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Green Economics

The Detroit skyline is seen through a sculpture on the riverfront in this file photo. Public investment in "nice parks and piers" both benefits the public and directly benefits the nearby commercial businesses and property owners, Kahn argues. (Melanie Stetson Freeman/The Christian Science Monitor/File)

Building green cities using public/private partnerships

By Guest blogger / 01.30.12

Public investment in urban infrastructure raises the value of nearby private investments.  Examples include new subways and parks in Beijing, seawalls in New Orleans and this example of nice riverside parks in New York City.  The article provides the details about the tug of war of who will pay the bill for the upkeep and maintenance to keep the nearby piers on the West side of Manhattan looking good.

Here is a quote from the NY Times article:

"Capital funds from the city and state have fallen to just $7 million from a high of $42 million in 2008, because of the recession. Meanwhile, two of the park's planned revenue-producing commercial piers have yet to be developed, leaving the Hudson River Park Trust, which runs the park, short of the money it needs for routine maintenance.

Adding to its woes: A lawsuit filed in November by the owners of Chelsea Piers, the sports and entertainment complex, which leases three piers from 17th to 23rd Street from the trust. The suit seeks to force the trust, and by extension taxpayers, to spend "at least $37.5 million" repairing damage its piers have sustained over the past two decades from small marine borers known as gribbles and teredos.

This month, the trust fired back in court with a motion to dismiss, arguing that the lawsuit amounted to nothing more than a "for-profit commercial venture trying to secure a huge public bailout for longstanding problems of its own making and for which it bears the sole legal responsibility.""

The interesting piece of economics here focuses on the fact that the public investment in "nice parks and piers" both benefits the public and directly benefits the nearby commercial businesses and property owners who now attract more people to want to spend time there.  In a "fair world", the commercial real estate owners and residential property owners nearby would be asked to pay for a larger share of these improvements since they will gain a windfall in benefits from higher rents as the amenity improvements will be capitalized into higher rental prices nearby as more people will be demanding services there and want to spend more time there.  

The profit seeking businesses seek to share the costs of the public improvements broadly and then gain the extra revenue.  That's good business!

So, there are really two issues here. 1. What is the optimal level of investment in "greening" the river parks and piers?  2. Who should finance this investment?   If you believe that the beneficiaries should pay, then the nearby land owners should pay more for the local improvements in parks.    Again, as the parks and and river area become nicer --- commercial landlords will be able to charge tenants more for locating there.

The city skyline is seen at dusk on Boston Harbor in Boston in this file photo. Does good urban planning lead to healthier residents? (Michael Dwyer/AP/File)

Can better urban planning make us healthier?

By Guest blogger / 01.26.12

If public universities cap salaries for their Presidents, will they recruit less able leaders? The California State Universities may soon be running this experiment.     The Chronicle also has an interesting article on my UCLA colleague Dick Jackson.  Dr. Jackson is a leading scholar at UCLA's School of Public Health.  Here is a quote from the Chronicle of Higher Education:

"His center had already been dealing with problems that he suspected had origins in the built environment—asthma caused by particulates from cars and trucks, water contamination from excessive runoff, lead poisoning from contaminated houses and soil, and obesity, heart conditions, and depression exacerbated by stressful living conditions, long commutes, lack of access to fresh food, and isolating, car-oriented communities. Treatments could come in the form of pills, inhalers, and insulin shots, but real solutions had bigger implications. "More and more, I came to the conclusion that this is about how we build the world that we live in," he recalls, speaking over the phone from San Francisco."

Can better urban design make us healthier?

This raises a fundamental selection versus treatment question.  Put bluntly, do people with a proclivity to be sick self select to live in nasty neighborhoods featuring bad air quality, little access to good public transit and shopping opportunities?  Or do, people who for random reasons choose to live in those areas subsequently become sick?  The first is a selection effect while the second is a treatment effect.

Consider the example of smoking;  if we observe that smokers tend to suffer from sickness --- again is this selection or treatment or both?  Do the most impatient people in society smoke and such individuals tend to under invest in their health and subsequently are more likely to become sick or does smoking have an independent treatment effect on making you sicker?  The answer is that both effects are likely to be playing out.

I find that public health researchers tend to ignore fundamental issues of self selection on unobserved attributes (one of Jim Heckman's early homeruns) and implicitly assume that households are randomly assigned across space so that any observed differences in outcomes are due to "treatment effects".   In the absence of randomized trials (where residential locational choice is determined at random), this is a hard topic to work on.

Matthew Turner and co-authors have written an under-appreciated paper that was published in the Journal of Urban Economics.   Here is the abstract of their paper titled "Fat City":

"We study the relationship between urban sprawl and obesity. Using data that tracks individuals over time, we find no evidence that urban sprawl causes obesity. We show that previous findings of a positive relationship most likely reflect a failure to properly control for the fact the individuals who are more likely to be obese choose to live in more sprawling neighborhoods. Our results indicate that current interest in changing the built environment to counter the rise in obesity is misguided."

