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Industrial Productivity in a Hotter World: The Aggregate Implications of Heterogeneous Firm Investment in Air Conditioning

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Listed:
  • Joshua Graff Zivin
  • Matthew E. Kahn

Abstract

How will a nation’s aggregate urban productivity be affected by climate change? The joint distribution of climate conditions and economic activity across a nation’s cities will together determine industrial average exposure to climate risk. Air conditioning (AC) can greatly reduce this heat exposure. We develop a simple model of air conditioning adoption by heterogeneous firms within an industry. Our analysis suggests that high productivity firms are more likely to adopt AC since they suffer larger productivity losses when it is hot. Given that the most productive firms produce a disproportionate share of industry-level output, we present aggregation results highlighting how the industry’s output is insulated from the heat. Our empirical analysis of the impacts of heat on total factor productivity in U.S manufacturing yields findings broadly consistent with our model’s predictions.

Suggested Citation

  • Joshua Graff Zivin & Matthew E. Kahn, 2016. "Industrial Productivity in a Hotter World: The Aggregate Implications of Heterogeneous Firm Investment in Air Conditioning," NBER Working Papers 22962, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:22962
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    References listed on IDEAS

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    5. Maximilian Auffhammer & Anin Aroonruengsawat, 2011. "Simulating the impacts of climate change, prices and population on California’s residential electricity consumption," Climatic Change, Springer, vol. 109(1), pages 191-210, December.
    6. Alan Barreca & Karen Clay & Olivier Deschenes & Michael Greenstone & Joseph S. Shapiro, 2016. "Adapting to Climate Change: The Remarkable Decline in the US Temperature-Mortality Relationship over the Twentieth Century," Journal of Political Economy, University of Chicago Press, vol. 124(1), pages 105-159.
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    11. Tatyana Deryugina & Solomon M. Hsiang, 2014. "Does the Environment Still Matter? Daily Temperature and Income in the United States," NBER Working Papers 20750, National Bureau of Economic Research, Inc.
    12. Kahn, Matthew E. & Mansur, Erin T., 2013. "Do local energy prices and regulation affect the geographic concentration of employment?," Journal of Public Economics, Elsevier, vol. 101(C), pages 105-114.
    13. Melissa Dell & Benjamin F. Jones & Benjamin A. Olken, 2014. "What Do We Learn from the Weather? The New Climate-Economy Literature," Journal of Economic Literature, American Economic Association, vol. 52(3), pages 740-798, September.
    14. Maximilian Auffhammer, 2014. "Cooling China: The Weather Dependence of Air Conditioner Adoption," Frontiers of Economics in China, Higher Education Press, vol. 9(1), pages 70-84, March.
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    17. Achyuta Adhvaryu & Namrata Kala & Anant Nyshadham, 2018. "The Light and the Heat: Productivity Co-benefits of Energy-saving Technology," NBER Working Papers 24314, National Bureau of Economic Research, Inc.
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    Citations

    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Some Comments on Nordhaus (2016)
      by Matthew Kahn in Environmental and Urban Economics on 2017-01-31 20:51:00
    2. Some Robot Economics
      by Matthew Kahn in Environmental and Urban Economics on 2017-03-29 01:45:00
    3. My Upcoming David S. Saurman Provocative Lecture at SJSU
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-07 19:00:00
    4. Should Hollywood Make More Movies About Climate Change?
      by Matthew Kahn in Environmental and Urban Economics on 2017-04-29 09:01:00
    5. Summer School 2017 in Paris
      by Matthew Kahn in Environmental and Urban Economics on 2017-06-21 19:18:00
    6. Climate Change Impacts: More Popular Press Doom and Gloom
      by Matthew Kahn in Environmental and Urban Economics on 2017-07-10 20:54:00

    More about this item

    JEL classification:

    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • L6 - Industrial Organization - - Industry Studies: Manufacturing
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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