Climate Change Adaptation: Lessons from Free to Choose

21 Pages Posted: 3 Jan 2024

See all articles by Matthew E. Kahn

Matthew E. Kahn

University of Southern California; National Bureau of Economic Research (NBER)

Date Written: December 5, 2023

Abstract

Climate change poses risks to our economic productivity and quality of life as locations face different place based risks including; extreme heat, pollution spikes, and greater natural disaster risk. Given that global carbon emissions will rise for decades, adapting to climate change becomes essential. Milton Friedman’s Price Theory approach offers many insights for understanding the microeconomics of adapting to climate change. Expectations of scarcity, human capital and price signals play a central role in guiding the decisions of optimizing economic agents. In an increasingly urbanized world economy, competition between cities and neighborhoods within cities plays a central role in determining our economic geography and thus our exposure to climate change’s physical risks. Market product competition helps us to adapt to every place based challenge we face. Firm competition to supply these products lowers their price and improves their quality. Both human capital theory and the Boskin Report’s logic optimistically predicts that poor people will increasingly gain from an increased capacity to protect themselves from emerging risks. In areas that fail to adapt, hedonic real estate prices will adjust to compensate those who choose to take on more location specific risk. The logic of Friedman’s Free to Choose offers many testable empirical implications focused on how we will successfully adapt to the serious climate change challenge.

Keywords: Climate Change Adaptaion, Microeconomics, Milton Friedman, Regulation, Prices, Innovation

JEL Classification: Q54

Suggested Citation

Kahn, Matthew E., Climate Change Adaptation: Lessons from Free to Choose (December 5, 2023). Available at SSRN: https://ssrn.com/abstract=4654657 or http://dx.doi.org/10.2139/ssrn.4654657

Matthew E. Kahn (Contact Author)

University of Southern California ( email )

2250 Alcazar Street
Los Angeles, CA 90089
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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