Tuesday, August 08, 2006

A 'Ceteris Paribus' Analysis and a Quarter Won't Buy A Cup Of Coffee

by Tom Bozzo

The NBER working paper I'm least likely to shell out $5 for (not least because you can get it here for free [*]):
Orley Ashenfelter and Karl Storchmann, "Using a Hedonic Model of Solar Radiation to Assess the Economic Effect of Climate Change: The Case of Mosel Valley Vineyards."
Storchmann is the managing editor of the new Journal of Wine Economics and is Vice President of the American Association of Wine Economists, neither of which I'd hitherto known existed and neither of which is uninteresting as such. But let's turn to the abstract:
In this paper we provide a simple, credible method for assessing the effects of climate change on the quality of agricultural land and then apply this method using a rich set of data on the vineyards of the Mosel Valley in Germany. The basic idea is to use a simple model of solar radiation to measure the amount of energy collected by a vineyard, and then to establish the econometric relation between energy and vineyard quality. Coupling this hedonic function with the elementary physics of heat and energy permits a straightforward calculation of the impact of any climate change on vineyard quality (and prices).
So the "hedonic function" links solar radiation and other vineyard characteristics with vineyard quality categories (with an ordered probit model, for ye fans of limited dependent variable analysis).

Now, I'm no climate scientist, and I'd be happy to be corrected if I'm wrong, but I never gathered that the essence of the global warming problem was that the world is getting sunnier — at least, not in historical time. So the "elementary physics" — a single-equation model of surface temperature used to back a solar energy figure out from a temperature increase — that Ashenfelter and Storchmann use to determine the counterfactual vineyard quality is suspect. That is, you can't make sun-loving perennials grow in your shade garden much better by making the garden hotter.

Another paper co-authored by Storchmann makes the less contentious point that global warming would tend to be bad for regions that presently have roughly optimal grape-growing climates and have an indeterminate effect on other regions (depending on whether the climate is suboptimally cool or suboptimally hot).

The catch, which is particularly acute for an analysis of a specific growing area, is that it's a potentially strong assumption that a seemingly moderate predicted increase in the mean temperature will arrive without other changes to local climate (precipitation patterns, variation between temperature extremes, etc.) that might make a region dramatically less suited for viticulture, if not for human habitation altogether. That is the potentially amazingly costly warming consequence in comparison to which the cost of a billion solar roofs is a relative bargain. In any event, Mosel valley vintners probably shouldn't bet on taking their greenhouse gas emissions to the bank.


[*] Note to fellow econobloggers: If you really want to irritate me, link only to the NBER working paper ($) and not free versions provided by the author(s). Academics: It's the 21st century; make your publicly circulated preprints available on the web.
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