Intuitively, Turner estimates a fixed effects regression using panel data where he tracks the same person over time for people who move from the center city to the suburbs or vice versa. If sprawl makes us fat, then the average person who moves from the center to the suburbs should be gaining more weight over time than the people who never leave the center city or never leave the suburbs. Turner rejects this hypothesis.

So, there is plenty of work to be done here but it remains an open question of how urban form affects our behavior. I've been especially interested in this question focused on our carbon footprint as a function of urban form.

This file photo shows a statue of Benjamin Franklin at the University of Pennsylvania in Philadelphia. Franklin may have been one of the first people to note the effect of weather events on climate. (Andy Nelson/The Christian Science Monitor/File)

Ben Franklin: Founding father, inventor, geo-engineer?

By Guest bloggger / 01.24.12

Do you miss the 1990s?  Those were the days before field experiments and RCTs where the typical paper might start, "This paper exploits a natural experiment to study the effect of X on Y."   I have just learned that Ben Franklin was way ahead of us.  Back before the QJE existed,  in 1784 to be precise,  Franklin noted  that after volcano eruptions that temperatures were lower.   Geo-engineering has some empirical basis.  How do I know this? I attended a Freshmen lecture at UCLA today.

To quote Scientific American and Karen Harp, "In 1784, Benjamin Franklin made what may have been the first connection between volcanoes and global climate while stationed in Paris as the first diplomatic representative of the United States of America. He observed that during the summer of 1783, the climate was abnormally cold, both in Europe and back in the U.S. The ground froze early, the first snow stayed on the ground without melting, the winter was more severe than usual, and there seemed to be "a constant fog over all Europe, and [a] great part of North America."

Now that empirical economists are working on climate change adaptation, what other research could be conducted on geo-engineering and its direct consequences and unintended consequences?  Will a future James Bond movie plot focus on Bond having to help or kill a "geo-engineer"?  

A protester stands outside a teleconference meeting of the Board of Regents regents of the University of California, on the campus at UCLA in this November 2011 file photo. All nine UC campuses have the same tuition rates. (Reed Saxon/AP/File)

How to fix California's college tuition problem

By Guest blogger / 01.22.12

Students want an excellent education and low tuition but a "free lunch" is hard to find during these tough times.  The LA Times has some choice quotes over the pain and frustration playing out in California.  As I understand it, all nine UC Campuses charge the same tuition prices.  This is the problem.  

I suggest that each UC campus be allowed to set its own tuition and that the rules are such that 10% of the collected revenue is redistributed from the top 4 schools in terms of tuition is sent to the 5 campuses that charge less.   If the UC feels innovative, it could charge different tuition prices by campus and by major.  Such customization of tuition would generate more revenue, offer students more financing options.    One definition of discrimination is to treat different UC campuses the same.

While people moan about rising UC tuition, they forget that the UC is much cheaper than Ivy League schools (our peers!) and that many students transfer into the UC from a community college.  This means that their effective tuition is roughly 30% lower because the formula (assuming an interest rate of 0%) becomes  .5*community college tuition + .5*UC in-state tuition.  

Switching subjects:   I would like to show my appreciation to my uncountable number of blog readers by revealing my blog royalties for the last 3 months.

Environmental and Urban Economics
Earnings This Reporting Period:
So, over the course of 3 months I post around 100 entries. If it takes me 10 minutes to write each of these then that's 1000 minutes or roughly 16 hours so $28/16 = $1.6 an hour  ---- not bad for a big bad full prof at UCLA?

New York Gov. Andrew Cuomo delivers his second State of the State speech at the Empire State Plaza Convention Center in Albany, N.Y. Cuomo wants to shut down the state's Indian Point nuclear power plant. (Mike Groll/AP/File)

Should New York scrap its nuclear power plant?

By Guest blogger / 01.14.12

Economists view products as bundles of attributes.  Put simply, what is a car?  If all cars are the same, why does a Mercedes cost 3 times as much as some Toyota?  The answer is that the typical Mercedes has bundled into it high quality attributes and consumers are willing to pay a price premium for this bundle.   In the case of electricity, is it a differentiated product or is a kilowatt a kilowatt?  In the later case, buyers should just seek the lowest price.  

But, as this article highlights , in New York City there is a deep debate about the electricity generation source.  If its source is nuclear, is it bad?  If Gov. Cuomo scraps the nuclear plant and its capacity is replaced by a higher polluting natural gas plant and if these emissions end up in Harlem, is that bad?    The economic geography of where people live relative to where dirty power plants are has been a topic that I've written about.  Don't forget this classic 2009 RSUE paper!

