EERH Working Paper Statistics for October 2009

We saw an increase in both abstract views and downloads this month over last month. This is the first full month of participation in RePEc - data started being collected midway through September. Only a few papers were included in NEP reports this month (which tends to increase downloads). So these numbers might be representative of the expected performance of the series. We ranked 276th out of 2677 working paper series in October.

Rudd's Speech to the Lowy Institute

In his speech to the Lowy Institute on Friday the Prime Minister lashed out at climate change skeptics but lumped them together with those who agree on the natural science but disagree on the policy response to climate change:

"The opponents of action on climate change fall into one of three categories.
· First, the climate science deniers.
· Second, those that pay lip service to the science and the need to act on climate change but oppose every practicable mechanism being proposed to bring about that action.
· Third, those in each country that believe their country should wait for others to act first. "

The second of these is open to interpretation, but would it include people who oppose emissions trading schemes in general and favor other action? Rudd followed up with:

"The second group of do-nothing climate change skeptics are those who purport to accept the scientific consensus, but in the next breath are unwilling to support any of the practicable plans of action that would actually do something about climate change. This group plays lip service to the climate change science but when push comes to shove refuse to support climate change action. In Australia, these naysayers have successfully blocked the development of an emissions trading scheme for more than a decade."

and:

"The logic of these skeptics belongs in a casino, not a science lab, and not in the ranks of any responsible government. "

Of course, Spash is attacking the ETS from the viewpoint of heterodox not conservative economics and most of Rudd's attack was very specifically against conservatives.

Still More on Spash Case

This from the ABC includes more quotes from Clive.

The Australian Weighs in on the Spash Scandal with an Editorial

Here it is.

AARES 2010 Abstract

I just submitted an abstract for the AARES 2010 meeting in Adelaide. You have till Friday to submit... I also expect to be presenting at the Environmental Economics Research Hub Workshop that precedes it. Here is the abstract:

How Feasible are Developing Country Energy and Carbon Intensity Targets? An Econometric Analysis

Frank Jotzo, Resource Management in the Asia Pacific, Crawford School of Economics and Government, Australian National University
David Stern, Arndt-Corden Division of Economics, Crawford School of Economics and Government, Australian National University and Centre for Applied Macroeconomic Analysis

Abstract:
China has adopted a target of reducing the energy intensity of its economy by 20% in the period 2005-2010 and will likely adopt further targets for 2015 and 2020. At the UN Summit on Climate Change in New York in September 2009, President Hu Jintao announced that China would also adopt a carbon intensity target of so far unspecified level. Other developing economies might also adopt energy or carbon intensity targets as part of the post-Kyoto climate policy regime. Yet the energy intensity of the Chinese economy was essentially unchanged from 2000 to 2007 when a long period of declining energy intensity came to an end. How feasible are the proposed reductions in energy intensity and/or carbon intensity for China and other developing economies? In this paper, we use a production frontier model of energy intensity to decompose energy intensity in a number of major developing economies into input and output mix, climate, and scale effects, and a residual technology variable. A second stage model decomposes the technology residual into the energy efficiency of installed capacity and of new investment and measures the implicit cost of energy efficiency technology in each country. We then evaluate how feasible various targeted reductions below business as usual trajectories would be, assessing what they would imply in terms of changes in the pace of technology adoption or changes in the fuel mix towards lower carbon fuels, and comparing these required changes to historical performance.

CSIRO Doesn't Seem to Understand What Social Science is All About

ABC reporting on the Spash controversy. If the comments here accurately represent CSIRO's position then they don't have much of a grasp about what applied social science and certainly economics is all about. Some more information from Clive was also published in the Australian.

CSIRO Tries to Ban Paper Critical of Emissions Trading

Just got back last night from the ANZSEE conference in Darwin (yeah we went to Kakadu too) where I saw Clive Spash present the paper in question that CSIRO have tried to ban from publication. From the presentation the paper is just a long list of different criticisms of emission trading schemes, none of which were new to me and not all of which I really agreed with. Most cogent is the issue of how reliable so-called offsets are. Do these schemes to reduce carbon really result in people doing carbon sequestering or emission avoiding things they otherwise wouldn't have done and how sure can we be that carbon really is really being sequestered or avoided. Standard criticisms. I put it to Clive that any real world carbon tax would likely end up with a heap of exemptions and credits generated under a tax are not necessarily any more reliable. So is he suggesting we should just regulate or what. He said that all he is asking is that we should think more about these things when designing the scheme.

At the conference I commented that if he worked for the Treasury he would have been fired instead. But if it is true that: "under the agency's charter scientists were forbidden from commenting on matters of government or opposition policy" how can social scientists at CSIRO do any meaningful research in policy areas? Isn't policy evaluation part of what the agency should be doing? Apparently not.

ANU Economics Showcase

Here is my presentation for the ANU Economics Showcase - a two day event that presents the range of ANU research to potential students, members of the public service, other ANU economists, and the general public (i.e. anyone who wants to come along :)). The showcase is on 25th and 26th of November. I'm scheduled for 26th November in the session from 1:30-3:00pm.

Signals or Noise? What Does Meta-Analysis Tell Us About the Reliability of Individual Econometric Studies?

David I. Stern

Arndt-Corden Division of Economics
Environmental Economics Research Hub
Centre for Applied Macroeconomic Analysis

Econometric studies can appear to be well conducted by the usual standards of the economics profession but still not provide results that can be relied upon for theory or policy purposes. The technique of meta-analysis can combine the results of many individual studies to provide more reliable results. I illustrate these points using a meta-analysis of more than forty studies of inter-fuel elasticities of substitution – a measure of the difficulty of switching between different fuels and electricity in production. These studies show a very wide range of values for any given elasticity. This dispersion of values reduces as the sample size of the original studies increases. This shows that to get reliable results we either need a very large sample or conduct a meta-analysis of existing studies. The results also show that the type of data – time series, cross section, or panel data - and the type of regression model used have a very significant effect on the estimated elasticities. This shows that we also need to have a good understanding of econometric theory in order to select an appropriate estimator.

ANZSEE Presentation Slides

Here are the slides for my presentation at ANZSEE in Darwin on Wednesday. I only have 20 minutes to talk including questions so I'm going to have to cut something here. But thought I might as well put everything up for now. I'll be giving a longer version at the Fenner School at ANU on 12th November. Also coming up this month is a presentation at the ANU Economics Showcase 2009. I will be talking about the effect of sample size and estimator selection on what we think we know about economics - i.e how useful meta-analysis can be.

