Industrial Productivity in a Hotter World: The Aggregate Implications of Heterogeneous Firm Investment in Air Conditioning

Joshua Graff Zivin and Matthew Kahn

No 22962, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: L25 L6 O44 O47 Q54 (search for similar items in EconPapers)
Date: 2016-12
New Economics Papers: this item is included in nep-eff, nep-ene, nep-env and nep-res
Note: EEE PE PR
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Citations: View citations in EconPapers (8)

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