Publications by Year: 2014

Houde, Sebastien, and Joseph E Aldy. “Belt and Suspenders and More: The Incremental Impact of Energy Efficiency Subsidies in the Presence of Existing Policy Instruments.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

The effectiveness of investment subsidies depends on the existing array of regulatory and information mandates, especially in the energy efficiency space. Some consumers respond to information disclosure by purchasing energy-efficient durables (and thus may increase the inframarginal take-up of a subsequent subsidy), while other consumers may locate at the lower bound of a minimum efficiency standard (and a given subsidy may be insufficient to change their investment toward a more energy-efficient option). We investigate the incremental impact of energy efficiency rebates in the context of regulatory and information mandates by evaluating the State Energy Efficient Appliance Rebate Program (SEEARP) implemented through the 2009 American Recovery and Reinvestment Act. The design of the program – Federal funds allocated to states on a per capita basis with significant discretion in state program design and implementation – facilitates our empirical analysis. Using transaction-level data on appliance sales, we show that most program participants were inframarginal due to important short-term intertemporal substitutions where consumers delayed their purchases by a few weeks. We find evidence that some consumers accelerated the replacement of their old appliances by a few years, but overall the impact of the program on ong-term energy demand is likely to be very small. Our estimated measures of cost-effectiveness are an order of magnitude higher than estimated for other energy efficiency programs in the literature. We also show that designing subsidies that reflect, in part, underlying attribute-based regulatory mandates can result in perverse effects, such as upgrading to larger, less energy-efficient models.

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Frankel, Jeffrey. “National Security and Domestic Oil Depletion.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

American politicians often take it for granted that national security would be enhanced by accelerating domestic oil production, through policies such as subsidies, tax advantages, opening up federal lands for drilling at artificially low charges, and relaxing environmental regulation. This note argues that such policies actually hurt national security in the long term, by depleting domestic reserves. It proposes saving some of the deposits located offshore and under shale beds for a future emergency, by withholding federal permits for now, by reversing current artificial subsidies to production, and by a tax to encourage conservation.

Aldy, Joseph E. “The Labor Market Impacts of the 2010 Deepwater Horizon Oil Spill and Offshore Oil Drilling Moratorium.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

In 2010, the Gulf Coast experienced the largest oil spill, the greatest mobilization of spill response resources, and the first Gulf-wide deepwater drilling moratorium in U.S. history. Taking advantage of the unexpected nature of the spill and drilling moratorium, I estimate the net effects of these events on Gulf Coast employment and wages. Despite predictions of major job losses in Louisiana – resulting from the spill and the drilling moratorium – I find that Louisiana coastal parishes, and oil-intensive parishes in particular, experienced a net increase in employment and wages. In contrast, Gulf Coast Florida counties, especially those south of the Panhandle, experienced a decline in employment. Analysis of accommodation industry employment and wage, business establishment count, sales tax, and commercial air arrival data likewise show positive economic activity impacts in the oil-intensive coastal parishes of Louisiana and reduced economic activity along the Non-Panhandle Florida Gulf Coast.

Glaeser, Edward L. “The Supply of Environmentalism.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

Long before economics turned to psychology, environmentalists were nudging and framing and pushing their cause like highly gifted amateur psychologists. Their interventions seem to have changed behavior by altering beliefs, norms and preferences, but because psychological interventions are often coarse, inadvertent, offsetting side effects occur. After discussing the interplay between environmental preference-making and economics, I turn to three areas where strong, simple views have spread—electric cars, recycling and local conservation efforts. In all three areas, environmental rules of thumb can lead to significant, adverse environmental side effects. Local environmentalism, for example, may increase carbon emissions by pushing development from low emission areas, like coastal California, to high emissions areas elsewhere. I end by discussing how economic analysis of the political market for ideas can make sense of the remarkable disparity of views on global warming.

