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Climate Economics

Paper Session

Sunday, Jan. 5, 2020 8:00 AM - 10:00 AM (PST)

Marriott Marquis, Torrey Pines 1
Hosted By: American Economic Association
  • Chair: J. Scott Holladay, University of Tennessee

Climate Change and Adaptation in Global Supply-Chain Networks

Christoph Maximilian Schiller
,
Arizona State University
Nora Pankratz
,
University of California, Los Angeles

Abstract

This paper examines how firms adapt to climate-change risks resulting from their supply-chain networks. Combining a large sample of global supplier-customer relationships with granular data on local temperatures and flooding incidents, we first document that the occurrence of climate shocks at affected supplier firms has both a large direct and indirect negative effect on earnings and revenues of suppliers and their customers. Second, we show that customers are 10% to 20% more likely to terminate existing supplier-relationships when realized climate shocks at the supplier firms exceed ex-ante expected climate shocks. Further, customers subsequently switch to suppliers with lower heatwave and flooding exposure. Our results indicate that climate change affects the formation of global production networks.

Local Economic Impact of Natural Disasters

Brigitte Roth Tran
,
Federal Reserve Board
Daniel J. Wilson
,
Federal Reserve Bank of San Francisco

Abstract

We examine the dynamic impact of natural disasters on local economies using county-level data over the last three decades. In contrast to existing research, we consider a wide range of outcomes (including employment, income, population, and housing) using a common empirical framework. We also estimate the role of government transfers in mediating the local economic effects of disasters.

Using the local projection method, we find the impulse response of economic activity to disasters can be roughly characterized by three phases, starting with initial disruptions that are followed by a recovery period of heightened activity and then transitioning back toward pre-disaster baseline activity. The amplitude and duration of these phases generally increase with the severity of the disaster, as measured by monetary damages. Responses also are heterogeneous by disaster type; for example, they are large for hurricanes and much more muted for floods. Sector-level analyses indicate that while the responses described above are particularly pronounced for construction, they apply to a wide range of sectors.

These estimated impulse responses reflect both the direct impact of disasters on economic activity as well as multiplier/spillover effects from government disaster aid and other transfers. Consistent with prior research, we find that, following disasters, local areas see a temporary increase in federal government transfers not just through disaster aid programs but also through programs like unemployment insurance and income maintenance.

We then estimate the role of government aid, broadly defined, in mediating the impact of disasters on local economies. For instance, we estimate that without government aid, employment after a disaster would be disrupted much more initially and would take far longer to recover to its pre-disaster baseline. Our results imply that reductions in disaster recovery aid could have long-term negative local consequences.

Supply Chain Networks and Green Innovations: An Empirical Investigation

Eugenie Dugoua
,
London School of Economics
Marion Dumas
,
London School of Economics

Abstract

The transition to a low-carbon economy requires both process innovations (e.g., abatement technologies or energy sources) and product innovations (e.g., electric cars or passive houses). We focus on the latter and empirically investigate the relationship between the supply chain structure and the ability of firms to innovate. Vertically integrated firms are much rarer than a few decades ago. In the 1990s, firms outsourced manufacturing of many components to refocus on core competencies, lower labor costs and gain economies of scale. A key implication is that product design now occurs within complex supply-chain networks. Ambitious innovations typically require changing several components of a product, and, to do so, several firms in the supply-chain must engage in risky joint-investments. Furthermore, outsourcing has contributed to the rise of ``mega-suppliers'' that supply many of the final competing producers --- if not most. Examples in the car manufacturing sector include companies such as Denso or Bosch. In this paper, we document how firms’ innovation ambition varies with the nature of their supply-chain. For example, we investigate whether mega-suppliers can act as `bottle-necks’ reducing the level of ambition in product changes. To do this, we merge two different datasets: patent application data from the USPTO and firm-level data that covers relationships such as supplier-buyer and R&D collaborations for a large number of public and private firms between 2003 and 2017. From the patent data, we construct a measure of technological distance between different firms and document whether such distance evolves over time or as supply-chain relationships break or appear. We focus our empirical analysis on the case of the automotive industry and drive conclusions regarding supply-chain related barriers to shifting away from combustion-engine cars towards radically new designs such as electric cars.

The Elusive Banker. Using Hurricanes to Uncover (Non-) Activity in Offshore Financial Centers

Jakob Miethe
,
LMU Munich

Abstract

A number of small islands in the Caribbean and the Pacific are accumulating billions of dollars in international capital. Are these positions attracted by specialized human capital and innovative financial services, as such Offshore Financial Centers (OFCs) claim? Or are they the result of regulatory arbitrage as some economists assume, who point to financial stability and effective taxation concerns? Based on several novel data sources, this study exploits the natural experiment of re-occurring hurricanes to test for reactions in financial service activity of OFCs. I find that hurricanes lead to strong local impacts as measured in geospatial satellite data on nightlight intensity which decreases by 30-50% for at least 6 months. This effect is visible for all island economies in the sample. However, in OFCs neither the interbank market nor international investors react, while non-OFC islands do show strong negative reactions. Only local company incorporations decline in OFCs after hurricanes hit and I show that this activity can be linked to financial hubs such as London. These results suggests that the high-powered financial service activities leading to the large international capital positions of OFCs take place elsewhere and that OFCs do not create value by providing human capital or financial services locally.

Tipping Points in the Climate System and the Economics of Climate Change

Simon Dietz
,
London School of Economics
James Rising
,
London School of Economics
Thomas Stoerk
,
European Commission
Gernot Wagner
,
New York University

Abstract

Tipping points in the climate system are a key determinant of future impacts from climate change. Current consensus estimates for the economic impact of greenhouse gas emissions, however, do not yet incorporate tipping points. The last decade has, at the same time, seen publication of over 50 individual research papers on how tipping points affect the economic impacts of climate change. These papers have typically incorporated an individual tipping point into an integrated climate-economy assessment model (IAM) such as Bill Nordhaus's DICE model to study how the the tipping point affects the social cost of carbon dioxide (SC-CO2). This literature, has, however, not yet been synthesized to study the joint effect of the large number of tipping points on the SC-CO2. SC-CO2 estimates currently used in climate policy are therefore too low, and they fail to reflect the latest research. Our paper brings together this large and active literature and proposes a way to jointly estimate the impact of tipping points. In doing so, we bridge an important gap between climate science and climate economics, and hope to bring climate policy onto more solid foundations.

Unemployment, Labor Mobility, and Climate Policy

Kenneth Castellanos
,
Georgia State University
Garth Heutel
,
Georgia State University

Abstract

We develop a computable general equilibrium model of the United States economy to study the unemployment effects of climate policy and the importance of cross-sectoral labor mobility. We consider two alternate extreme assumptions about labor mobility: either perfect mobility, as is assumed in much previous work, or perfect immobility. The effect of a $35 per ton carbon tax on aggregate unemployment is small and almost identical across the two labor mobility assumptions (0.11–0.12 percentage points). The effect on unemployment in fossil fuel sectors is much larger under the immobility assumption – a 50 percentage-point increase in the coal sector – suggesting that models omitting labor mobility frictions may greatly under-predict sectoral unemployment effects. Returning carbon tax revenue through labor tax cuts reduces the negative impacts on unemployment, while command-and-control policies yield larger unemployment effects.
JEL Classifications
  • Q5 - Environmental Economics