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Reed Walker

University of California, Berkeley
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“The Causes and Consequences of Racial Convergence in Pollution Exposure in the United States”

(Joint with Janet Currie and John Voorheis).

Kelsey Jack

University California of Santa Barbara
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Paying for Power: Prepaid Electricity and the Spending Patterns of the Poor

(Joint with Kathryn McDermott and Anja Sautmann)

Abstract: Revenue recovery is a challenges for electricity providers in developing countries. Poor customers often struggle to pay monthly bills, and providers face both cost and political economy barriers to enforcing payment. Prepayment is increasingly seen as a solution to this problem. However, little work has been done to date to understand how this affects poor consumers. The research is motivated by two empirical facts observed in the study setting in Cape Town (South Africa). First, electricity use falls by around 13 percent when households are switched from monthly billing to prepaid metering. Second, low income customers on prepaid metering purchase electricity in small quantities and at very high frequencies (every 3 days, on average), reminiscent of the purchasing patterns of poor consumers in other domains. These patterns may reflect liquidity and other constraints on poor households or deliberate choices, with very different welfare implications. We combine analysis of administrative data on electricity purchases with interventions that manipulate liquidity and transaction costs in order to understand the welfare implications of prepayment, as well as the drivers of the high frequency transactions observed in the expenditure patterns of poor households across many domains and settings  We find little evidence for a demand for self- or other-control to explain these patterns. At the same time, we find evidence of meaningful transaction costs associated with purchases, which suggests a high liquidity cost of larger and less frequent expenditures. A model of credit constraints on cash combined with transaction costs on electricity helps reconcile the observational data with our experimental results.

Karen Clay

Carnegie Mellon University Heinz College
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“Short-Run and Long-Run Impacts of Environmental Regulations on Firm Productivity: Evidence from the U.S. Electricity Sector, 1938-1999”

Abstract: Although economic costs of environmental regulations are widely debated, there is limited empirical evidence on the magnitude of these economic costs and the extent to which these costs persist over time. This paper quantifies the short-run and long-run efficiency costs of air quality regulations on the U.S. electricity production sector. The analysis draws on newly digitized annual, plant-level data on the vast majority of U.S fossil fuel fired power plants from 1938-1999. This sample allows us to examine the U.S. electricity industry both before and after the implementation of the National Ambient Air Quality Standards (NAAQS) in 1972. To estimate the economic costs, we utilize a difference-in-differences framework where counties face different environmental regulations as they move in and out of attainment with NAAQS over time. We find that plants located in non-attainment counties experienced declines in TFP and production of 6.3\% and 7.0\%. The effects of nonattainment on TFP and generation are persistent over time. This suggests that existing plants did not adapt to environmental regulations such as NAAQS even in the long run.

Paulina Oliva

University of Southern California
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“The Effect of Air Pollution on Migration: Evidence from China”

Abstract: This paper looks at the effects of air pollution on migration in China using changes in the average strength of thermal inversions over five-year periods as a source of exogenous variation for medium-run air pollution levels. Our findings suggest that air pollution is responsible for large changes in inflows and outflows of migration in China. Specifically, we find that a 10 percent increase in air pollution, holding everything else constant, is capable of reducing population through net outmigration by about 2.8 percent in a given county. We find that these inflows are primarily driven by well-educated people at the beginning of their professional careers, leading to substantial changes in the sociodemographic composition of the population and labor force of Chinese counties. We also find strong gender asymmetries in the response of mid-age adults that suggests families are splitting across counties to protect vulnerable members of the household. Our results are robust to different specifications, including a spatial lag model that accounts for localized migration spillovers and spatially correlated pollution shocks.

Stephie Fried

Arizona State University
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“Seawalls and Stilts: A Quantitative Macro Study of Climate Adaption”

Abstract: Investment in adaptation capital reduces the damage from extreme weather, mitigating the welfare cost of climate change. Federal aid for disaster relief reduces the net costs to localities that experience extreme weather, decreasing their incentives to invest in adaptation capital. We develop a heterogenous-agent macro model to quantify the relationship between adaptation capital, federal disaster policy, and climate change. We find that federal aid for disaster relief substantially reduces adaptation investment. However, the federal subsidy for adaptation more than offsets this moral hazard effect. We introduce climate change into the model as a permanent, increase in the severity of extreme weather. We find that adaptation reduces the welfare cost of this climate change by 15-20 percent. Full Paper

Chris Timmins

Duke University
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“Housing Discrimination and the Pollution Exposure Gap in the United States” w/ Peter Christensen (UIUC)

