Matthew E. Kahn Profile picture
Provost Professor of Economics at the University of Southern California. Visiting Fellow at the Hoover Institution.
Dec 4 5 tweets 2 min read
I will read this paper! Going forward, firms will better adapt to climate shocks if they buy "real options" related to linkages. For example, having some spatial redundancy in supply chains reduces the O-Ring probability of having no inputs to use!! (1/2) Suppose that a firm relies on one single input supplier that is located in Egypt. If there is a 1% chance this supplier is wiped out, then the buyer may not sweat this. BUT, if climate change raises this risk to 4%, the buyer may now invest in self-protection (2/3).
Nov 29 4 tweets 2 min read
Very interesting. Old Sherwin Rosen students and fans of hedonics will see an analogy to differentiated product markets and hedonic equilibrium in the cross-section. The marginal consumer sets the price in the hedonic equilibrium. Who is that guy? Why is he "marginal"? Read Pat Bajari's papers from the 2000s (one is coauthored with me) to see the non-parametric approach for recovering preferences for differentiated products. Disagreement about the direction of interest rates is another example of product differentiation for durables demand!!
Sep 14 5 tweets 2 min read
A quick thread as I see another set of excellent economists violate the Lucas Critique. In the next slide, I discuss equation (7) of this paper. Note that psi_1 and psi_2 are assumed to be constants here. They should be functions that change over time as the economy shifts. For example, cheaper air conditioning flattens these coefficients. This functional form rules out endogenous innovation fueling adaptation! Image
May 24 4 tweets 1 min read
California is a highly desirable place to live but the state builds very little new housing. My friend has co-authored a piece exploring the challenges in building housing in my combative state. In the next tweet, I offer a Coasian solution.
latimes.com/opinion/story/… Suppose that each jurisdiction in California (such as a Malibu, or a Berkeley) is assigned a property right that it must build X units of new housing. NOW suppose it can trade this right with other jurisdictions. Similar to pollution permit markets, a price will emerge.
May 11 8 tweets 3 min read
Thanks for pointing out their important paper! Take a look at equation (3), it rules out comparative advantage as every country is equally affected by the World Temperature shock. See next tweet for a JPE paper about farming that rejects this claim. More in the thread below. In this age of heterogeneous agent macro, let's allow for some price adjustment and some comparative advantage in the farming sector.
journals.uchicago.edu/doi/abs/10.108…
Mar 13 4 tweets 2 min read
Important work! An optimistic prediction. Suppose the probability of severe climate shocks increases over time in India. In this case, supply chains will become MORE resilient over time as firms invest more to be prepared for the anticipated shocks. The Lucas Critique!! The real options literature of Dixit and Pindyck is directly applicable here. For a fixed cost, firms can deepen their supply chains to lower their probability of an O-Ring meltdown. The most productive firms will be the most likely to exercise this real option. See next tweet.
Dec 23, 2023 5 tweets 2 min read
The industrial organization aspects of climate change adaptation is a very promising field. A thread about my two related papers. Larger firms have an adaptation edge (even if they only have a single establishment) because of their access to manager quality, capital and data. Many adaptation strategies are "lumpy" requiring a large fixed cost. Heckman's selection work matters!
nber.org/papers/w22962
Dec 18, 2023 4 tweets 2 min read
Very interesting! New research should study a 3 step dynamic program. Matt chooses a metro area as he moves from Boston to Los Angeles. Once in LA, he chooses to move to Westwood. Once he lives on Warner Avenue, he upgrades his home anticipating place based shocks. 1/2 Note the almost infinite adaptation permutation strategy set here. Climate economists continue to ignore this point. Matt knows his own risk aversion and his life goals and his budget constraint. In a Becker Household Production model, Matt optimally trades off resilience.
Jun 13, 2023 5 tweets 2 min read
A thread about the urban economics of noise exposure. Noise is capitalized into housing prices such that home prices are lower in noisy places. Who chooses to live in noisy places?
nytimes.com/interactive/20… Were you a regular reader of the Journal of Urban Economics back in 2004? If "yes", then you should remember Dan's paper. " .. aircraft are becoming so much quieter that the airport can be expanded without causing a drop in local property values"
sciencedirect.com/science/articl…
May 20, 2023 9 tweets 3 min read
As we celebrate Robert Lucas's contributions to economic science, let's take a look at a new Science paper written by non-economists who ignore the Lucas Critique. Their study is generating headlines (1/n).
science.org/doi/10.1126/sc… The authors report reduced form empirical estimates of the association between national per-capita income growth from 1960 to 2019 and El Nino Weather events and then extrapolate forward. The words "markets" and "adaptation" do not appear in the paper.
May 17, 2023 5 tweets 2 min read
Urban adaptation pessimism from NPR.
npr.org/2023/05/16/117… The combination of WFH and high interest rates certainly pose a challenge for the urban commercial real estate sector in cities featuring significant traffic congestion. Adaptation can occur on several margins. Image
May 12, 2023 5 tweets 2 min read
At the AEA meetings in New Orleans on January 8th 2023, there was a session on "Climate Risk". The first paper of the session critiqued my 2022 paper (joint with @amine_ouazad). We were not invited to discuss their paper. Today, we respond (1/2).
aeaweb.org/conference/202… @amine_ouazad In our new paper, "Mortgage Securitization Dynamics in the Aftermath of Natural Disasters: A Reply" , @amine_ouazad and I build on our real estate and climate change research agenda. I encourage you to read it.
papers.ssrn.com/sol3/papers.cf…
Sep 1, 2021 7 tweets 2 min read
The New Orleans area does not have access to grid electricity right now due to Hurricane Ida. What resilience lessons will be learned about holding a diversified portfolio of power generation and distribution strategies? Is "small beautiful"? A thread.
wdsu.com/article/new-or… After Hurricane Sandy, my brother (who lives in New Jersey) purchased a diesel backup power generator. Power access raises "make versus buy" issues. How many non-poor people in the Ida Impacted Area have the ability to make their own power right now?
Sep 1, 2021 4 tweets 2 min read
I am very sorry to hear this news. Professor Tolley taught PHD urban economics in Winter Quarter 1990. Ed Glaeser and I were students in that class. We learned plenty from Prof. Tolley and Ed and I agreed that urban economics was a great research field. As I look back at Professor Tolley's published papers, I see how his work on urban and environmental topics helped to shape my vision for my own research program on the causes and consequences of "green cities". Cities with great quality of life thrive.
scholar.google.com/scholar?hl=en&…
Aug 31, 2021 4 tweets 2 min read
.@MacMc21CC --- Some algebra based on your great report with Ron Hartman. For every 1000 Baltimore residents who work remotely for a Washington DC entity, suppose they must go to DC 2 days a week. They will demand 400 MARC round trips per day (1000*2/5).
21cc.jhu.edu/research/curre… What is the capacity of a MARC train? Could Baltimore have 10,000 residents who work "in DC" and commute by MARC 2 days a week? What logistics would need to be solved here? Let's assume that workers can show up off-peak. Can a fast MARC integrate the local markets?
Aug 29, 2021 11 tweets 4 min read
The Adaptation Hypothesis posits that over time each subsequent natural disaster causes less loss of life and less destruction than in the past. Ida features the same intensity as Katrina. Will this storm cause less damage? A high stakes test.
nytimes.com/live/2021/08/2… It now appears that powerful Hurricane Ida has caused fewer than 5 deaths. Without diminishing the tragedy, this is a remarkable data point for the adaptation hypothesis. Will the media discuss this point? Does "good news" get covered? A thread.
npr.org/2021/08/29/103…
Aug 28, 2021 5 tweets 2 min read
Economists should read this piece by a Stanford Historian. The author argues that economic consulting has been used to slow mitigating the climate change challenge. A short thread.
tandfonline.com/doi/full/10.10… In his piece, @BenFranta sketches out how Big Oil hired some top economists and renowned consulting firms to create "complex economic models" that predicted that a carbon tax would impose large costs on the U.S economy and offer small climate risk mitigation benefits.
Aug 27, 2021 4 tweets 2 min read
On a daily basis the NY Times writes about drought but does not mention water prices. Why are the economists ignored?

