Climate Impacts and the Macroeconomy
Paper Session
Saturday, Jan. 3, 2026 2:30 PM - 4:30 PM (EST)
- Chair: Jacob Moscona, Massachusetts Institute of Technology
Savings and Migration in a Warming World
Abstract
This paper introduces a global model of climate change where agents can adapt through precautionary savings and migration. Analytical results show how the extent to which migration will serve as adaptation, and in turn alter the global population distribution, will be determined by mobility costs. The model illustrates how the speed and extent of global population relocation under a warmer world (i) declines non-linearly with the cost of migration, (ii) may be precluded entirely for the hardest-hit agents, and (iii) that the time horizon for adjustment depends heavily on the extent to which forthcoming productivity changes due to climate change are anticipated. The calibrated model predicts that 6 percent of the global population will migrate internationally because of climate change by the end of the 21st century. The use of migration as adaptation is income-dependent; while wealthy agents are able to pay international migration costs in order to take advantage of locations forecast to gain under climate change, poor and low wealth agents are unable to afford the costs of moving and can only insure against future income declines through savings. Welfare effects from climate change are highly unequal; warming under RCP4.5 raises the wealthiest agents' welfare by 4.0 percent, while the poorest agents in low-income countries experience losses of 8.5 percent.Climate Change and Market Power
Abstract
Rising temperatures and increasingly frequent heatwaves are among the most prominent and well-documented manifestations of climate change. While recent studies show that extreme heat reduces firm productivity, the implications on market power remain largely unexplored, which represents an important research gap as shifts in market power can carry substantial welfare implications. Our study aims to fill this gap by examining the impact of temperature extremes on market power and the resulting welfare implications. Our empirical analysis draws on detailed firm-level balance sheet and geo-location data from ORBIS, combined with high-resolution weather information, covering 12 European countries from 2000 to 2020. We begin by analyzing how temperature extremes affect firm market shares and market concentration. The results provide strong and robust evidence that extreme heat increases local market concentration by shifting market share from smaller to larger firms. In addition, extreme heat reduces firm productivity while increasing the average markup. The effects are heterogeneous across firms: productivity losses are concentrated among small firms, whereas increases in markups are observed among large firms. To quantify the impact on welfare, we develop a stylized heterogeneous firm model à la Melitz (2003), which explicitly incorporates the heterogeneous effects of climate shocks on firm productivity across different firm sizes. To capture how these heterogeneous impacts lead to market share reallocation and changes in firm markups, we adopt a variable elasticity of substitution (VES) framework which allows for endogenous markup following Atkeson and Burstein (2008). The quantification exercise shows that the climate change productivity shock we observed from 2000 to 2020 leads to a welfare loss equivalent to 0.124 percent of manufacturing sector GDP in Europe, with substantial variation across countries. More importantly, if we ignore the role of reallocation and variable demand elasticity, we can misstate the welfare cost of climate change.Extreme Heat and Directed Innovation
Abstract
Can directed innovation mitigate climate damages? I provide systematic evidence outside agriculture that firms adapt to extreme heat through directed technological change. Linking firm-level production data to patent records for nine EU countries (2000--2020), I establish three results. First, extreme heat acts as a labor-biased productivity shock: labor-intensive firms experience larger losses and lose market share to capital-intensive rivals. Second, firms shift toward capital and redirect innovation toward labor-saving technologies, especially in heat-exposed, labor-intensive industries. Third, this endogenous innovation response is economically significant—labor-saving patents filed in response to heat offset 26 percent of aggregate productivity losses over the period. Overall, the results show that innovation is not merely a driver of growth but also an active margin of climate adaptation.Discussant(s)
Sampreet Goraya
,
Stockholm School of Economics
Mauricio Barbosa-Alves
,
University of Kentucky
Juanma Castro-Vincenzi
,
University of Chicago
Jacob Moscona
,
Massachusetts Institute of Technology
JEL Classifications
- Q5 - Environmental Economics
- F2 - International Factor Movements and International Business