P.S. 11:45pm
I just cut a bunch of stuff out of my presentation for ANZSEE including all the early stuff about the EKC and put the shorter version up on the web.

Energy Intensity Again

There is a stronger relationship between energy intensity of GDP and GDP per capita when you plot both of them using ordinary exchange rates rather than purchasing power parity adjusted exchange rates:



I think that the relationship is mainly due to the tendency for currencies to overvalued relative to purchasing power parity in most wealthy countries and the reverse in poor countries rather than any real energy related behavior.

Levitt Hits Back

Steven Levitt hits back at his critics in this new post in the NY Times. The post is a bit revisionist I think as to what exactly is in the chapter in Superfreakonomics. The tone of that chapter is clearly that carbon taxes or cap and trade won't work (for unclear reasons) and, therefore, we need geoengineering. This post places geoengineering as a method for quickly cooling the Earth (which I agree could be a useful tool in our toolbox). And I found myself mostly being able to agree with what he wrote until we come to:

"But that is not the question that Al Gore and the climate scientists are trying to answer. The sorts of questions they tend to ask are “What is the ‘right’ amount of carbon to emit?” or “Is it moral for this generation to put carbon into the air when future generations will pay the price?” or “What are the responsibilities of humankind to the planet?”"

That may be true to some degree but the main question most of us are asking is "What is the best long-term solution to the global warming problem?" Geoengineering can only be a short term fix. It reduces the sunlight that plants need for growth and does nothing to address ocean acidification (I'm a bit skeptical that the latter is as bad as most people make out but it certainly isn't a good thing). But if the ice sheets melt too fast while we try to get carbon emissions down, geoengineering may well be an appropriate response...

World Values Map

I was visiting the World Values Survey website in the process of collecting more data for my EERH project.Thought I'd post this fascinating "map" from their homepage:



Not surprisingly, the English speaking countries (sorry Quebecois) are found grouped together. I found this was also the case for levels of sulfur abatement technology. Similarly the Germanic or Protestant countries occupy a common zone and Japan isn't far removed, ditto. Mediterranean Europe is also tightly grouped (with the exception of Portugal), ditto.

Israel isn't that different to Italy or Greece. That makes a lot of sense to me.

Quality of Economics Research Funded by the ARC

The ARC has carried out an evaluation of the citation impact of the publications derived from ARC funded research. The main finding (full report on ARC website) is that ARC funded publications receive more citations than other Australian publications and other global publications. That is good, but it is hard to have an intuitive sense I think of what the Australian or global averages are. So I looked at the data for economics to get a better idea. The ARC counted the number of publications and the number of citations received by them in the Web of Science from 2001-2005. This means that the average publication had two years in which to receive citations.

There were 202 ARC funded publications which received 320 citations in the period. This is, therefore, an impact factor of roughly of 0.79 (i.e. 0.79 citations received per year). There were 1311 other publications from the university sector receiving 1569 citations for an impact factor of 0.60.

Referring to ISI's "Journal Citation Reports" economics journals with a two year impact factor of 0.79 were ranked 93rd out of 209 economics journals. Kyklos has the closest score. Economic Development and Cultural Change, Review of Income and Wealth, Quantitative Finance, Cambridge Journal of Economics, and Journal of Economic Dynamics and Control are examples of other journals with close scores.

An impact factor of 0.60 resulted in a rank of 133rd out of 209. Canadian Journal of Agricultural Economics is closest. Journal of Economic Issues, Journal of Macroeconomics, Geneva Risk and Insurance Review are some of the journals in this neighborhood.

I think this gives a more intuitive understanding of the quality of average Australian and ARC funded research in economics.

Pedigree Bias in Economics

At least anecdotally I think it is true that economics has a pedigree bias. Good departments tend to hire people from a limited subset of top schools. This is just as true in Australia as in the U.S. There are very few ANU economists who don't have a PhD from either a reasonably decent or even top U.S. school, a top British university (few if any less senior people) or ANU itself. The bias in geography, environmental science etc. certainly seems to be much less. When I went to grad school I wasn't aware of such biases at all. If I'd followed the advice of my masters' adviser (Department of Geography, London School of Economics) I would have applied to a top U.S. economics department. But as my undergrad alma mater wouldn't have accepted someone with as low a GPA as me in economics to do a masters' degree even (my third year undergrad GPA in econ was 90% or so but the first two years were a lot lower; my geography GPA was more than 90% in each year) I didn't think I stood a chance of getting a funded place. So I headed to geography. Again if I had been more aware of "pedigree" I probably would have headed to Ohio State (which made me an offer I didn't take up at the masters' level) for my PhD and wouldn't have been exposed to ecological economics at Boston University.

Climate Sensitivity and Expected Temperature Increase

My response to C S Norman questions' about yesterday's post was getting so long I decided to turn it into a blog post.

The climate sensitivity is the expected temperature increase for the equivalent of a doubling of carbon dioxide in the atmosphere from the pre-industrial level of 280ppm to 560ppm. My understanding is that the confidence interval (the expected range about which we can be 90% or 95% confident say that the actual temperature increase will fall within that range) is still very wide and research hasn't managed to narrow it signficantly. Mean or mode expected changes in temperature have edged up in recent research as more historical data is examined and more feedbacks incorporated in modeling.

This situation explains a couple of things:

1. The attention given to Martin Weitzman's research which focuses on the potentially catastrophic impacts of the upper tail of the distribution of temperature changes. The deterministic cost benefit approach of Nordhaus and other economists who hated the Stern Review doesn't really address the correct problem at all. See also my post on who should win the Nobel Prize for environmental economics.*

2. The new emphasis on lower concentration targets like 350ppm and 450ppm of carbon dioxide equivalent rather than the formerly popular 550ppm. Even if the mean climate sensitivity was 3C there is a 50:50 chance that temperature would rise more than that likely resulting in the melting of at least the Greenland Ice Sheet among other impacts.

How can we relate climate sensitivities to expected temperature changes at any point in time? You can't just halve the climate sensitivity for a 50% increase in CO2, because:

1. Radiative forcing - the direct effect of carbon dioxide on the heat balance of the planet - is logarithmic in the increase in CO2. So a 50% increase in CO2 has more than half the effect of a doubling. A quadrupling has double the effect of a doubling etc.

