Strategic Behavior and the Environment > Vol 5 > Issue 1

Climate Change Adaptation: Lessons from Urban Economics

Matthew E. Kahn, University of California, Los Angeles and National Bureau of Economic Research, USA, and IZA, Germany,
Suggested Citation
Matthew E. Kahn (2015), "Climate Change Adaptation: Lessons from Urban Economics", Strategic Behavior and the Environment: Vol. 5: No. 1, pp 1-30.

Publication Date: 24 Jun 2015
© 2015 M. E. Kahn
Discrete Choice Models
climate change adaptationcitiescompetition


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In this article:
1. Introduction 
2. Introducing the Adaptation Challenge into a Urban Compensating Differentials Model 
3. The Lucas Critique Predicts that Reduced Form Forecasts Overstate the Cost of Climate Change 
4. Extending the Residential Locational Choice Model to Incorporate Lifecycle Dynamics and Expectations and Learning 
5. Endogenous Depreciation of Place Based Assets 
6. Spatial versus One Sector Capital Stock Models 
7. The Incidence of Place Based Productivity Shocks 
8. Improvements in Forecasting City Specific Future Challenges 
9. Endogenous Innovation and Demand Fueled by Richer Urbanites Seeking Solutions 
10. Local Government Official Incentives to Invest in Adaptation 
11. Limits to the System of Cities Optimism 
12. Conclusion: How Do We Protect the Urban Poor and How Do We Cope With Extreme Shocks? 


In an urbanizing world economy featuring thousands of cities, households and firms have strong incentives to make locational investments and self protection choices to reduce their exposure to new climate change induced risks. This pursuit of self interest reduces the costs imposed by climate change. This paper develops a dynamic compensating differentials model to explore how the "menu" offered by a system of cities insures us against emerging risks. Insights from urban economics offer a series of testable hypotheses concerning the economic incidence of spatially tied climate change risk.