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INFORMATION The Coase Theorem, Bono and Cigar Smoke: A Preview of Chapter Eight of My New Book READ HERE

Chapter Eight:   Pollution Externalities Associated with Urban Household Activity  is a mildly innovative chapter at the intersection of environmental and urban economics.  I have spent my career working at melding these fields and my new book's chapter 8 conveys some of the excitement. 

The chapter starts by discussing a true Coasian externality taking place between two rock n' roll gods named Bono and Billy Squier.  

"The people who live in the San Remo (145 Central Park West) live in a geographically small area.  As in any multi-family building, they are sharing land.   Rockers such as Billy Squier gain private benefits from using their fireplaces but an unintended consequence of their wood burning is to raise urban air pollution in the apartments above them.  Bono (in the Penthouse) is suffering.   This externality case raises some key issues.  First, who has the property rights?  When Bono bought his unit, did he buy knowing that neighbors had the right to use their fireplaces?  If the answer is yes and this was common knowledge, then the price of the penthouse would have been lower to reflect the pain caused by this disamenity."   

Nice local externality example?  Must government get involved to solve this?   I then present additional Coasian examples in cities including urban noise and urban dog poop.  You must admit that I'm an original thinker. You won't see these topics in my vanilla competitor's texts!    

After all of these examples, I then provide the formal Coase logic through an example of an urban cigar smoker impacting some asthmatic children.  

The chapter then turns to discussing the Pigouvian externalities that are exacerbated by household suburbanization.   Urban planners and people from Berkeley will enjoy this discussion but then I ask the tough question of whether suburbanization causes increased resource consumption versus whether the suburbs simply attract those who like to consume resources (a selection effect).

"In an advanced econometrics course, a question would arise related to the “endogeneity” of where people choose to live.  Do a random set of people choose to live in city center versus the suburbs?  From observing the gallons of gasoline consumed by a suburbanite who chose to live there and the gasoline consumed by a center city resident who chose to live there can we infer how much gasoline each would consume if they swapped homes?   Similar to the military base example given above, a research advance would be to access “instrumental variables” that effectively randomly assign people to the center city versus the suburbs. Such an instrumental variable would alleviate concerns about “selection bias” and would allow the researcher to estimate the average causal treatment of suburbanization on gasoline consumption."

Unlike standard environmental and urban texts, I want to talk about advanced econometric issues that undergraduates are not used to thinking about and for those who saw these topics in their econometrics class they are exposed to a "real world" example.

But, this $2 book (consisting of 16 chapters), then packs in even more ideas in Chapter Eight!

The final sections of the chapter explore;

•  Suburban Eco-system Destruction
• Water Consumption

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