2. Temperature changes very slowly in response to changes in radiative forcing. This is mainly due to the need to heat up the oceans which can store far far more heat than the atmosphere. In my model, the equilibrium climate sensitivity was 8C but, in an experiment that increases the CO2 concentration until doubling is reached, the temperature at the point of doubling had increased by less than 2C (this is known as the transient climate response). This is one of the factors that makes estimating the climate sensitivity from historical data very difficult.

Here is a chart from an IPCC report that illustrates this point:



For the doubling of CO2 scenario under a climate sensitivity of 3.5C, temperature had increased by 2C at the point of doubling. Even after 500 years the equilibrium increase hadn't been attained in the 3 layer GCM (global circulation model) simulation (red). The green curve is for a GCM with just a shallow ocean component and no transport of heat to the deep ocean.

This slow approach to equilibrium does have a positive implication - we can probably overshoot our desired long term concentration without too much damage if we can then bring concentrations back down again. For example, hitting 450 or 550ppm at 2050 and then bringing concentrations down to 350 or 450 by 2100. But this would probably require geoengineering of some sort.

* After Ostrom won the prize I wouldn't expect another one for environmental economics for a few years...

The Climate Sensitivity is Probably Really High

I'm not surprised by the trend for recent research to come up with higher values of the climate sensitivity - the change in temperature in the long-term for a doubling of atmospheric carbon dioxide. The piece I linked suggests that current levels of carbon dioxide are associated in the long-run with 25 to 50m higher sea levels, though we do need to be cautious in basing current predictions to paleodata for a world where the continents and oceans were configured slightly differently. My research found climate sensitivities in the range of 4-8C depending on model configuration. I gave up on publishing the second paper though in the climate literature and decided to focus on energy economics. It's hard to keep up to date in too many fields at once...

Freaking Out About Superfreakonomics

Around the blogosphere there seems to be quite a bit of freaking out about the about to be released book Superfreakonomics going on. Specifically, about Chapter 5 on climate change. Joshua Gans has a nice set of links to some of the comments and there is some response by Dubner here.

I'm not too surprised by this. I was never that impressed with Freakonomics. Reading through this chapter one of the problems is that they try to cram in way too many points without any or sufficient explanation. But mostly it is just a jumble of half-baked ideas the economics ones just as bad as the natural science ones. For example, the discussion of externalities and Pigovian taxes talks about compensating the victims with the revenue and rather a mixed up discussion conflating individual choices and the choices of countries... Maybe they could have done a better job on the latter with more space... And then they describe Mount Pinatubo as generating "positive externalities"! More appropriate terminology would be simply "economic benefits".

Given this I don't think anyone should be reading Superfreakonomics to learn anything about economics either.

Ostrom 12th Most Cited Book in Ecological Economics

According to the paper I coauthored with Bob Costanza (and Chunbo Ma, Brendan Fisher, and Lining He). One of her papers published in the journal also ranked in the list of the most cited papers published in the journal but was only ranked 52nd. Of course, our data end before 2004.

Looking for Academic Economics Jobs in Australia

In the past not many foreign institutions advertised on the American Economic Association's jobs website JOE. But this seems to have changed and now most leading Australian universities are advertising there. Not all these positions appear to be advertised on UniJobs, which I think is the leading Australian academic job site.

I've had a couple of recent discussions with people looking to do PhDs from around the world recently. I tried to convince them that if they want to work in Australia they need to either do a PhD in Australia (at a Go8 university) or do a PhD in the US. These are the two markets Australian universities are recruiting in. Not Britain or Sweden or anywhere else in Europe...

Rich Howarth Seminar at ANU: 4th November

Speaker: Richard Howarth, Pat and John Rosenwald Professor, Dartmouth College, Editor-in-Chief, Ecological Economics

Topic: Uncertainty, Ethics and the Economics of Climate Change

Abstract: Climate change is a long-term, complex problem that involves fundamental uncertainties. As such, the evaluation of climate change policies depends critically on the links between time preference, risk aversion, and the perceived rights of future generations. In economics, these issues are often addressed using models that assume high rates of time preference and low risk aversion. Such models support only modest reductions in greenhouse gas emissions. This presentation, in contrast, will argue that aggressive climate stabilization policies are justified on two separate grounds. First, people reveal high rates of risk aversion in real-world market decisions. Accordingly, reducing climate risks provides highly valuable economic benefits. Second, failing to stabilize climate would impose large, uncompensated costs on future generations. This violates the moral premise that future generations are entitled to protection against uncompensated, potentially catastrophic harms.

Time & Place: 4.30pm, Wed 4 Nov, Innovations Building, Eggleston Road.

Drinks and nibbles afterwards, 6.00-6.45pm

Paul Romer on Elinor Ostrom and Crucial Assumptions

Paul Romer makes some interesting comments on Elinor Ostrom's Nobel Prize win. He points out that many or most economic theories depend on what he calls "skyhooks" - what I called "crucial assumptions". According to Romer assuming that people follow rules is a typical "skyhook". Rather than assuming that people would follow rules, Ostrom tried to understand where the rules came from and why they worked or didn't work. Well, I think you must have some assumptions in your research. But they should be as innocuous and reasonable as possible.

Rather a contrast to Steven Levitt's comments for example. Let alone these guys :). Of course I've heard of Ostrom. My "Ostrom number" is 2.*

Peter Martin, who supplied the link to Romer, also has a more humorous take.

* She has coauthored papers with Bob Costanza.

Ostrom and Williamson Win Nobel Prize

After much speculation:

"The 2009 The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel goes to Elinor Ostrom "for her analysis of economic governance, especially the commons" and Oliver E. Williamson "for his analysis of economic governance, especially the boundaries of the firm."

Williamson was mentioned but Ostrom is a surprise. At 1:04 European Central Time someone had already updated Wikipedia to mention that she had won the Nobel Prize!

Of course, Ostrom is the first woman to win the Nobel Prize in Economics. Ostrom's most cited book has around 7,300 citations on Google Scholar and her h-index is around 73 or so. So she easily meets my criteria for predicting winners.

A Statement of Your Most Significant Contributions to this Research Field

I have to write this for the grant applications I'm planning on filing early next year. Usually, in job applications you have to write about your current and planned research. But this is different and a bit weird. It feels a bit like I'm writing my own obituary :)

For U.S. grants you just send them your (condensed) CV. Australia is much more into giving money to individuals than for specific topics. I once had to write a "scientific autobiography" for a job I applied for in Israel. That was the same idea more or less.

