Stiglitz Versus Cochrane: What Are the Non-Market Quality of Life Impacts of Climate Change?

 John Cochrane recently posted an important blog post sketching out his claim that climate change will only have a small impact on world GNP over the next 75 years.   He argues that the trend growth (3% growth for 60 years will swamp the effect of climate change).  As I discuss in my 2010 Climatopolis book, Singapore in recent decades has been highly productive despite the nation’s heat and humidity.  This one data point offers a “Paul Romer blueprint” for how to adapt through indoor activity and shifting outdoor time allocation to nights and early mornings.

But, do not forget the Sen and Stiglitz report on expanding GNP accounts to reflect non-market factors.They argue that GNP is an incomplete measuring rod of a society’s progress.

My teacher Sherwin Rosen developed his compensating differentials approach to build on the Tobin and Nordhaus Is Growth Obsolete?  See Table 2

Since Tobin, Stiglitz, Nordhaus and Cochrane are all great macroeconomists, they abstract away from the spatial variation in how climate change shifts the attributes bundled into locations.  They ignore the spatial hedonic equilibrium and how climate change shifts this equilibrium. Intuitively, if Matt loves to walk on snowy mountains and if climate change raises all winter temperatures above 32 F then no more snow and matt cries.  What is his next best alternative?  He has lost non-market services that Mother Nature used to supply. If an indoor mall walk is a close substitute , then Matt loses little.   Spatially tied real estate prices will capitalize these amenity changes but in an economy featuring diverse consumers, these price changes will not capture the full distribution of lost consumer surplus.  Those who only love walking on snowing mountains and enjoy nothing else are “inframarginal” and they will have more trouble adapting to the change in lost snow.  GNP accounts do not capture the “paradise lost” for such individuals.  In contrast, GNP could rise if more snow walkers substitute and go to the mall and buy Starbucks coffee!!

This simple Becker example of Leisure production that uses one’s time and local weather conditions are a complement is the key logic of my Climatopolis book and my Adapting to Climate Change book.  On his own terms, John Cochrane is right but he abstracts away from the key issue of non-market local public goods (beautiful weather near Stanford) and global public goods (a calm weather system)  and how heterogeneous individuals value them.   Sherwin Rosen’s work needs to make a comeback here.

Some readings;

2008 Urban Growth and Climate Change

2010 Climatopolis

2021 Adapting to Climate Change