Abstract: The choice of residential location is a critical economic decision for households in the United States. Recent research has shown that neighborhood pollution exposures can have significant effects on health outcomes, disproportionately affecting minority households. In this study, we combine experimental evidence on discrimination in the rental market for housing with observational evidence from a panel detailing the movements of 1.5 million renter households to study the extent to which discrimination constrains the housing choices of minorities and contributes to inequity in health outcomes. We find that renters with African American and Hispanic/LatinX names receive the exact same response rates to inquiries made for housing within a tight radius of plants that emit toxic pollutants (high exposure locations), while receiving up to 35% and 36% lower response rates at lower exposure locations in the same markets. We find that African American and Hispanic/LatinX renters in these markets move into high exposure neighborhoods at higher rates and move out at lower rates than similar white households, resulting in higher exposures to toxics and particularly during periods of pregnancy. These differences result in a 19% higher likelihood of in utero exposures to toxic emissions for children born in Hispanic/LatinX households and 16.6% higher likelihoods for children born in African American households. Full Paper

Karen Palmer

Resources for the Future
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“Quantities with Prices”

Abstract: Environmental policy with uncertainty is often posed as a choice of price versus quantity instruments. Quantity targets are typically preferred, but paradoxically employ architecture derived from the first-best global framework that applies imperfectly to the partial equilibrium policy setting. In practice, climate policies are incremental and multi-faceted, combining economic and regulatory approaches with limited geographic scope that do not balance global benefits and costs, but nonetheless are envisioned as a noncooperative sequence of actions enabling more efficient and comprehensive global policy. This paper recognizes and evaluates price responsive emissions allowance supply schedules emerging in existing trading programs. We use simulation modeling and laboratory experiments to explore a supply schedule in a regional market. A supply schedule usefully shares the risks and benefits with respect to emissions control costs between economic and environmental interests, preserving the role for technology and energy policies that are expected to lower costs over time. Full Paper

Thibault Fally

University of California, Berkeley
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“Per Capita Income, Consumption Patterns, and CO2 Emissions”

Abstract: This paper investigates the role of income-driven differences in consumption patterns in explaining and projecting energy demand and CO2 emissions. We develop and estimate a general equilibrium model with non-homothetic preferences across a large set of countries and sectors, and trace embodied energy consumption through intermediate use and trade linkages. Consumption of energy goods is less than proportional to income in rich countries, and more income-elastic in low-income countries. While income effects are weaker for embodied energy, we find a significant negative relationship between income elasticity and CO2 intensity across all goods. These income-driven differences in consumption choices can partially explain the observed inverted-U relationship between income and emissions across countries, the so-called environmental Kuznet curve. Relative to standard models with homothetic preferences, simulations suggest that income growth leads to lower emissions in high-income countries and higher emissions in some low-income countries, with only modest reductions in world emissions on aggregate. Full Paper

Joshua Blonz

Resources for the Future
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“Measuring Inefficiencies When Agents Break their Principals’ Rules: The Case of Energy Efficiency Retrofits”

Abstract: In this paper, I quantify the negative welfare consequences resulting from the misalignment of incentives between principals and agents in the context of a home energy efficiency retrofit program. I show that contractors (agents) working on behalf of an electric utility (the principal) deliberately authorize ineligible upgrades to increase their own compensation. I exploit variation in contract structure to show that larger incentives lead to higher levels of agent misreporting. Using household-level monthly panel data, I find that each ineligible upgrades reduces welfare by $104 and saves half as much electricity as upgrades that follow program guidelines. I extend the principal-agent model to quantify the costs and benefits of the contract structure used in the appliance upgrade program, finding that the existing contract structure reduces program welfare benefits by one fifth. My results provide novel evidence of how agent incentives can reduce the efficacy of public policy, and they are the first to identify and measure how the principal-agent problem can reduce the savings of energy efficiency programs.

Erica Myers

University of Illinois at Urbana-Champaign
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“Heterogeneous Misperceptions of Energy Costs: Implications for Measurement and Policy Design”

Abstract: How consumers perceive different aspects of product cost, such as sales tax, shipping and handling charges, and energy operating expenses among others, have important welfare implications for policy.  In this paper, we estimate heterogeneous perceptions of energy costs in the U.S. appliance market using a revealed preference approach. We recover a non-parametric distribution and  show that while the largest share of consumers correctly perceives energy costs, a significant share undervalues them, and smaller shares either significantly overvalues or does not pay attention to them. These patterns are strikingly similar across income groups. We simulate the welfare effects of policies targeting externalities in the presence of heterogeneous misperceptions and show that standards largely outperform taxes. Standards’ key advantage is that they reduce variance in energy operating, which ameliorates the distortionary effects from potential misperceptions. Full Paper