Working Paper: NBER ID: w22962
Authors: 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.
Keywords: climate change; air conditioning; productivity; firm heterogeneity; adaptation
JEL Codes: L25; L6; O44; O47; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher productivity firms (D21) | Adopt air conditioning (AC) (Q52) |
| Adopt air conditioning (AC) (Q52) | Productivity outcomes under climate change conditions (O49) |
| Climate change (Q54) | Adopt air conditioning (AC) (Q52) |
| Climate change impacts productivity (Q54) | Adopt air conditioning (AC) (Q52) |
| Adopt air conditioning (AC) (Q52) | Aggregate output of an industry (L60) |
| Higher productivity firms (D21) | Productivity outcomes under climate change conditions (O49) |