Omitted Variables Bias in Estimating the Rate of Global Warming

There has been a lot of discussion in the media and blogosphere of a supposed cooling of the global climate since 1998 that is being pounced upon by climate change sceptics. This supposed trend is almost certainly not a statistically significant break in the warming trend. Real Climate points out that whether you see a cooling effect or not depends on which data series you use. Apparently the Hadley data series is missing data from the parts of the Arctic where the most warming has been occuring:



The image shows the difference between the average temperatures in 1999-2003 and 2004-2008.

But the atmosphere is only a small part of the total heat budget of the planet. An excellent blog post from Climate Progress explaining the importance of the increase in ocean heat content in understanding global warming. These charts show the increase in heat content of the oceans till 2003 and from 2003-2008:





Climate Progress dramatizes this data nicely by pointing out that the ocean is warming at the rate of 190,000 GW... If you try to estimate the trend in atmospheric temperature while ignoring this massive storage of heat in the ocean you may fall victim to the classic econometric problem "omitted variables bias". When you estimate a regression model omitting some important variables that are correlated with those that you include in the regression your estimates of the effects of the included variables will be biased.

I wrote two papers on this topic. In the papers, I showed that taking into account the build up of heat in the ocean resulted in much higher estimates of the sensitivity of global temperatures to increases in greenhouse gases than when you just use atmospheric temperature to produce an estimate. Also, that just looking at the atmosphere you will estimate that temperature responds very fast to increases in greenhouse gases and that after just a few years the adjustment to a new equilibrium temperature is complete. These are symptoms of omitted variables bias.

Nobel Prediction Market

Here is a prediction market for who will win the Nobel Prize in Economics. My original pick, Robert Barro, is marginally leading, and all the other suspects are on the list.

I'd really like William Baumol to win it. My friend and colleague Astrid Kander wrote an interesting paper related to one of Baumol's ideas. Baumol gave her some good comments on it. Actually it was a chapter in her dissertation which I encouraged her to submit to Ecological Economics. She argues that the shift to a service economy is something of an illusion. The prices of services rise relative to those of manufactures over time and so the share of manufacturing in GDP falls over time. But this doesn't mean that material production as a share of GDP is falling when we use constant prices instead. Also, just as productivity growth in manufacturing is more rapid than in services the rate of increase in energy and environmental efficiency is more rapid in manufacturing. Therefore, it seems that emissions fall due to a shift to services but to some degree this too is an illusion.

IEA Lowers Projected Carbon Emissions

A New York Times article about an IEA report on future carbon emissions. They are lowering projections due to slower growth worldwide and Chinese efforts to reduce energy intensity. I've been thinking the same thing myself. I didn't buy into the Garnaut Review's idea that business as usual emissions would rise faster than the IPCC previously expected. Though the problem now is distinguishing between business as usual and "business unusual". Is China going for renewable and nuclear energy to reduce imports of fossil fuels and local air pollution or because it expects to eventually to be subject to binding restrictions on greenhouse gas emissions? Or because it wants to be a leader in selling the technology to the rest of the world? All of the above, I think.

Who Will Win the Nobel Prize in Economics? Update

Back in August I discussed who might win the Nobel Prize in Economics to be awarded on Monday. My pick then was Robert Barro as the most cited and not so controversial economist who had not won it yet. Others are now weighing in. Here are my comments on these suggestions:

Ernst Fehr Possible, though Kahnemann won the prize not that long ago.

Matthew Rabin Too young.

William Nordhaus Possible, though I don't consider his climate change economics work to be very deep.

Martin Weitzman I prefer him to Nordhaus, though on citations he is marginal as a Nobel Prize winner but could happen.

I also heard Nicholas Stern mentioned at lunch today. Until his recent work on climate change his citation record hasn't been at Nobel Prize level. And he only got into environmental economics in this recent period.

My pick for an environmental economics winner is Partha Dasgupta. Maybe Weitzman and Dasgupta?

All the macroeconomists mentioned are potential winners. But Gali (PhD 1989) seems too young. Gertler or Taylor is possible. Robert Shiller or even Nouriel Roubini are outside chances.

Marginal Revolution suggests Williamson and Tirole. They're possibilities too. This could be a pick if the committee decides against being topical. So this is my shortlist: Barro, Gertler, Dasgupta, Taylor, Tirole, Weitzman, Williamson.

P.S.
Note that the Fehr and Rabin, or Nordhaus and Weitzman, or Taylor, Gali, and Gertler prediction is from Thomson Reuters. They didn't get the Physics or Chemistry prizes right but they did guess the Physiology/Medicine Prize.

Environmental Economics Research Hub Research Reports Monthly Report

As I previously blogged, the Environmental Economics Research Hub Research Reports are now included in RePEc. Each month RePEc calculate how many abstract reviews and downloads each paper, author, and series got. You can track the downloads for EERH here. We got 157 downloads in our first month. Some caveats:

1. It's only a partial month.

2. All our papers were featured in NEP Reports and so had heightened visibility this month. NEP, New Economics Papers, is one of the RePEc services that helps get your paper seen in the research community.

3. We certainly had more downloads than this. Only downloads through RePEc services are counted and many of those are filtered out to circumvent the effects of web indexing robots and cheating.

To see how often individual papers in the series were downloaded check the ranking page.

Energy/Capital Ratio

There doesn't seem to be much of relation between energy intensity and GDP per capita. But this chart shows that there is a relationship between energy per dollar of (estimated) capital and GDP per capita:



The points off to the top right are mostly oil producers. Apart from those points there seems to be a clear downward trend. High income countries use less energy per dollar of capital than poor countries do. Some poorer oil producers (e.g. Libya and Algeria) also have very low energy/capital ratios. These countries have invested a huge proportion of GDP each year and so supposedly have a large capital stock but have little to show for it in terms of increased output.

In a so-called "putty-clay" model, improvements in energy efficiency can only be implemented by investing in new, more energy efficient, capital goods. Once that equipment and infrastructure is in place, energy use is pretty much predetermined. So in countries with less energy efficient installed capital energy use per dollar of capital will be higher and vice versa. Intuitively we'd expect high income countries, ceteris paribus, to have higher quality capital installed and, therefore, lower energy use per dollar of capital.

Technical stuff :): It is also attractive to try to estimate a model for the energy capital ratio rather than energy intensity for econometric reasons. Given the putty-clay theory, capital per capita and the level of energy efficiency technology are highly correlated. If we run a regression where energy intensity (energy per $ GDP) is on the LHS explained by RHS variables that include capital, the unobserved state of technology will be correlated with the capital variable on the RHS leading to biased estimates of the parameters. Shifting capital to the LHS of the equation gets rid of this potential (and actually very problematic) source of bias. The challenge is now to come up with a theoretically rigorous model of the E/K ratio...

