Working Paper Type: Working Paper

by Adrien Bilal and Esteban Rossi-Hansberg

We evaluate how anticipation and adaptation shape the aggregate and local costs of climate change. We develop a dynamic spatial model of the U.S. economy and its 3,143 counties that features costly forward-looking migration and capital investment decisions. Recent methodological advances that leverage the ‘Master Equation’ representation of the economy make the model tractable. We estimate the county-level impact of severe storms and heat waves over the 20th century on local income, population, and investment. The estimated impact of storms matches that of capital depreciation shocks in the model, while heat waves resemble combined amenity and productivity shocks. We then estimate migration and investment elasticities, as well as the structural damage functions, by matching these reduced-form results in our framework. Our findings show, first, that the impact of climate on capital depreciation magnifies the U.S. aggregate welfare costs of climate change twofold to nearly 5% in 2023 under a business-as-usual warming scenario. Second, anticipation of future climate damages amplifies climate-induced worker and investment mobility, as workers and capitalists foresee the slow build-up of climate change. Third, migration reduces substantially the spatial variance in the welfare impact of climate change. Although both anticipation and migration are important for local impacts, their effect on aggregate U.S. losses from climate change is small.

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by Eyal Frank and Kimberly Oremus

Can policy sustainably manage economically valuable biological resources? We find evidence it can, with the use of science-based decision rules. In 1996, with United States fish populations in decline, Congress overhauled fishing laws with scientific thresholds for rebuilding overfished stocks. The law’s impact is contested, and lawmakers have spent a decade debating its reauthorization. We develop the first causally interpretable evaluation of this law, exploiting the fact that the European Union has comparable fisheries but only recently developed similar laws. Compiling the largest dataset to date on US and EU fishery status and management, we examine fish populations that decline to unhealthy levels and measure the effect of a policy that aims to rebuild them to health. We find that treated stocks increase by 50% relative to these counterfactuals. Though the policy constrains catch, we find both catch and revenue ultimately rebound and stabilize at or above baseline levels.

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by Christian Leuz, Pietro Bonetti, Giovanna Michelon

The rise of shale gas and tight oil development has triggered a major debate about hydraulic fracturing (HF). In an effort to bring light to HF practices and their potential risks to water quality, many U.S. states have mandated disclosure for HF wells and the fluids used. We employ this setting to study whether targeting corporate activities that have dispersed externalities with transparency reduces their environmental impact. Examining salt concentrations that are considered signatures for HF impact, we find significant and lasting improvements in surface water quality between 9-14% after the mandates. Most of the improvement comes from the intensive margin. We document that operators pollute less per unit of production, cause fewer spills of HF fluids and wastewater and use fewer hazardous chemicals. Turning to how transparency regulation works, we show that it increases public pressure and enables social movements, which facilitates internalization.

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by Seonmin Will Heo, Koichiro Ito, Rao Kotamarthi

We study the international spillover effects of air pollution by developing a framework that integrates recent advances in atmospheric science into econometric estimation with microdata on mortality and health. Combining transboundary particle trajectory data with the universe of individual-level mortality and emergency room visit data in South Korea, we find that transboundary air pollution from China significantly increases mortality and morbidity in South Korea. Using these estimates, we show that a recent Chinese environmental policy “war on pollution” generated a substantial international spillover benefit. Finally, we examine China’s strategic pollution reductions and provide their implications for the potential Coasian bargaining.

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