Climatopolis: Response to a review

Matthew Kahn, guest blogger and author of the new book Climatopolis, responds to reviewer Ed Glaeser.

Like the mailman, Ed Glaeser always delivers. In this review of my new book, he quickly reveals his "conflict of interest" (we were classmates, we are friends and co-authors) and then gets to work presenting the core thesis of my book and then offering some constructive criticism.

He emphasizes three reasonable points that I do discuss in the book but which merit further discussion ;

1. What if climate change is abrupt versus gradual?

2. open borders between nations would enhance our collective ability to adapt to climate change

3. LDC nations will face the greatest impacts.

He is right that I hint at #2 without ever openly advocating for it. I do a good job on topic #3 and I discuss topic #1 briefly in the conclusion. In my talk at UCSB's Bren School, the Dean Steven Gaines emphasized a similar point.

Economists have long talked about the impact of "new news" on economic activity. Countless finance economists have conducted event studies where they examine how stock prices move as new news about a firm's profitability is released. This could be a court ruling or a discovery of a new drug.

What is the analogue for climate change? The Climate Change scientists continue to develop their models --- we can only be "blindsided" (i.e caught unaware of coming doom) if Mother Nature accelerates sea level rise beyond what the climate science models predict will happen and that this dynamic plays out extremely quickly in real time. Economists would call this a "discontinuity" because there would be a "jump" in climate outcomes over night.

As I discuss in my book, if we "know that we do not know" about this ambiguous risk then this begins to create the incentives for innovation to begin (floatable homes) to help protect us. Insurance companies have every incentive to price their policies in specific areas to reflect this ambiguous risk. The key is to "know that we do not know". Doom can only occur is we are arrogant and declare that "we do know" that a spatial area is safe when in fact Mother Nature is getting ready to punch hard. Be humble and you will thrive!

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