Fenner School Seminar: 12th November

I'm giving a seminar at the Fenner School on November 12th. It will be an expanded version of the presentation I'm giving at ANZSEE in Darwin. Here is the abstract:

Modelling Global Trends in Energy Efficiency

This seminar reports on ongoing research in the CERF Environmental Economics Research Hub funded project: “Modelling the Global Diffusion of Energy Efficiency and Low-Carbon Technology”. The environmental Kuznets curve has been a popular simple model of the relationship between economic growth and environmental quality. It is plagued, however, by significant econometric issues and explains relatively little about the differences in emissions between countries. The between estimator is a simple consistent estimator of long-run coefficients in panel data that avoids these issues and performs well in real world situations. I apply the between estimator to both environmental Kuznets curves for carbon and sulfur emissions and a more sophisticated production frontier model of energy efficiency. The latter model explains differences in energy efficiency across countries in terms of differences in input and output mix, climate, and differences in the level of energy efficiency technology. The residuals from this model are the underlying trends in energy efficiency technology in each country. In the final part of the presentation I will show how a social choice model can be used to explain differences in environmental technology across countries.

Drew Jones' TED Talk

Cool graphics (via Climate Progress) showing the relation between various emissions scenarios and atmospheric concentrations of greenhouse gases:



The results of my poll said that emissions would be the same in 2050 as today. You can see the results of continuing that until 2100 at around 9:20 in the video - 600ppm in 2100. Certainly better than supposed business as usual but still way too high. But I think that even if emissions in 2050 were similar to today they would come down strongly in the second half of the 21st century.

Energy Use per Capita

Yesterday I showed you a chart of energy intensity vs. GDP per capita. There didn't seem to be much relationship in that data. Today we have energy use per capita and GDP per capita:



Here there is a clear relationship. Unfortunately, for environmental Kuznets curve advocates it is pretty linear. Energy use is a first order proxy for environmental impact. For example, solar energy might be cleaner than fossil fuel energy but collecting solar energy requires taking up space (and views) to collect the energy and something environmentally disruptive is going to be done with that energy. First it is taken out of the natural ecosystem and second it is directed to moving matter around in other ways. There is no free lunch. Economic activity has environmental impact. Of course there are more disruptive and less disruptive activities and energy sources but they are all disruptive.

So don't worry about calculating "ecological footprints", just look at energy use.

Energy Intensity

Now I've put my database together we can have a first look at the data:



Energy intensity is energy in terms of kilogrammes of oil equivalent per dollar of GDP using purchasing power parity adjusted exchange rates in 2005 prices. There are 3663 data points. There certainly doesn't seem to be any simple relationship between the level of income and energy intensity. On the other hand we can see some clear downward trends in energy intensity in individual countries. The goal of my project is mainly to explain the differences between countries that we see here though not ignoring the causes of changes in energy intensity within countries.

UN vs. World Bank Data

I've finally put together the main database for my Environmental Economics Research Hub project on energy efficiency and carbon emissions. I have full data on energy use (by fuel), structure of the economy, GDP, investment, schooling, climate, emissions etc. for 99 countries for the period 1971 to 2007. For my 2002 paper on explaining sulfur emissions I only managed to put together data for 64 countries (for only 18 years), so I'm pretty happy with that.

Initially, I was going to use the World Bank Development Indicators for the economic structure data. However, this data has lots of missing years for many countries. I then discovered that the UN has freely downloadable data for 1970-2007 for most member countries. This data is split into seven industrial sectors vs. only four for the World Bank data. In the end, I am not using any data from the WDI in the first stage of this project.

IEA Data at the National Library of Australia

International Energy Agency data is essential for serious global energy research but is very expensive. The full database costs E1400 ($A2,400) per year. If you only need a small amount of data you can purchase a "datacard" but it's still expensive. In my previous position at RPI I purchased data when necessary using research grants. But Paul Burke told me that the National Library of Australia has a subscription to the data and that as long as you go in person to the library you can download anything you want for free. So I went there yesterday and downloaded all the data I need. You can get to the data from the SourceOECD website and select "IEA Databases" from the pulldown menu. Visiting different libraries to access data sources used to be a big part of the kind of research I do but with electronic access I don't find myself doing too much of it anymore...

Gilles Saint‑Paul

Gives a somewhat more modest response to the British internal critics of mainstream economics than John Cochrane did to Paul Krugman. Maybe that's because he is a European? :)

Ranking Economists by Blog Popularity

The Eastern Economic Journal is publishing a paper about ranking economists by blog popularity. That's not something I want to catch on too fast! :) Reasonably popular blogs like Environmental Economics, Core Economics, and John Quiggin rank between 400,000 and 900,000 in Alexa rank. I have a long way to go.

Response to Paul Krugman

Via John Quiggin, a response to Paul Krugman.

ANU's 21 Future Fellows

ANU won 21 ARC Future Fellowships, second only to the University of Melbourne which won 25. ANU has now published the list of the future fellows and their research topics. I am surprised that all but one of them (Thomas Huber) is already a member of the academic staff of ANU. I would have expected to see more people who wanted to use the fellowship to come to work at ANU from other institutions.

EERH Research Reports Join RePEc

Everything is now complete and debugged and the Environmental Economics Research Hub Reports are now included in the RePEc database. The papers will be included in the IDEAS and EconPapers search engines and other RePEc services.

This will provide much greater visibility for our working paper series in the worldwide economics community. RePEc has around 21,000 registered members and even more users. The RePEc database currently catalogs 3/4 million working papers and journal articles and has more than half a million items downloaded and more than 2 million abstracts viewed each month.

I strongly recommend all economists who are not yet members of RePEc to register. Registered members have searchable profiles online and receive monthly reports on downloads of their papers and other ranking statistics. In order for downloads to be included in your RePEc ranking, readers must download the paper through one of the RePEc services. I recommend always providing links to your papers (like this) through RePEc services when referring to them online.

