1 Adapting to Climate Change through Urbanization and Competition Within a System of Cities Matthew E. Kahn UCLA and NBER and IZA Institute of the Environment Department of Economics Department of Public Policy Anderson School of Management UCLA Law School
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1 Adapting to Climate Change through Urbanization and Competition Within a System of Cities Matthew E. Kahn UCLA and NBER and IZA Institute of the Environment.
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1
Adapting to Climate Change through Urbanization and
Competition Within a System of Cities
Matthew E. Kahn UCLA and NBER and IZAInstitute of the EnvironmentDepartment of Economics
Department of Public PolicyAnderson School of Management
UCLA Law School
Introduction
• Over the next decades climate change will pose a set of serious "known unknowns"
• The world is moving to cities • Different geographic areas will face different
challenges• How will our urban quality of life be affected?
• Who bears the incidence of the “new news”?
Rising Global CO2 Emissions
The Per-Capita CO2 Challenge
Time Trends in Per-Capita Carbon Dioxide EmissionsYear
World China India
1960 1970 1980 1990 2000 2010
0
2
4
6
I am Not Optimistic About an 80% Global GHG Reduction
1. Growing population
2. Growing per-capita income fueling vehicle growth and electricity growth and meat eating (deforestation and carbon sequestration)
3. Free riding by every government• The USA coal to natural gas transition is a
good start but will it “bend” the curve?• A Democrat as USA President in 2016 leading
a global “coalition of the willing”?
My Recent Political Economy Carbon Mitigation Work
• Cragg et al. "Carbon geography: the political economy of congressional support for legislation intended to mitigate greenhouse gas production." Economic Inquiry 51.2 (2013): 1640-1650.
• Glaeser, and Kahn. "The greenness of cities: carbon dioxide emissions and urban development." Journal of Urban Economics 67, no. 3 (2010): 404-418.
• Holian and Kahn. Household Demand for Low Carbon Public Policies: Evidence from California. No. w19965. National Bureau of Economic Research, 2014.
• Kahn and Kotchen. "Business cycle effects on concern about climate change: the chilling effect of recession." Climate Change Economics 2, no. 03 (2011): 257-273.
Talk Outline • Start in the USA --- over 80% of people live
300 major cities --- lessons for LDC cities• End in the developing world with a large
agricultural sector and an active rural-to-urban migration trend
• What have environmental and urban economics taught us about the microeconomics of adaptation?
• What is the research agenda?
My 2010 Book (Basic Books)
The United States as a Coastal Nation but “Higher Ground” Exists
• Low migration within the EU• Culture and language and past history as
migration costs• Limits to international migration --- quite
relevant for small nations with few cities (Alesina and Spolaore)
Urban Quality of Life, Comfort and Amenities
• Day to day impacts on urban life• Albouy, David, Walter F. Graf, Ryan Kellogg,
and Hendrik Wolff. Climate amenities, climate change, and American quality of life. No. w18925. National Bureau of Economic Research, 2013.
• Kahn, Matthew E. "Urban growth and climate change." Annu. Rev. Resour. Econ. 1, no. 1 (2009): 333-350.
Becker Household Production Functions (HPF)
• We desire comfort and safety• We produce these goods at home using a range
of inputs such as market products, our time, where we choose to live, how we live
• Climate change is an input in the comfort and safety HPFs
• These are not structural functions!• Firm innovation lowers the price of achieving
comfort, Singapore is hot and productive!
Becker Style Household Production Function and Climate Change
Adaptation
• Barreca, Alan, Karen Clay, Olivier Deschenes, Michael Greenstone, and Joseph S. Shapiro. Adapting to Climate Change: The Remarkable Decline in the US Temperature-Mortality Relationship over the 20th Century. No. w18692. NBER, 2013.
• Quality of Life in Singapore today as a Preview of our urban future?
Some Evidence on Adapting to Heat
How Will Firms Respond to Anticipated Climate Change ?
• One person’s misery = firm’s opportunity• Directed technological change (Acemoglu and
Linn 2004 QJE)• Ideas are public goods, worldwide diffusion
Thom Mayne and Brad Pitt’s Floatable Homes
Acemoglu Meets Becker
• Directed technological change lowers the price of adaptation friendly products
• Raises the real income of the urban poor• Lowers the cost of adapting to climate change
in both the developed and the developing world
• Realism about extreme fat tail events
How Do We Protect the Urban Poor?
• Implications of climate change for quality of life inequality (Piketty revisited?)
• Matt Damon movie Elysium features the rich colonizing space after Earth is ravaged.
