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Hurricane Katrina, Peer Pressure and Energy Conservation

inthepapersEvery Monday, the National Bureau of Economic Research, a nonprofit organization made up of some of North America’s most respected economists, releases its latest batch of working papers. The papers aren’t peer-reviewed, so their conclusions are preliminary (and occasionally flat-out wrong). But they offer an early peek into some of the research that will shape economic thinking in the years ahead. Here are a few of this week’s most interesting papers:

 

Title: “The Economic Impact of Hurricane Katrina on its Victims: Evidence from Individual Tax Returns”

Authors: Tatyana Deryugina, Laura Kawano, Steven Levitt

What they found: Hurricane Katrina had only a small and temporary effect on most victims’ income, employment, marriage and other social and economic characteristics.

Why it matters: When Hurricane Katrina struck Louisiana and Mississippi in 2005, it killed nearly 2,000 people, destroyed more than 200,000 homes and did more than $100 billion in damage. Understanding the storm’s long-term impact, however, has proven difficult, both because of limited data the lack of a good control group for comparison (New Orleans was a unique city long before the hurricane). In this paper, the authors use tax returns to identify people who lived in New Orleans before the storm and to study what happened to them afterwards. They compare those storm victims to residents of cities that are economically similar to pre-2005 New Orleans. Their conclusion: New Orleans residents proved remarkably resilient. Katrina had significant, lasting effects on where people live: Many people who fled the storm never returned. But while their income took an initial hit, it quickly rebounded; by 2008, hurricane victims actually had higher incomes on average than control households. Even residents of the hardest-hit areas didn’t experience a long-term decline in earnings. The storm also had no measurable impact on marriage, divorce or fertility.

Key quote: “Our results have broader implications for several policy areas. With respect to federal disaster relief, a quick economic recovery by victims suggests that the federal and state relief programs that were initiated in response to Hurricane Katrina were adequate to avoid long-run economic losses. Alternatively, these results could suggest that less generous benefits are justified relative to a scenario in which earnings slowly (or never) recover from such a shock. If individuals are able to fully insure their assets at actuarially fair prices, and the integral of lifetime wages is unaffected by the disaster (or in the case we study, perhaps the disaster is associated with higher lifetime earnings), then it is unclear whether disaster relief is warranted at all.”

Data they used: Federal tax returns filed between 1999 and 2010. American Community Survey (to identify similar cities for control group.)

 

Title: “How Does Peer Pressure Affect Educational Investments?”

Authors: Leonardo Bursztyn, Robert Jensen

What they found: Peer pressure encourages high school students in honors classes to sign up for SAT preparation courses, but discourages students in non-honors classes from doing the same.

Why it matters: Peer pressure – what researchers call social norms – can be a powerful force for both good and ill, but it is difficult to measure. For this paper, the authors conducted an experiment in which they offered high school juniors in Los Angeles free access to an online SAT preparatory course. Some students were told that the decision whether or not to sign up would be completely private; others were told that their classmates would know who signed up. They found that in non-honors classes, the sign-up rate was 25 percentage points lower when the choice was made public rather than private. But in honors classes, the opposite was true: Sign-ups were 25 percentage points higher when the choice was public. The researchers controlled for the number of honors classes students were taking, so the effect wasn’t due to differences in the students themselves. Rather, the researchers argue, the issue was peer pressure: In non-honors classes, where fewer students overall take SAT courses, students didn’t want to be seen signing up. But in honors classes, peer pressure works in the other direction, pushing students to sign up.

Key quote: “Beyond understanding student motivation and behavior, we believe the results carry important policy lessons. Peer pressure appears to be a powerful force affecting educational choices and whether students undertake important investments that could improve academic performance or outcomes. In our case, in non-honors classes, even very low-income students are willing to forgo free access to an SAT prep course that could improve their educational and possibly later life outcomes, solely in order to avoid having their peers know about it. Changing either norms or peers is likely to be quite difficult, particularly on a large scale; changing the extent to which behaviors are observable by peers is likely to be less so.

Data they used: Experimental data from more than 800 Los Angeles public school students.

 

Title: “The Perverse Impact of Calling for Energy Conservation”

Authors: J. Scott Holladay, Michael K. Price, Marianne Wanamaker

What they found: Emergency appeals for energy conservation can actually lead consumers to use more power, rather than less.

Why it matters: During hot summer days, utilities often call on consumers to conserve energy during peak hours in order to reduce stress on the electrical grid and lower the chance of brownouts. But according to this paper, such appeals are ineffective: Using a decade’s worth of data from the Baltimore-Washington, D.C., area, they find “no discernible reduction” in energy use during peak evening hours after appeals to conserve. Moreover, they find that consumers actually increased their energy usage during non-peak hours. Across the full day, energy consumption increased by about 1 percent of total generating capacity, at a cost of about $1 million. The authors aren’t sure what explains the pattern, but they speculate residents may attempt to shift their energy consumption into non-peak hours, but then fail to reduce consumption during peak periods.

Key quote: “Our results provide a word of caution for utilities pursuing real-time demand management. Attempts to alter consumer behavior through public pleas may backfire, particularly if utility generation strategies fail to respond to consumer use. In our sample, conservation calls were associated with remarkably increased emissions over the course of the highest use days. Future work should seek to better understand the household- and commercial-level decisions leading to these impacts.”

Data they used: Hourly power generation and emissions data for 16 power plants in Maryland, from the Environmental Protection Agency.

Ben Casselman is a senior editor and the chief economics writer for FiveThirtyEight.

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