Penn World Table vs. World Development Indicators

Today, we had a presentation from Prasada Rao of University of Queensland on the theory of constructing international comparisons of income. He also covered some more practical aspects concerning the recent new international price comparison benchmark - ICP 2005. As everyone knows, the prices of identical goods vary across countries as exemplified by the Big Mac Index. But actually constructing more serious indices using baskets of many goods is very hard. The most recent estimates for China reduced estimated GDP per capita in China by around 40% compared to previous projections based on earlier benchmark studies. The reason was that the benchmark study conducted price comparisons only in the regions of 11 major cities, which has been argued to result in an artificially high price level on the basis that the price of many goods may be cheaper in smaller cities and the countryside. Higher estimated prices mean that a given US Dollar value of GDP is actually really worth less than if prices had been estimated to be lower in China. An alternative explanation put forward by Peter Warr was that projections of the inflation in the prices of non-traded goods in China that had been used before the new study were wrong. It's likely that both arguments are correct to some degree.

So what data should applied researchers use at the moment? The latest World Development Indicators is based on the 2005 benchmark survey and with the exception of the issues with the Chinese data is probably superior to previous estimates. But the data (on PPP) only go back to 1980 and they just use the economic growth rate in local currency units to project back from the 2005 benchmark. The Penn World Table Version 6.3 does not yet use the 2005 survey results. They promise to bring out Version 7.0 incorporating those results by the end of 2009. PWT data go as far back as 1950 in some cases. Given this I'm going to be using PWT data where possible in my current work.

The Garnaut Review One Year On

Ross Garnaut gave a presentation to a totally full theatre at Manning Clark Centre at ANU yesterday evening, reviewing his Review and the responses to it in the last year. From what he said he pretty much anticipated what would happen especially regarding the lobbying by business for free permit allocations (after all he's chairman of a mining company himself). Still he said that the government's allocation of compensation followed no principle whatsoever. He didn't address the delays in implementation and oddly no-one asked about that either. He did say the legislation "could be passed in a joint sitting of Parliament". That was typical indirect Garnaut humour. Another good one was that "some of Frontier Economics' other work is very good".

I found myself agreeing on all points he raised except one - the idea that business as usual emissions will rise faster than the most emissions intensive IPCC scenarios in the long-run. I don't buy that intuitively but I haven't got hard evidence to back up my position yet. My current research is meant to address that issue.

ARC Future Fellowships

The results were announced of the first round of the ARC (Australian Research Council) Future Fellowships. These are fellowships tenable for 4 years at an Australian institution for "mid-career" researchers. 200 fellowships were awarded out of 975 proposals submitted. ANU got 21 of the fellowships, though its success rate of 26% was not a lot higher than average. Universities such as Deakin and Edith Cowan had a 0% success rate but Charles Sturt got 25%. Clearly it's riskier to apply to work outside a Go8 university, a major medical institute, or CSIRO (14% success rate). There were higher success rates for younger people asking for lower salaries, which is not surprising. 14% of applicants were foreign nationals and 8% returning Australians. The former had a slightly lower success rate and the latter a slightly higher success rate. There were slightly lower than average success rates in the humanities and social sciences and in environmental priorities...

Though, it is still not 100% certain that the scheme will run again (but this morning ANU Deputy-VC and former ARC staffer Mandy Thomas seemed confident it would and the ARC website says that it will) I am planning to apply in the coming round if it does and if I am eligible (I'm borderline for being "mid-career" but might be someone that Australia would like to retain here, having only recently come back from overseas and currently being on soft money). I have a draft proposal, which I've received plenty of feedback on. I will now work up some of the additional material on track record etc. required. If I don't use it for the Future Fellowship competition I'l turn it into an ARC Discovery Project proposal.

Krugman in the NYT Magazine

In case you haven't seen it yet, here is Paul Krugman's article on the state of macroeconomics from the New York Times Magazine.

Progress on "Hub" Project

My research project funded by the Environmental Economics Research Hub is about the international diffusion of energy efficiency technology at the macro-economic level.

The project has two main stages. In the first stage I estimate a function that explains energy intensity (=the amount of energy used in the economy/GDP) in terms of the level of inputs like capital, labor, and the various types of energy, the structure of the economy, and the state of technology. This part is very similar to my previous work on this topic published in Ecological Economics, Journal of Environment and Development, and Policy Studies Journal. Energy intensity is not a direct measure of energy efficiency technology because of the factors mentioned above. This approach controls for the confounding factors and produces a purer measure of technology. I have decided to adopt the "between estimator" to estimate this model after testing it on the environmental Kuznets curve model (that paper is now available as a Hub Research Report).

In the second stage of the project I am developing a dynamic growth model that should explain why technology varies across countries. I can now feed in data on energy efficiency and investment and the model tells me what the energy efficiency of current investment is (rather than of the installed capacity) and what the price of those current investment goods is:



Z is the energy efficiency of the installed capacity and z that of the new investment. The lower the number the less energy used and, therefore, the more efficient the capital goods are. The model produced z (and B) when I fed in Z. The price of capital goods is assumed to be q=B/z. The more efficient the capital goods the higher their price. This formulation has similar cost implications to the carbon emissions reduction function in Nordhaus' DICE model. I want to eventually get estimates of how the parameter B varies across countries. I am assuming that differences will largely reflect inefficiencies - similar to what Parente and Prescott call "Barriers to Riches". In their model barriers to trade and investment result in GDP being lower than it otherwise would be in poor countries. In my model, inefficiencies result in countries being more dirty than they would otherwise be.

I also computed the "shadow prices" of capital and energy efficiency that would mean that the choice of z was optimal contingent on B:



Lambda is the shadow price of the capital stock and mu that of energy efficiency. Yes, these results surprised me, and there may still be mistakes in the model. But then I realised: "Of course, the shadow price of energy efficiency is negative! The lower Z is the more efficient the economy is!" Increasing Z means reducing energy efficiency. That is bad, so its shadow price is negative.

This is a good check on the internal consistency of my model.

British Wages in the Early Modern Period

An interesting article about the welfare gains from the introduction of commodities like coffee and sugar in early modern Britain. The authors also argue that these gains lead to underestimation of the increase in wages in early modern Britain. I think they are right about the rising wages in Britain but a bit surprised that they think that that finding is new as Robert Allen makes the high wages in early modern, pre-industrial revolution Britain one of the key facts of his theory of the industrial revolution. Allen also discusses the role of new consumer goods in this period.

Archives Awaiting Activation

Hopefully, we'll be off this list very soon :) Just been ironing out some Mac/Unix file format glitches.

EERH Research Reports Joining RePEc

As you may know, my position is funded by the Environmental Economics Research Hub based at the Crawford School at ANU. We have a working paper series reporting on research carried out in the Hub. We've now completed indexing the series so that it can be catalogued by RePEc, which is the biggest and best system of indexing working papers in economics. I've been working on this with Meredith Bacon who is the coordinator of the Hub. I'll make another post when things are complete at the RePEc end.