• Zoning• Information• Tracking the CPI for adaptation friendly
products ranging from air conditioning to smart phones to refrigeration to quality housing
Disaster Risk and Coastal Cities: Fat Tails
Impacts of Natural Disasters Mitigated by Economic Growth
• Kahn (2005 RESTAT) “The Death Toll from Natural Disasters”
• Richer nations suffer less death when disasters occur
• Why?• In this Twitter age, such death risk will
continue to fall
Durable but Finite Lived Capital
• Example of Hurricane Sandy and New York– Wall Street was not destroyed by Hurricane Sandy
--- lessons learned so that the next Sandy will cause much less damage
– NYC will lose Wall Street if this statement is false (it will move to higher ground)
• In this case, the US doesn’t suffer
Glaeser and Gyourko 2005 JPE; Durable Housing and Urban Decline
Federal Government Policy and Spatial Moral Hazard
• Can government play “too much” coastal defense?
• Moral Hazard, spatial subsidies and “tough love”
• The case of Hurricane Sandy and New York City and FEMA
• Kousky, Carolyn, Erzo FP Luttmer, and Richard J. Zeckhauser. "Private investment and government protection." Journal of Risk and Uncertainty 33, no. 1-2 (2006): 73-100.
The Rise of Big Data
• Actuarial risk and pricing and competition in insurance markets
• Sending accurate signals to “naïve” households (e.g. climate deniers)
• Wildfire and other disaster risk differentiated insurance contracts to encourage precautions
• Water and electricity pricing
Urbanization in the Developing World
1. Farmer profitability dynamics
2. Productivity impacts of climate change? (Dell, Olken and Jones vs. Heal)
3. How much does climate change accelerate rural to urban migration?
4. What is the menu of cities that farmers can move to? How many? (Alesina and Spolaore)– Linked to choices in developed countries
5. Defusing climate-based conflict (Burke, Miguel et. al) urbanization helps!
Economic Development as a Key Adaptation Strategy
• Private Income durables, electricity, higher quality housing
• Public revenue hospitals, infrastructure, zoning and regulation, investments in education
The LDC Urban Adaptation Research Agenda
• For every developing nation;• How many cities to move to?• Specific challenges climate change will pose?• Incentives of urban leaders to “welcome”
migrants though allowing housing supply and infrastructure expansion (Feler and Henderson)
• The urban poor, the slums and the “great race”
The System of Cities in LDCs
• In Vern Henderson’s data set• Bangladesh has 31 cities, India has 144 cities• Indonesia has 54 cities, Vietnam has 25 cities• Take Zipf’s law seriously; rank j*pop j = pop 1• 90 million people in Vietnam today • Suppose that a 70% urbanization rate in 2040
and 110 million people => 77 million urbanites
• If no new cities biggest city has 18 million people (which one? We will see)
Urbanization and Fertility in Vietnam (Becker Revisited)
The Rise of China’s System of Cities as Implicit Quality of Life Insurance
• China’s bullet trains and other cross-city travel infrastructure facilitate market integration and mitigate the cost of megacity growth
• Zheng, Siqi, and Matthew E. Kahn. "China’s bullet trains facilitate market integration and mitigate the cost of megacity growth." Proceedings of the National Academy of Sciences 110, no. 14 (2013): E1248-E1253.
• Lessons for other LDCs?
Greater Beijing Area
2006 2010
Langfang 45~60 20
Tianjin 90~120 30
Baoding 90~120 58
Cangzhou 160~180 90
Shijiazhuang 180 120
Hengshui 180
Zhangjiakou 240
Chengde 300
located in “sweet spot”
not located in “sweet spot”
commute time changebetween Beijing and
some nearby cities (minute)
The Future of Food Production in the Face of Climate Change?
• Global trade in agriculture• Diversification and the spatial correlation
structure of climate shocks • Inventories and Futures markets• Dried fruit as a parable• Costinot, Donaldson, and Smith. Evolving
Comparative Advantage and the Impact of Climate Change in Agricultural Markets: Evidence from 1.7 Million Fields around the World. JPE forthcoming
The World is Urbanizing and Warming• The System of Cities as a menu; free choice• An urbanized world has the resources and the
technologies to adapt to many of the scenarios posed by the “new normal”
• Cities compete and facilitate Innovation and learning
• Anticipated crisis opportunity• Why would capitalism fail this time? (politics!
and “behavioral” agents)• Weitzman and the Fat Tail
Investment under Uncertainty, Option Value and Our Future
Urban Capital Stock
• We need a capital stock that can take a punch and that is finite lived
• Or a mobile stock that we can take with us to higher ground
• We know that we now don’t know where to build but we know that we will know in the future
The Research Agenda• For every city and system of cities, new
estimates of adaptation responses by households, firms and governments
• Attenuation of damage from natural disasters and heat waves?
• Continued life expectancy and QOL progress?• DSGE analysis such as;• Desmet, Klaus, and Esteban Rossi-
Hansberg. On the spatial economic impact of global warming. NBER# w18546. , 2012.