Here is a key sentence.

"Since about 70 percent of water delivered from the Colorado River goes to growing crops .."

nytimes.com/2021/08/27/sun… Give the farmers the property rights to the water and allow them to sell their water to the urbanites and the "drought crisis" ends as fewer almonds and alfalfa are grown. These farms can be converted into housing and this will have a second benefit in the expensive West.
Jul 24, 2021 5 tweets 1 min read
I learned some econometrics today. Allowing for heterogeneity with respect to how different individuals respond to different instrumental variables affects how we think about the LATE estimator.
aeaweb.org/articles?id=10… Who is at the margin? Matt and Dora are both thinking of attending college. If they attend college, they will enjoy a treatment effect. Each of them recognize that attending college requires paying tuition and commuting to the school. Matt is rich but he lives far from school
Jul 23, 2021 5 tweets 2 min read
Knightian Uncertainty and Climate Change Adaptation in Cambridge, MA . Calm, forward looking adaptation --- a thread.

thecrimson.com/article/2021/7… “We’re trying to plan for a future that’s a little bit uncertain,” Bolduc said. “So the one certainty we have is that the future is not going to look like the past, so that we can no longer rely on past or historic patterns to guide us on what we should be doing in the future.”
Jul 23, 2021 7 tweets 3 min read
Ezra Klein on limited housing supply in progressive cities. The intended and unintended consequences of "man made" limits to growth.

podcasts.google.com/feed/aHR0cHM6L… The most beautiful places in the United States tend to be highly progressive. Is this a selection effect or a treatment effect? Demand is high to live in areas such as Boston and supply is constrained ==> high home prices. A short thread.