Revise and Resubmit

I got a "revise and resubmit" for the paper I submitted to Journal of Productivity Analysis. There are of course no guarantees in these situations that you will be published and "major revisions" have been requested but that is still good news.

Allen: The British Industrial Revolution in Global Perspective

Robert C. Allen tries to explain why the Industrial Revolution took place in Britain in his new book The British Industrial Revolution in Global Perspective.

Allen (2009) places energy innovation centre-stage in his theory. Like Tony Wrigley, he compares Britain to the Netherlands and Belgium. These were the most developed economies in the world in the early modern age with much higher wages than elsewhere due to their dominant position in world commerce. In both countries the price of fuelwood was rising in the early modern period relative to the price of coal. But the price ratio of traditional fuel to coal was higher in London than in the Low Countries and even higher in the coalfield areas of northeastern England and western Britain. Compared to France, India, or China, Britain had both cheap sources of fuel and high wages.

Coal was lower quality than wood as a heating and cooking fuel but became a “backstop technology” once the relative price of wood to coal rose sufficiently, while in the Netherlands peat replaced coal. But innovations were required in order to use coal effectively in new applications from home heating and cooking – new specially designed chimneys had to replace older chmneys and open hearths - to iron smelting and then steam engines. These induced innovations sparked the industrial revolution. Initially though the new innovations were only profitable in Britain where wages relative to energy prices were the highest in the world. Continued innovation eventually made coal using technologies profitable in other countries too.

He concludes: "The British were not more rational or prescient than the French in developing coal-based technologies. The British were simply luckier in their geology... In other words, there was only one route to the twentieth century - and it traversed northern Britain." (p275)

Comments on Scientific Papers

Once upon a time, many comments were published on scientific papers, including in economics. Nowadays, relatively few are. Rick Trebino has written an article that suggests some of the reasons why not. The article is rather amusing/cathartic for anyone who has been frustrated with the academic publication process. In economics, comments have been replaced by increasingly lengthy refereeing processes at the top journals. I saw a paper somewhere on this but can't remember where. One of my colleagues/coauthors, Robert Kaufmann, simply published his comment on a paper in the American Economic Review in Ecological Economics when the AER refused to on the grounds that it added too little to the original paper. They'll only publish a comment that makes a substantial new contribution rather than merely correcting a mistake.

Time Allocation to Reading Journal Articles

A recent article in Science discusses the future of scientific publication and scholarship strategies. The chart above showing trends to less time spent reading more papers also shows that scientists spend about 5% of their time on reading articles.

Estimating a Two-Equation Model of the Swedish Economy

My coauthor sent me some Swedish capital stock estimates for 1850-2000 which allows me to estimate the production function equation that explains economic output in terms of labor, capital and energy in addition to the energy cost ratio equation I estimated on its own before. Having two equations which share many of the same parameters makes estimating those parameters accurately a lot easier. I got some moderately sensible results pretty much straight away. But this is a pretty tricky econometric problem for the following reasons:

1. The production function we are using (CES function) is non-linear and non-linear econometrics is always harder than linear econometrics.

2. Variables like capital, GDP, and energy are "stochastically trending" i.e. they are random walks (now you know why this blog has the title it does :)). Econometrics with trending or random walk variables is tougher than with more classically behaved variables that just fluctuate around an average value.

3. The variables on the right hand side of our equations are almost certainly endogenous in the economic system. The capital stock is affected by the level of GDP and not just vice versa. Econometrics with endogenous variables is trickier too.

4. The rate of technological change has not necessarily been constant over the last 200 years. In fact it almost certainly hasn't. We need to deal with that too.

From the preliminary econometric results and simulations I've done in Excel it seems that the elasticity of substitution between capital and energy is between 0.3 and 0.7. This is roughly the range that Koetse et al. found in their meta-analysis of the elasticity of substitution between capital and energy. The traditional Cobb-Douglas model used very extensively in empirical and theoretical applications assumes that it is 1.0 instead, which would mean that energy availability isn't much of a constraint on economic output and growth. But, instead, it seems that it is.

Collapse

I have been reading Collapse, Jared Diamond's account of the collapses of several past civilizations - Easter Island, the Maya, the Anasazi, and the Greenland Norse settlement prominent among them - and discussions of environmental stresses and sustainability issues in modern societies. Included is some original research of his with a coauthor on the factors affecting success or failure in the Pacific Islands. He also discusses a few cultures which adapted and moved back from the brink, including Tokugawa Japan, the New Guinea Highlands, Tikopia and medieval Iceland. In the case of Tikopia success involved the wiping out of two of the clans by the one surviving clans while in Iceland severe desertification occurred in the uplands before things stabilized. So success is relative.

My preconception was that he would be overly deterministic about the role of environmental degradation in these stories. But that isn't the case. In fact, for an economist things seem a bit too open ended. He tries to explain these examples by a five factor theory but I can summarize in fewer points, I think.

Societies tend to overshoot their carrying capacity when either they experience long periods of favorable climate (e.g. Greenland) or move into new areas where they misperceive the carrying capacity even in the short-run (e.g. Iceland). In the latter case environmental degradation results causing a fall in carrying capacity. In the former a change in climate for the worse is the cause in fall in carrying capacity. What happens next depends on the fragility of the environment and the rigidity of institutions. A more fragile environment (e.g. Easter Island vs sustainable example) or more rigid institutions increases the likelihood of collapse. For example, the Greenlanders seem to have eaten no fish for inexplicable reasons and otherwise seem to have tried to maintain European style agriculture rather than adopt ideas from the native Americans (they did hunt seals but not all types). Rulers need to show their people that they can provide for them to legitimate their rule as well as compete with rival rulers. It might make more sense to try to maintain the current system at continuing environmental cost until it finally collapses rather than admit that it has failed. At the same time temples (Maya) or statues (Easter Island) tend to get bigger and bigger.

We can certainly see the same symptoms in our world today. Rulers seek legitimacy by maintaining economic growth. There is a fear of accepting even small reductions in GDP in order to protect the climate. And conservative attitudes in institutions prevail. The Greenlanders didn't want to be like the Inuit, while conservative Americans don't want to be like the French or Swedish today. As institutional economists long-ago noted technology changes faster than institutions do.

