm wasting my time by driving there?    

A better App would allow retailers to post comments clearly stating;  "We have fresh water and food to sell".   Interesting issues of price discrimination will take place. Can stores "price gouge" during such disasters or must they charge printed prices?  If prices can rise, then the poor will suffer and the state will have a role providing food and water to those who can prove that their income is below some threshold.  Computer databases could be used to verify this.

Note that neo-classical economics has focused on friction free models with zero search costs.  Search costs would limit the gains to trade between buyers and sellers.  For example, if I'm willing to pay $7 for a pizza and you are will to make a pizza for $4 then there are gains to trade between you and me. But , if I have to pay $5 in search costs to find you then there aren't gains to trade between us.  This new App reduces search costs between buyers and sellers during a disaster and helps to improve our standard of living  during stressful disaster recovery days. This is free market adaptation.

Wednesday, March 04, 2015

The Drought Causes War Hypothesis: Evidence from Syria

This Slate article  drew my attention to a recent scholarly PNAS piece .  Here is the PNAS article's abstract:

"Before the Syrian uprising that began in 2011, the greater Fertile Crescent experienced the most severe drought in the instrumental record. For Syria, a country marked by poor governance and unsustainable agricultural and environmental policies, the drought had a catalytic effect, contributing to political unrest. We show that the recent decrease in Syrian precipitation is a combination of natural variability and a long-term drying trend, and the unusual severity of the observed drought is here shown to be highly unlikely without this trend. Precipitation changes in Syria are linked to rising mean sea-level pressure in the Eastern Mediterranean, which also shows a long-term trend. There has been also a long-term warming trend in the Eastern Mediterranean, adding to the drawdown of soil moisture. No natural cause is apparent for these trends, whereas the observed drying and warming are consistent with model studies of the response to increases in greenhouse gases. Furthermore, model studies show an increasingly drier and hotter future mean climate for the Eastern Mediterranean. Analyses of observations and model simulations indicate that a drought of the severity and duration of the recent Syrian drought, which is implicated in the current conflict, has become more than twice as likely as a consequence of human interference in the climate system."

I am an economist so permit me to make one Econ 101 point.  As drought conditions unfolded in Syria, did water prices rise? Is water metered and paid for in Syria?  How do farmers and residential water customers access water?   If there had been  a market signal of increased scarcity, water prices would have gone up and rational households and firms would reduce their consumption.  In the presence of such well functioning water markets, no "excess conflict" would have resulted.  Capitalist markets thus can diffuse violence as increasingly scarce resources are allocated efficiently and water consumers are incentivized to invest in strategies and actions to reduce their water demand.   So, to repeat my point; if the PNAS authors are correct then it is the synergistic effect between increased drought conditions and the absence of water markets that caused the problem.  If the nation had well functioning water markets, then I would strongly predict that there would be No extra violence.  This suggests that LDC nations need more capitalism and more markets to adapt to climate change. Give markets a chance!

The Economics of Ph.D. Students Forming Unions

When I taught at Columbia University in the early 1990s, I wondered about our Ph.D. program.  Yes, we were an Ivy League School but at that time Columbia Econ's senior faculty focused on a narrow set of topics such as International Trade.  I also wondered about all of the Ph.D. students in other fields such as English and History whose academic job prospects were likely to be much worse.  Yet, these humanities subjects were Columbia's past strength and the place kept enrolling dozens of such students.  I believe that Yale has the same issue.  Today the NY Times reports that Columbia's Ph.D. students seek to unionize.  Here is what the students have to say.

As an economist, permit me to make a few points for why I oppose this unionization effort.

  • The Ph.D. student admissions market is a competitive market at the point where a student applies and is accepted for graduate school.  There are a large number of research universities and there are a large number of possible students.  The applicants have the right incentives to search for their best deal (quality adjusted for price) and the "buyers" of Ph.D. Students (the research universities) have the right incentives to bid aggressively for the talent they rank as best.   This a competitive market!    When I chose to attend the University of Chicago in 1988 rather than going to UW-Madison for my Ph.D. I was making a decision over where I thought I would be a better match and I took into account the full price of attending both schools.  The pricing (i.e tuition and scholarship offer) and work conditions (how much TA work one must do) are attributes of the choice.  If an applicant accepts these terms, why does she get to bargain again?   I wish that UCLA would give me a big raise but market competition sets my pay.   So, unless some other university offers me a big raise --- UCLA won't.   Read my Mentor Sherwin Rosen's 2002 AEA Address on hedonics and product differentiation.
  • One justification for unions is to "protect exploited workers".  But, every year Departments at Ivy League schools must recruit a new cohort of Ph.D. students. If Columbia "exploits" one cohort by making them TA too much or providing bad health benefits then Columbia's reputation as a graduate training organization will decline and it won't be able to recruit the next cohort of students.  This need to recruit a new cohort of graduate students each year means that universities fear losing their "good reputation".  This disciplines the University and ensures that current students will be paid their opportunity cost.  
  • Another justification for a union is to protect uninformed workers who cannot navigate the labor market on their own.  But, each Ph.D student is a college graduate. Each has outside options.  If a student was only admitted to one Ph.D program, then this signal contains information.  I do not view these students as "trapped" at the point when they applied to these schools.  
  • If the President of Columbia allows the union to form, his school will have less $ to pay for other functions. What activities will be crowded out?  In Econ 101 models of unions, union member pay rises and the quantity of jobs declines.  To be honest, if fewer Ph.D. students enroll in the humanities Departments at Columbia (and UCLA) this is probably a good thing.
  • The Ph.D. students cannot claim that there was an unexpected collapse in demand for their services as future professors. It is pretty clear that every university is hiring fewer tenure track professors.  New Ph.D. students should be aware of this trend.  My wife and I have both wondered whether potential entrants into Humanities Ph.D. programs are aware of their likely horrible academic career prospects.   Are they "irrational" or do the incumbent senior faculty at places like Columbia lie to them as the senior faculty convey their optimism about future academic jobs in History.   Such senior faculty want more Ph.D. students because teaching a graduate seminar is more fun than teaching a large undergraduate class and Ph.D. students are needed to staff and grade undergraduate assignments.