Adrien Bilal, Harvard University

"Anticipating Climate Change Across the United States"

Abstract

We study the role of anticipation and adaptation in determining the aggregate and local cost of climate change. We develop a dynamic spatial model of the U.S. economy divided into over 3,000 counties that features costly forward-looking migration and capital investment decisions. Climate change affects capital depreciation and productivity. Recent methodological advances that leverage analytic perturbations of the ‘Master Equation’ representation of the economy make the model tractable. We estimate event studies that trace out the local impact of floods, storms, and heat waves over the 20th century on productivity and capital depreciation. We estimate structural damage functions by matching these reduced-form results. Our findings show, first, that climate impacts on capital depreciation are a substantial source of climate damages. They magnify the U.S. aggregate welfare costs of climate change twofold to nearly 3% for workers and 8% for capitalists in the business-as-usual warming scenario. Second, anticipation of future climate damages has small aggregate effects but reduces climate-induced worker mobility as workers foresee the persistence in the location of capital investments. Third, migration reduces substantially the variance in the welfare impact of climate change across counties but affects aggregate welfare damages only marginally since the location of climate damages is uncorrelated with current local development.

Joint with Esteban Rossi-Hansberg

Contact person: John Vincent Kramer