Presentation at ANZSEE Conference

My abstract was approved for the ANZSEE Conference in Darwin. If there are no hitches with the funding I hope to go and present. I've never been to the Northern Territory (or anywhere west of Melbourne in Australia for that matter) so that should be interesting.

U.S. Electric Supply and Grid

Some great maps of U.S. electricity supply and grid from NPR's website. The map above shows all power stations by size. Other maps show the share of different power sources by state (e.g. Vermont is the most nuclear state in the Union). Most importantly the transmission lines are mostly not where the best locations for alternative energy are (with the exception of some areas of the southwest near Los Angeles. Not surprisingly the latter are a hotbed of solar investment. Australia's situation is similar from what I have heard.

The Declining Relative Value of Energy

One of the little known facts of energy economics is that in the long-run data that we have available the value of energy relative to the value of output has fallen over time. The chart shows the data for Sweden. Output here is gross output. Relative to GDP the ratio was 1:1 or above in the early 19th century. That fact seems to rule out structural change as an explanation of the trend. Agriculture today doesn't have such a high energy cost share. If the elasticity of substitution between energy and other inputs is one, then the cost share of energy in each industry should stay the same no matter how much technological change takes place. So the data suggest that the elasticity of substitution between energy and capital is less than one (if technological change has improved energy efficiency). That implies that there are limits to substitution between energy and capital as is believed by most ecological economists if not all economists.

So I've been trying to get an estimate of the elasticity of substitution from this data supplied by my co-author, Astrid Kander. That's not so easy, because we need to take into account the rate of technological change and estimating the rate of technological change is always hard. That's because technological change is just everything that we can't explain in a model and when you throw a time trend or similar variable into a regression model the computer doesn't know that that is supposed to be technological change, gets confused and comes up with nonsense :)

You have to give the model more information and so that is what we are going to have to do.

Energy Quality

Today I submitted another paper, this time on "energy quality" to Ecological Economics. The paper has been several years in the making. I've kept coming back and changing things, sometimes radically, until I finally came up with something that I thought was submittable. I also simultaneously submitted it to the Munich Personal RePEc Archive.

Energy quality is the idea that different fuels have different economic productivities. Each joule of electricity produces more additional output or utility than each joule of coal. This makes sense - consumers are willing to pay more for a joule of electricity (one watt-second) than for a joule's worth of coal. However, energy is usually just aggregated together according to the amount of heat energy available from each fuel. This assumes that the productivity of one joule is the same irrespective of which fuel that joule is associated with and that all fuels are infinitely substitutable one for the other. The latter is also clearly untrue. A rational consumer would only use the cheapest fuel if they were all perfect substitutes.

The question is then how to measure or model energy quality. We thought we'd figured this out back in 2000 in our paper in Ecological Economics. Just measure the quality of each fuel according to its (real) price which should be proportional to its marginal product. The quality of aggregate energy in the economy can then also be computed using standard indexation methods.

But since then, I've had increasing doubts that this is the only or the best way to measure energy quality. The obvious starting point is the literature on labor quality.

One of the approaches is to treat the quality of each fuel as a coefficient that accompanies that energy type whether in a production function, demand function etc. Unlike prices or marginal products, this concept of quality does not depend on the quantities of the other inputs used or on the amount of the fuel itself used. These coefficients might change over time as new ways of using energy are devised. Electricity wasn't as essentially useful before the invention of computers as it was afterwards. The problem is that very quickly you end up attributing all energy augmenting technological change to a change in energy quality.

So the paper looks at some other approaches too. All have advantages and disadvantages and depending on the elasticity of substitution between fuels they may not all be defined. In the special case of infinite substitutability all the definitions are defined and all of them produce exactly the same unambiguous result, though still there is no obvious way to distinguish between technological change and increases in energy quality.

Um?

What's the point of using carbon dioxide emissions to grow algae when we can just use the carbon dioxide in the atmosphere to grow plants? Maybe the plants can be grown with fewer other inputs if the carbon dioxide is concentrated? But if the algae are used as products then no carbon is sequestered. So what is this guy "frustrated" about? I guess there may be reductions in other fossil fuel inputs that would be used in conventional agriculture, but an ETS or carbon tax provides the incentive to reduce the use of those inputs anyway. This raises another point, does direct sequestration of emissions make any sense anyway in place of growing plants to absorb carbon from the atmosphere? Can it be cheaper?

In other news it looks likely that the inefficient approach of mandating renewable energy will pass the Senate while the more efficient (but not as efficent as it could be) ETS component failed to do so. I'm all in favor of incentives or government programs for research and development into alternative energy but mandating the use of a particular technology doesn't make sense. Under carbon pricing, whatever is the cheaper option to cut emissions will be adopted first and if that is renewable energy then a mandate is not needed and if it is not renewable energy then the mandate is more costly than the pricing policy. Of course, this is not at all surprising.

Crucial Assumptions

"All theory depends on assumptions which are not quite true. That is what makes it theory. The art of successful theorizing is to make the inevitable simplifying assumptions in such a way that the final results are not very sensitive. A "crucial" assumption is one on which the conclusions do depend sensitively, and it is important that crucial assumptions be reasonably realistic. When the results of a theory seem to flow specifically from a special crucial assumption, then if the assumption is dubious, the results are suspect."

(Robert M. Solow, "A contribution to the theory of economic growth", Quarterly Journal of Economics 70(1): 65-94, p65)

This is the opening paragraph of Solow's Nobel-Prize winning paper on economic growth. His innovation was to replace Harrod and Domar's assumption that the aggregate production function was a Leontief function with the neoclassical assumption that labor and capital are substitutes. He then explored the implications of the model with a Cobb Douglas function and a CES function with elasticity of substitution greater than unity.

I've been working on the theory of growth both for my Environmental Economics Research Hub project and a longer term project on the role of energy in economic growth (that was one of the themes of my PhD dissertation after all :)) and thinking about assumptions. I've been reading Galor and Weil's unified growth theory. It is an elegant model where before the industrial revolution there is only one stable growth equilibrium with low rates of technological change and education and after it only a high technological change and education equilibrium. In the intervening period of the industrial revolution two equilibria are active. The crucial assumption that leads to this result is that the rate of technological change is a rising function of the size of the population. This isn't an unreasonable assumption but strangely it is the one thing that isn't clearly "micro-founded" in the model. The model also doesn't explain why the industrial revolution started in England. If population size is critical, why not China? Or even Italy?



The world's first iron bridge (1779) at Ironbridge. I visited there when I was 17 or 18.