Jeremy West (05/01/19)

Jeremy West

University of California, Santa Cruz

“Product Quality Disclosure with Uninformed Sellers”

(Joint with Erica Myers and Steve Puller)

Abstract: This study examines markets in which both buyers and sellers may not fully observe transacted product quality. Using a behavioral model, we illustrate how ignorance can influence sellers’ quality disclosure decisions. Empirically, we leverage a natural policy experiment that encourages homeowners to provide potential buyers with certified measurements of energy efficiency. Using similar nearby homes to form a counterfactual, we find that credible disclosure significantly increases price capitalization of and investments in energy efficiency. Despite very heterogeneous price benefits from disclosure, we show that properties’ relative energy efficiency only weakly predicts disclosure propensities. Connecting our empirical findings to the model, we demonstrate using a computational simulation that a substantial share of homeowners are apparently uninformed about the relative energy efficiency of their own properties. Our findings yield insights about the energy efficiency gap and hold implications for disclosure policies in real estate markets and in other settings.

Nick  Hagerty (9/12/18)

Nick  Hagerty

University of California, Berkeley – Ciriacy-Wantrup Post-Doc

“Liquid Constrained: Estimating the Potential Gains from Water Markets”

Abstract: I propose a framework to estimate demand and analyze welfare in water markets using transactions data. To infer preferences from observed choices in an existing market, this framework overcomes two key empirical challenges. First, it can recover marginal valuations in the presence of unobserved transaction costs, which lead observed prices to be distributed less widely than true marginal valuations. Second, it can correctly estimate price elasticities in settings where total quantity is fixed and agents may choose to either buy or sell, including water markets and other cap-and-trade systems. I apply this framework to estimate the gains available from an efficient statewide surface water market in California, where conveyance infrastructure is well-developed yet transaction volume remains low. Full Paper

Nicolai Kuminoff (4/18/18)

Nicolai Kuminoff

Arizona State University

“Hazed and Confused: Air Pollution, Dementia and Financial Decision Making”

Abstract: We study whether long-term exposure to air pollution impairs cognition among the US Medicare population. We link fifteen years of administrative records for 7.4 million adults age 65 and older to the Environmental Protection Agency’s air-quality monitoring network to track the evolution of individuals’ health, onset of Alzheimer’s disease and related forms of dementia, financial decisions, and cumulative exposure to fine-particulate air pollution (PM2.5) based on their precise residential locations. We see evidence of Tiebout’s mechanism at work: movers tend to move to less polluted neighborhoods but, among movers, those who are older and those with dementia tend to move to more polluted neighborhoods. We address residential sorting and measurement error in assigning pollution to people by utilizing quasi-random variation in PM2.5 exposures stemming from the EPA’s initial (2005) designation of nonattainment counties for PM2.5. We find robust evidence that a 1 microgram per cubic meter (μg/m3) increase in decadal exposure to PM2.5 (8.5% of the mean) increases the probability of an dementia diagnosis by the end of the decade by 0.5 to 1.2 percentage points (4% to 6%). Our estimates are slightly larger at exposure levels below the EPA’s current regulatory threshold.  We also find that higher cumulative exposures to PM2.5 impair financial decision making among those not diagnosed with dementia, where the magnitudes of the effects are 3% to 6% of the negative effect of dementia on decision making. Finally, we find no evidence that exposure to PM2.5 affects the diagnosis rates for morbidities thought to be unrelated to air-pollution and no evidence that pollutants other than PM2.5 impair cognition, providing evidence against confounding.

John Voorheis (4/11/18)

John Voorheis

U.S. Census Bureau

“Pollution and the Intergenerational Transmission of Human Capital: Evidence from the 1970 Clean Air Act”

Abstract: How do parental endowments shape the economic prospects of their children? Using a newly constructed dataset from the U.S. Census Bureau linking survey, Census and administrative records, we evaluate the effect of early childhood pollution exposure on the long-run effects of the individuals directly affected, as well as the persistence of these effects across generations – exploring the effects of in-utero pollution exposure on the children of those that were in utero exposed. We exploit variation in particulate matter, which sharply dropped following the enactment of the 1970 Clean Air Act Amendments, which we argue allows us to identify these effects as causal. We find that increased early life exposure to particulate matter is associated with significant reductions in the later life earnings of affected individuals, as well as changes in family structure, through an increased likelihood of divorce. In addition, we find evidence that the consequences of this exposure are transmitted across generations. The children of those affected by increased in-utero pollution exposure are less likely to attend college and experience lower earnings. Preliminary evidence on the drivers of the second generation effects point to the importance of economic, as opposed to genetic, channels, highlighting the role that policy could play in equalizing opportunities.

