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Matthew E. Kahn Profile picture
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1 Mar, 5 tweets, 2 min read
Gary and @RJerch and I are delighted to see this writeup of our recent NBER paper that examines the local public finance implications of natural disaster shocks.
nber.org/digest-202103/…
This webpage claims that I have written 81 NBER papers. Some of these papers are pretty good!
nber.org/people/matthew…
I'd like to talk about this recent paper.
nber.org/papers/w28050
An emerging climate change impact literature studies how people cope when their origin location is shocked. Rick Hornbeck's important Dust Bowl paper is one prime example.
aeaweb.org/articles?id=10…
Our contribution to the place based natural disaster literature is to explore how local government budgets adjust to such shocks. Both local expenditures and local revenue changes as a result of the shock. Who bears the economic incidence of such shocks?

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More from @mattkahn1966

Matthew E. Kahn Profile picture
2 Mar
Let's return to Jim Rauch's key 1993 Journal of Urban Economics paper that started all of the action in urban economics. His paper must have been motivated by Lucas and Romer's work on human capital spillovers.
sciencedirect.com/science/articl…
Some notation , person i in city j at time t. The researcher observes her wage, a vector of her demographics X and her city's average education level. Using OLS, estimate B2 ;

Wage_ijt = B1*X_it + B2*Education_jt + U_ijt

B2>0 ==> human capital beneficial local spillover
In the early 1990s as the credibility revolution (Angrist, Card, Katz, Krueger, Imbens) unfolded in applied micro, reasonable concerns could be made that the average human capital in a city is not an exogenous variable in a Mincer regression.
Read 10 tweets
Matthew E. Kahn Profile picture
22 Feb
Does deregulation cause an under-investment in robust resilience? How would Professor Demsetz and Professor Stigler answer this "Chicago" Price Theory question? A Thread.
nytimes.com/2021/02/21/us/…
When I was taught the Arrow-Debreu model of complete state contingent markets, we were taught that consumers made their consumption plans while forming rational expectations of the future.
One "state of the world (SOW)" contingent contract would be; "Anyone can purchase X KWH of power on a February 2021 day in Texas even if it is freezing outside for $Z dollars". This price is such that aggregate demand equals supply and no blackouts occur even in that SOW.
Read 10 tweets
Matthew E. Kahn Profile picture
21 Feb
This important news article suggests a research topic related to Tiebout and local government competition. Charles Tiebout emphasized the benefits of political fragmentation as this offers a menu of bundles of taxes and services to choose from. (1/N)
nytimes.com/2021/02/20/cli…
Some people who rely on private markets prefer a small government providing few services financed through low taxes. Others want a big government to heavily tax them and provide all sorts of services for them. Tiebout's vision accommodates this diversity.
What is missing in Tiebout is cross-boundary externalities (i.e the Texas grid affects others). We see with COVID policy co-ordination and the Texas freeze such spillovers. How do negative externalities affect the Tiebout logic about efficiency caused by decentralization?
Read 4 tweets
Matthew E. Kahn Profile picture
21 Feb
A great piece that highlights the adaptation pathway. As expectations shift, we invest in private and public goods that facilitate resilience.
"She said it’s hard to persuade taxpayers to spend extra money to guard against disasters that seem unlikely."
nytimes.com/2021/02/20/cli…
Academics play a key role here helping the public to "connect the dots" to see past correlations between ugly outcomes and past weather events. Our 2020 NBER paper is one example.
ideas.repec.org/p/nbr/nberwo/2…
Academics play a key role here helping the public to "connect the dots" to see past correlations between ugly outcomes and past weather events. Our 2020 NBER paper is one example.
ideas.repec.org/p/nbr/nberwo/2…
Read 4 tweets
Matthew E. Kahn Profile picture
20 Feb
An excellent list but in any market, there is supply and demand. Use pricing incentives to shave peak aggregate demand (insulation investment etc) and blackout risks fall sharply. There are no economists on JJ's list. Incentives, Incentives, Incentives. (1/2)
In recent years the rise of Big Data and micro applied econometrics has creates a growing army of scholars studying heterogeneity. In the energy context, which energy consumers have an edge in adapting to price spikes? Energy planners must celebrate our diversity.
I sketch out how a smart electric utility can use an "opt in" research design to cost effectively enroll more customers in critical peak pricing. Such an incentive encourages insulation installation and reduces blackout risk.
greeneconomics.blogspot.com/2021/02/climat…
Read 9 tweets
Matthew E. Kahn Profile picture
20 Feb
Paul Krugman has written an important piece. A Silver Lining of this tragedy may be a new discussion of robust policy design. We will be better able to adapt to future shocks if we "know that we don't know" their probability of taking place. (1/2)
nytimes.com/2021/02/18/opi…
In 1972, Ehrlich and Becker published this JPE paper. It forms the foundation of my new book "Adapting to Climate Change". Decision makers can self insure and/or use market insurance to offset risk. The Knightian Ambiguity of climate change is key here.
journals.uchicago.edu/doi/10.1086/25…
Here is a .pdf version of the Ehrlich and Becker paper. They do not discuss robustness in their paper but the demand for self protection strategies (such as signing up customers for critical peak pricing) rises once we acknowledge Knightian uncertainty.
journals.uchicago.edu/doi/pdfplus/10…
Read 4 tweets

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