Wednesday, February 11, 2015

Does the Environment Still Matter? Daily Temperature and Income in the United States
It is widely hypothesized that incomes in wealthy countries are insulated from environmental conditions because individuals have the resources needed to adapt to their environment. We test this idea in the wealthiest economy in human history. Using within-county variation in weather, we estimate the effect of daily temperature on annual income in United States counties over a 40-year period. We find that this single environmental parameter continues to play a large role in overall economic performance: productivity of individual days declines roughly 1.7% for each 1°C (1.8°F) increase in daily average temperature above 15°C (59°F). A weekday above 30°C (86°F) costs an average county $20 per person. Hot weekends have little effect. These estimates are net of many forms of adaptation, such as factor reallocation, defensive investments, transfers, and price changes. Because the effect of temperature has not changed since 1969, we infer that recent uptake or innovation in adaptation measures have been limited. The non-linearity of the effect on different components of income suggest that temperature matters because it reduces the productivity of the economy's basic elements, such as workers and crops. If counties could choose daily temperatures to maximize output, rather than accepting their geographically- determined endowment, we estimate that annual income growth would rise by 1.7 percentage points. Applying our estimates to a distribution of "business as usual" climate change projections indicates that warmer daily temperatures will lower annual growth by 0.06-0.16 percentage points in the United States unless populations engage in new forms of adaptation. 

by Tatyana Deryugina, Solomon M. Hsiang
National Bureau of Economic Research (NBER)
NBER Working Paper No. 20750; Issued in December 2014

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