Stephen Polasky (3/21/18)

Stephen Polasky

University of Minnesota

Gross Ecosystem Product for Sustainable Development

Abstract: China is developing and pilot-testing a new measure of ecological performance, Gross Ecosystem Product (GEP), as a guide in securing the well-being of people and nature.  The aim of GEP accounting is to help reveal the contribution of ecosystems to society; show the ecological connections among regions (e.g., between suppliers and beneficiaries of ecosystem services such as flood control or water purification); inform appropriate compensation from beneficiaries to suppliers; serve as a performance metric for government officials; and otherwise inform government policy and investment.  GEP will be reported alongside Gross Domestic Product (GDP). Around the world, there is widespread recognition of the need to move beyond GDP for more complete performance measures of the ecological, economic, and social systems supporting human wellbeing (e.g., Stiglitz et al. 2010, UN Sustainable Development Goals 2015). There are ongoing efforts to provide more complete metrics, including the System of Environmental-Economic Accounting (UN 2012, 2013), Wealth Accounting and Valuation of Ecosystem Services (WAVES 2017), Inclusive Wealth (e.g., Arrow et al. 2012, World Bank 2011, UNU 2014), and the Human Development Index (UNDP 1990). But to date these efforts receive far less attention than GDP.  China’s adoption of GEP could put ecological information on a par with economic information in one of the world’s most influential countries.


Lars Hansen (3/14/18)

Lars Hansen

University of Chicago

Joint with the Economics Department

[Note Time & Location: 648 Evans Hall, 4:10-5:30pm]

“Pricing Uncertainty Induced by Climate Change”

Abstract: Climate science documents uncertainty induced by different emission scenarios, alternative models, and ambiguous physical interactions. Moreover, for some purposes, it constructs tractable approximations to initially complex models. To engage in credible policy analysis requires that we acknowledge and confront the limits to our understanding of dynamic mechanisms by which human inputs impact the climate.  Our research stresses limits to our understanding, with particular focus on the channel from emissions to atmospheric concentration and the channel from concentration to temperature. Even in the most recently developed Atmospheric Ocean General Circulation Models, there is wide variation across models in key policy parameters produced by such models for the same amount of anthropogenic forcing. This variation persists when considering impacts for a wide range of time scales, including shorter time scales that are more typical in economic investigations. We find it productive to pose hypothetical social planning problems and embrace recent advances in decision theory designed to confront uncertainty. The decision problems allow us to assess more formally the consequences of uncertainty.  Especially for problems of this nature, we find it important to think of uncertainty as broadly conceived to include risk within a given model, ambiguity across models and potential model misspecification.  We draw on asset pricing insights to understand better the consequences of climate impacts that depend on the horizon to the adverse outcomes might be realized.  We show the potential importance of both state dependence and horizon dependence in marginal valuations of uncertainty.  Because our analysis acknowledges the limits to our knowledge, it implies specific forms of caution but not inaction.

Ram Fishman (2/28/18)

Ram Fishman

Tel Aviv University

“Can Smallholder Farmers Adapt to Water Scarcity? Evidence from Karnataka, India.”

Abstract: Much of the literature that examines the impacts of environmental change utilises high frequency (typically annual) shocks. This approach yields cleanly identified effects, but has been criticized for failing to account for adaptations to more gradual long-term changes. We study adaptations by smallholder farmers to growing water scarcity in the drought stricken, but rapidly growing Indian state of Karnataka. We exploit two types of variation in the intensity of exposure to water scarcity: fine-scale spatial variation in the intensity of drought across villages, deriving from the high degree of precipitation variability in the area; and variation in the probability of well failure across farmers within villages, presumably deriving from the nature of hard-rock geology. Detailed survey data on cultivation and employment suggests against adaptation within agriculture, but that shifts to non-agricultural employments may or may not be able to compensate for income losses resulting from losing access to water.


Kenneth Gillingham (2/21/18)

Kenneth Gillingham

Yale University

“Experimental Evidence on the Effect of Information and Pricing on Residential Electricity Consumption”

Abstract: Residential electricity prices do not generally respond to wholesale prices and thus are disconnected from the marginal cost of generation. This study examines a field experiment in Texas that includes both pricing and informational interventions to encourage energy conservation during summer peak load days when the marginal cost of generation is the highest. Using data at the appliance-minute-level, we estimate a price elasticity of electricity demand of -0.17, and find that over 60 percent of this response can be attributed to air conditioning. Conversely, we find neither passive nor active information provision results in reduced electricity consumption during the peak load hours of typical peak summer days. By disentangling the price elasticity at the appliance-level, these results show that behavior changes are limited to a few appliances, demonstrating the mechanisms underlying the consumer response to electricity prices.

Ryan Kellogg (12/6/17)

Ryan Kellogg

University of Chicago

“Crude by Rail, Option Value, and Pipeline Investment”

Abstract: The recent large-scale use of railroads to transport crude oil out of newly discovered shale formations has no recent precedent in the U.S. oil industry. This paper addresses the question of whether crude-by-rail is simply a transient phenomenon, owing to delays in pipeline construction, or whether it will be a durable presence in the industry by reducing investment in pipeline infrastructure. We develop a model of crude oil transportation that highlights how railroads generate option value by: (1) giving shippers the ability to flexibly increase or decrease volumes shipped in response to price shocks; and (2) allowing shippers to opportunistically send oil to multiple destinations. In contrast, pipelines have low amortized costs but lock shippers into debtlike ship-or-pay contracts to a single destination. We calibrate this model to the recently constructed Dakota Access Pipeline and find that the elasticity of pipeline capacity to railroad transportation costs lies between 0.24 and 0.61, depending on parameters such as the upstream oil supply elasticity. These values are likely conservative because they neglect economies of scale in pipeline construction and the presence of cost-saving contracting in rail. Our results imply that crude-by-rail is an economically significant long-run substitute for pipeline transportation and that regulatory policies targeting environmental and accident externalities from rail transportation would likely substantially affect pipeline investments. Full Paper