Martin, Ian WR, and Robert S Pindyck. “Averting Catastrophes: The Strange Economics of Scylla and Charybdis.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

How should we evaluate public policies or projects to avert, or reduce the likeli- hood of, a catastrophic event? Examples might include inspection and surveillance programs to avert nuclear terrorism, investments in vaccine technologies to help respond to a {\textbackslash}mega- virus," or the construction of levees to avert major ooding. A policy to avert a particular catastrophe considered in isolation might be evaluated in a cost-benet framework. But be- cause society faces multiple potential catastrophes, simple cost-benet analysis breaks down: Even if the benet of averting each one exceeds the cost, we should not necessarily avert all of them. We explore the policy interdependence of catastrophic events, and show that con- sidering these events in isolation can lead to policies that are far from optimal. We develop a rule for determining which events should be averted and which should not.

Covert, Thomas R. “Experiential and Social Learning in Firms: The Case of Hydraulic Fracturing in the Bakken Shale.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

Learning how to utilize new technologies is a key step in innovation, yet little is known about how firms actually learn. This paper examines firms' learning behavior using data on their operational choices, profits, and information sets. I study companies using hydraulic fracturing in North Dakota's Bakken Shale formation, where firms must learn the relationship between fracking input use and oil production. Using a new dataset that covers every well since the introduction of fracking to this forma- tion, I find that firms made more profitable input choices over time, but did so slowly and incompletely, only capturing 67% of possible profits from fracking at the end of 2011. To understand what factors may have limited learning, I estimate a model of fracking input use in the presence of technology un- certainty. Firms are more likely to make fracking input choices with higher expected profits and lower standard deviation of profits, consistent with passive learning but not active experimentation. Most firms over-weight their own information relative to observable information generated by others. These results suggest the existence of economically important frictions in the learning process.

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Heal, Geoffrey M, and Jisung Park. “Feeling the Heat: Temperature, Physiology & the Wealth of Nations.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

Does temperature affect economic performance? Has temperature always affected social welfare through its impact on physical and cognitive function? While many studies have explored the indirect links between climate and welfare (e.g. agricultural yield, violent conflict, or sea-level rise), few address the possibility of direct impacts operating through human physiology. This paper presents a model of labor supply under thermal stress, building on a longstanding physiological literature linking thermal stress to health and task performance. A key prediction is that effective labor supply – defined as a composite of labor hours, task performance, and effort – is decreasing in temperature deviations from the biological optimum. We use country-level panel data on population-weighted average temperature and income (1950-2005), to illustrate the potential magnitude of the effect. Using a fixed effects estimation strategy, we find that hotter-than-average years are associated with lower output per capita for already hot countries and higher output per capita for cold countries: approximately 3%-4% in both directions. We then use household data on air conditioning and heating expenditures from the {US} to provide further evidence in support of a physiologically based causal mechanism. This more direct causal link between climate and social welfare has important implications for both the economics of climate change and comparative development.

Aldy, Joseph E, and Seamus J Smyth. “Heterogeneity in the Value of Life.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

We develop a numerical life-cycle model with choice over consumption and leisure, stochastic mortalityand labor income processes, and calibrated to U.S. data to characterize willingness to pay ({WTP})for mortality risk reduction. Our theoretical framework can explain many empirical findings in thisliterature, including an inverted-U life-cycle {WTP} and an order of magnitude difference in prime-aged adults {WTP}. By endogenizing leisure and employing multiple income measures, we reconcilethe literature's large variation in estimated income elasticities. By accounting for gender- and race-specific stochastic mortality and income processes, we explain the literature's black-white and female-male differences.

Allcott, Hunt, and Richard Sweeney. “Information Disclosure through Agents: Evidence from a Field Experiment.” Cambridge, Massachusetts, {USA}: Harvard Environmental Economics Program, 2014.Abstract

With a large nationwide retailer, we run a natural field experiment to measure the effects of energy use information disclosure, rebates, and sales agent incentives on demand for energy efficient durable goods. Sales incentives and rebates are complementary, but information and sales incentives alone have statistically and economically insignificant effects. Sales agents comply only partially with the experiment, targeting information at the most interested consumers but not discussing energy efficiency with the disinterested majority. In follow-up surveys, most consumers are aware of the energy efficient model and may even overestimate its benefits, suggesting that imperfect information is not a major barrier to adoption in this context.

dp52_allcott-sweeney.pdf dp52_allcott-sweeney_two-page-summary.pdf