Lin, Yatang
(2017)
Essays on environmental and urban economics.
PhD thesis, London School of Economics and Political Science.
Abstract
The thesis consists of three independent chapters on environmental and urban economics. A central theme explored in this thesis is what determines the distribution of economic activities across space. My exploration in this direction begins with the roles of industrial pollution and transportation infrastructure in shaping the spatial distribution of skills, and extends to evaluate the spatial allocation efficiency of renewable energy projects.
The first chapter,“The Long Shadow of Industrial Pollution: Environmental Amenities and the Distribution of Skills”, investigates the role of industrial pollution in determining the competitiveness of post-industrial cities, with a focus on their ability to attract skilled workers and shift to a modern service economy. I assemble a rich database at a fine spatial resolution, which allows me to track pollution from the 1970s to the present and to examine its impacts on a whole range of outcomes related to productivity and amenity, including house prices, employment, wages, and crime. I find that census tracts downwind of highly polluted 1970s industrial sites are associated with lower housing prices and a smaller share of skilled employment three decades later, a pattern which became evermore prominent between 1980 and 2000. These findings indicate that pollution in the 1970s affected the ability of parts of cities to attract skills, which in turn drove the process of agglomeration based on modern services. To quantify the contribution of different mechanisms, I build and estimate a multi-sector spatial equilibrium framework that introduces heterogeneity in local productivity and workers’ valuation of local amenities across sectors and allows the initial sorting to be magnified by production and residential externalities. Structural estimation suggests that historical pollution is associated with lower current productivity and amenity; the magnitudes are higher for productivity, more skilled sectors and central tracts. I then use the framework to evaluate the impact of counterfactual pollution cuts in different parts of cities on nationwide welfare and cross-city skill distribution.
The second chapter, “Travel Costs and Urban Specialization: Evidence from China’s High Speed Railway” examines how improvements in passenger transportation affect the spatial distribution of skills, exploiting the expansion of high speed railway (HSR) project in China. This natural experiment is unique because as a passenger-dedicated transportation device that aims at improving the speed and convenience of intercity travel, HSR mostly affects urban specialization through encouraging more frequent intercity trips and face-to-face interactions. I find that an HSR connection increases city-wide passenger flows by 10% and employment by 7%. To further deal with the issues of endogenous railway placement and simultaneous public investments accompanying HSR connections, I examine the impact of a city’s market access changes purely driven by the HSR connection of other cities. The estimates suggest that HSR-induced expansion in market access increases urban employment with an elasticity between 2 and 2.5. The differential impacts of HSR on employment across sectors suggest that industries benefiting more from enhanced market access are the ones intensive in nonroutine cognitive skills, such as finance, IT and business services. These findings highlight the role of improved passenger travel infrastructure in promoting the delivery of services, facilitating labour sourcing and knowledge exchange across cities, and ultimately shifting the specialization pattern of connected cities towards skilled and communication intensive sectors.
In the last chapter, “Where does the Wind Blow? Green Preferences and Spatial Misallocation in the Renewable Energy Sector” , I focus on the spatial allocation efficiency of renewable energy projects. How efficiently are renewable energy projects distributed across the US? Are “greener” investors worse at picking sites? Using extensive information on wind resources, transmission, electricity prices and other restrictions that are relevant to the siting choices of wind farms, I calculate the predicted profitability of wind power projects for all possible locations across the contiguous US, use this distribution of this profitability as a counterfactual for profit-maximizing wind power investments and compare it to the actual placement of wind farms. The average predicted profit of wind projects would have risen by 47.1% had the 1770 current projects in the continental US been moved to the best 1770 sites. I also show that 80% and 42% respectively of this observed deviation can be accounted for by within-state and within-county distortions. I provide further evidence that a large proportion of the observed within-state spatial misallocation is related to green investors’ tendency of invest locally and sub-optimally. Wind farms in more environmentally-friendly counties are more likely to be financed by local and non-profit investors, are closer to cities, are much less responsive to local fundamentals and have worse performance ex-post. The implementation of state policies such as Renewable Portfolio Standard (RPS) and price-based subsidies are related to better within-state locational choices through attracting more for-profit investments to the “brown" counties, while lump-sum subsidies have the opposite or no effects. My findings have salient implications for environmental and energy policy. Policy makers should take account of the non-monetary incentives of renewable investors when determining the allocative efficiency of policies.
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