This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2021
  4. Preliminary Program
  5. Economy Wide Effects of the Environment
« Back to Results

Economy Wide Effects of the Environment

Paper Session

Sunday, Jan. 3, 2021 12:15 PM - 2:15 PM (EST)

Hosted By: Association of Environmental and Resource Economists
  • Chair: Lint Barrage, University of California-Santa Barbara

Sorting for Life: Housing Market Estimates for Seniors’ VSL

Sophie Mathes
,
Arizona State University
Kelly Bishop
,
Adams State University
Alvin Murphy
,
Arizona State University
Nicolai V. Kuminoff
,
Arizona State University

Abstract

Longevity varies across the US (Chetty et al., 2016) and some of this variation is believed to be caused by features of local environmental quality that affect seniors’ health (Finkelstein et al., 2018). This means that seniors can purchase statistical life extension by moving to places that offer health-enhancing amenities such as mild climates, clean air, low crime, and good health care. Our study uses revealed preference methods to translate these decisions into measures for the value of statistical life (VSL) among Americans ages 65 to 100.
We extend the spatial model of Roback (1982) of compensating differentials to incorporate health and longevity. First, we adapt methods from Finkelstein et al. (2018) to estimate how residential locations affect mortality at different ages (65-69, 70-74,..., 90+). Then we use hedonic methods to estimate the housing market ”price” of life extension, which we convert to VSL. The main identification challenge is that amenities may simultaneously affect the quantity and quality of life. Failing to distinguish these effects can bias VSL estimates upward. However, controlling for amenities can bias VSL estimates downward. We acknowledge these biases and estimate bounds. Our bounds for 65-69 year-olds ($4.1 to $8.4 million) include conventional VSL measures used by the EPA and academic literature. However, our upper bounds at older ages are less than half of conventional measures; e.g. $0.7 to $1.5 million for ages 85-89. Thus, these bounds are informative.
The VSL for seniors is perhaps the most impactful and least understood statistic for evaluating environmental regulations. Seniors comprise about 80 percent of deaths avoided by the Clean Air Act (EPA, 1999) but these mortality reductions are typically monetized using wage-hedonic evidence on workers who are decades younger and healthier. Our study advances knowledge by providing the first housing market evidence on seniors’ VSL.

Sweating the Energy Bill: Extreme Weather, Poor Households, and the Energy Spending Gap

Jacqueline Doremus
,
California Polytechnic State University
Sarah Johnston
,
University of Wisconsin-Madison
Irene Jacqz
,
Harvard University and Iowa State University

Abstract

We find energy spending disparities that indicate extreme weather causes hardship for low-income households. Using the 2004-2018 U.S. Consumer Expenditure Survey, we estimate the relationship between temperature and energy spending separately for low-income and all other households. Both groups respond similarly - in percentage terms - to moderate temperatures, but low-income households’ energy spending is half as responsive to extreme temperatures. We find similar disparities in the food spending response to extreme temperature, consistent with a credit constraints mechanism. These results suggest adaptation to extreme weather, such as air conditioning use, is prohibitively costly for low-income households.

Using Micro Estimates to Quantify the Macro Impact of Climate Change in General Equilibrium

Gregory Casey
,
Williams College
Stephie Fried
,
Arizona State University

Abstract

In this paper, we develop a dynamic, general-equilibrium model of structural transformation to quantify the aggregate impacts of climate change. The model draws from a long literature dedicated to understanding how changes in income per capita and sector-level productivity affect the composition of the economy, making it well-suited to capture the general-equilibrium consequences of climate change. We discipline the climate-damage parameters using the sector- and input-specific damage estimates from the micro literature. In preliminary results, we compare the findings of our model to a micro literature that computes aggregate damages with a simple weighted-sum of sector-level, partial-equilibrium estimates. Our findings highlight two general-equilibrium forces that increase the impact of climate change relative to the aggregated micro estimates. First, climate damages increase the price of output from vulnerable sectors, like agriculture. Since output from the different sectors is not easily substituted, the share of GDP in vulnerable sectors increases as a result of climate damages. Second, the micro-literature finds that climate change directly affects the investment goods sectors, particularly construction, implying that damages today affect output in the future by reducing available capital. As a result, we find that the macro damages are many times larger than a simple aggregation of the micro-level damage estimates would suggest.

Labor Market Frictions and Adaption to Climate Change

A. Patrick Behrer
,
Stanford University
Nora M.C. Pankratz
,
University of California-Los Angeles
R. Jisung Park
,
University of California-Los Angeles

Abstract

We examine the potential for adaptation to environmental shocks in labor market settings. Using confidential claims data from the California worker’s compensation system and high-frequency weather data (2000-2018), we explore the relationship between heat and workplace safety, as well as the role of adaptation investments in mitigating this relationship. We find that hotter temperature increases workplace injury risk substantially, with days above 90 degree F leading to 6 to 9% more injury claims relative to a day in the 50s. Consistent with a model in which adaptation is technically feasible but costly, we find evidence for elevated accident risk in both indoor (manufacturing, warehousing) and outdoor (construction, agriculture) industries and for types of injuries that are ostensibly unrelated to direct heat exposure (e.g. falling from heights, mishandling heavy equipment), as well as evidence of larger impacts in more concentrated labor markets. Exploiting variation in what is to our knowledge the first state-level heat safety mandate, we provide suggestive evidence that firms and workers may not operate at the Pareto adaptation frontier in private equilibrium. We find wage and employment impacts consistent with the policy’s benefits having been valued by workers at more than their costs to firms, suggesting important labor market frictions. We estimate that current official statistics may understate heat-related injury burdens by a factor of four.
Discussant(s)
Joe Aldy
,
Harvard University
Teevrat Garg
,
University of California-San Diego
Lint Barrage
,
University of California-Santa Barbara
Alexandra Hill
,
Colorado State University
JEL Classifications
  • Q5 - Environmental Economics