In case you are lazy, here is the abstract:

Coal fired power plants emit high levels of air pollution per unit of power generated. A comparison of emissions factors (pounds of emissions per megawatt hour of power generation) based on year 2004 data reveals that the average coal fired power plant emits six times as much nitrogen oxide and more than twelve times as much sulfur dioxide as the average non-coal fired power plant. This paper uses data on the population of all electric utilities in the United States and evidence on population growth across regions to document that; pollution levels are higher in counties with coal fired plants, and that the population is moving away from regions such as the Midwest where the dirtiest coal fired power plants are located. Population growth is taking place in the South and West. Especially in the Western region, the power plants are newer and cleaner and less likely to be coal fired. In the South and West, population growth has a smaller impact on power plant emissions growth than in the Northeast and Midwest.

China's CRH high-speed trains sit on tracks at a maintenance base in Wuhan, in central China's Hubei province, Wednesday Jan. 11, 2012. California's own high-speed rail project has hit a few snags, including a lack of financing and the recent resignation of California High Speed Rail authority CEO Roelof van Ark . (AP)

California's high speed rail hits a speed bump

By Guest blogger / 01.13.12

The head of California's High Speed Rail project has resigned.  You would think that a multi-billion dollar, 30 year project would offer some intellectual challenges for its leader but "Roelof van Ark, chief executive officer of the California High-Speed Rail Authority, announced this afternoon that he is quitting, the latest setback for the state's beleaguered campaign to build a nearly $100 billion rail network in California."

What is going on?  We know that California and the Federal Government both have large fiscal deficits and this may be part of the issue but what happened to the momentum?  

As a guy who flies to Northern California often, and who has traveled on a Chinese Bullet train,  I haven't supported this train.  I figure that for political reasons that it will stop too often between San Fran, LA and San Diego and thus never achieve the MPH that it has promised.   I assume that its ridership will be too low to cover the enormous fixed cost of constructing it.  Once people arrive in these cities, and get off the train --- they will still need a car to connect them with their ultimate destination --- so, the real issue here is what is wrong with air travel?  I know that HSR has a smaller carbon footprint than air travel but what would have to be the value per ton of GHG emissions for HSR to be a wise investment?  I would guess that it would have to be close to the $200 per ton that was calculated for the Cash for Clunkers program.

In the absence of Federal subsidies, how will California finance this train?   $100 billion dollars in a state with 35 million people works out to $3,000 for each man, woman and child.   Are we willing to pay that average cost? 

In this file photo, a wind turbine is seen at the First Wind project in Sheffield, Vt. As state governments work to reduce emissions, companies are searching for ways to make a profit. (Toby Talbot/AP/File)

Is there money to be had in carbon restrictions?

By Guest blogger / 01.08.12

Matthew Wald of the NY Times reports that two companies called SolarReserve and BrightSource are thinking ahead about profits they can earn when state electric utility commissions enact the combined policies of aggressive renewable portfolio standards (RPS) and time of day pricing.  A RPS of 33% would mean that an electric utility must purchase 33% of its power from renewable sources such as wind and solar.  If total demand peaks each day at around 3pm and then declines throughout the rest of day gradually , then the price of electricity could soar at around 6pm each day because the sun is no longer shining and solar won't be generating much electricity.  

Anticipating that there could be serious profits to be earned by those generators who have capacity to sell at that hour,  these companies are developing storage technologies that will allow them to sell at that hour.Note the key synergy here.  Solar power becomes more "feasible" if there exists such a storage technology so there will be greater investment in solar.  As there is greater investment in solar, this encourages more investment in storage technology. Similar to peanut butter and jelly, the two go together.  Now is government $ needed here? The DOE is betting on SolarReserve.  Will this be another Solyndra?  In the absence of government $, would the private sector have funded this?  Is VC capital aggressive or highly risk adverse?

Icicles cling to oranges in a small grove just after sunrise Wednesday Jan. 4, 2012, in Seffner, Fla. Kahn argues that rather than threatening our food supply, global warming will bring about innovations in food production. (Chris O'Meara/AP)

Will global warming wipe out our food supply?

By Guest blogger / 01.04.12

Thanks to forward looking "doom and gloomers" such as the Asteroid Miner (see below) we have been warned about future threats to our food supply.
I quote  this source:

  • Asteroid Miner
  • Illinois

Make it very short: If GW (Global Warming) is not stopped, there will be no food some time in the 2050s. Food production is already being impacted by GW.

  • Dec. 25, 2011 at 9:08 a.m

In a world with 7 billion people, if some folks agree with AM (Asteroid Miner)'s forecast  then they will have strong incentives over the next 38 years to seek out new ways to grow food.  Such individuals would recognize that there is a chance that AM is wrong but that global warming raises the probability that he is right.

The funny thing is that the anticipation that he could be right raises the probability that his prediction will be wrong!  If 1% of 1% of the world's 7 billion people get to work on this food scarcity problem, then we will have 700,000 people working on the problem.  Could they all fail as venture capitalists and others with funding fund this group to come up with new ways to grow food in our hotter future?  We don't need each of these 700,000 to succeed.  A future farming Steve Jobs will emerge from this set and he will become quite rich and we will continue to eat and Asteroid Miner's kids will thank him for playing the role of Paul Revere.

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