Climate and Sustainability Research Faculty Grant Awardees

In response to the Wharton Risk Management and Decision Processes Center’s call this spring for proposals from Wharton faculty to fund research related to climate and sustainability issues, the Center is pleased to award five faculty members grants for research support. Faculty projects will contribute to either our Business, Climate, and Environment Lab or Disaster Risk Management Lab. 2021 project abstracts are available below.

Revisiting the Effect of Climate Change on Chinese Manufacturing Firms             

Jose Miguel Abito, Assistant Professor, Business Economics and Public Policy, the Wharton School

This project applies recent advances in the estimation of production functions to estimate the effect of temperature and predicted climate change on Chinese manufacturing firms. In particular, we apply a method developed in Abito et al (2021) that allows for unobserved productivity to have a fixed effect component on top of the usual Markov shock. When highly persistent plant level characteristics account for a larger share of across-plant variation in productivity, estimates of the distribution and evolution of productivity using conventional methods are heavily biased. This bias then translates to misleading estimates of the effect of temperature and predicted climate change on productivity.

How a Novel Climate Insurance Product Can Protect Firms and Households Against Climate Risk

Susanna Berkouwer, Assistant Professor of Business Economics and Public Policy, the Wharton School

Climate change will almost certainly increase extreme weather events such as floods, droughts, and storms. In addition to tragic direct consequences that include deaths and physical damage to homes and businesses, climate change threatens to suppress business investments and slow economic growth by increasing the risk associated with capital investment. Dominica’s government agency for climate resilience recently launched parametric hurricane insurance, designed to improve financial security by allowing flexible expenditures, reducing uncertainty, and speeding up the payout timeline. A 2021 pilot will inform a more detailed 2022 study of the uptake and socioeconomic impacts of this novel insurance product.

Does the Mortgage Market Price Climate Risk?       

Benjamin J. Keys, Rowan Family Foundation Associate Professor of Real Estate and Finance, the Wharton School

Is climate risk priced into mortgage markets, and if not, why not? This project examines the extent to which the U.S. mortgage finance system implicitly exacerbates climate risk by failing to signal its cost to the market. Lenders can insulate from climate risk by selling their risky mortgages to Fannie Mae and Freddie Mac. Using comprehensive data on disaster risks linked by geography to data on mortgage pricing and performance, this study will provide some of the first measures of the degree of mispricing in the market on this crucial dimension of climate-related risk.

Social Transitions and Climate Change: Role-Play Simulations in Support of Policy Making       

Steven Kimbrough, Professor of Operations, Information and Decisions, the Wharton School

Any successful path to sustainability has to be both technically and socially feasible. This project addresses an important facet of social feasibility: selection by stakeholders of portfolios of climate- and sustainability-related policy alternatives.  The alternatives are assumed to be potentially non-exclusive and to be valued across multiple criteria, which may vary by stakeholder. The project designs, develops, and tests realistically grounded (in distinction to stylized) role-play simulations (“war games”) in which stakeholder-players explore seeking negotiated agreements for portfolios of policy alternatives.  The simulation designs will be suitable immediately as classroom exercises. After thorough vetting and development, we anticipate that the simulations will be suitable as inputs to policy planning processes and can be played by real world decision makers or their designees. In the short term they will be useful for teaching purposes.

Planning for Seawater Intrusion into Freshwater Supplies: Risk and Adaptation in the Southeastern United States          

Allison Lassiter, Assistant Professor of City and Regional Planning, the Weitzman School of Design

This study evaluates vulnerability of drinking water supplies to salinization by asking three questions: (1) How many public drinking water system intakes in the southeastern United States are projected to be under seawater or adjacent to sea level rise scenarios by 2050? (2) How are state and local governments planning for salinization? (3) Are there regions with high risk and little planning? Initial findings indicate over 5,000 intakes contributing to systems serving over 30 million people are at risk, with little coordinated adaptation planning. Left to individual suppliers, differential adaption planning capacity may exacerbate existing inequities in drinking water provision.