Research

Work in progress

Land Subsidence: Environmental risk in housing markets in Mexico City with Carolina Rodríguez Zamora

Abstract

We study the costs of and the housing market response to subsidence, the sinking of land areas due to groundwater over-extraction, in Mexico City. Subsidence is a prevalent and worsening phenomenon worldwide. We estimate the costs of both plot-level subsidence and uneven neighborhood sinking through the housing market, quantifying the damages to private housing units and public infrastructure. We find that subsidence imposes substantial costs, which are driven by increased likelihood of physical degradation, increased maintenance costs, and flooding. Despite these impacts, subsidence is associated with an increase in the probability that a plot is re-developed. An equilibrium model of the housing market rationalizes these findings, highlighting that sunk homes have a low opportunity cost of redevelopment, but that this incentive is distorted if residents face information frictions about future subsidence. We document the presence of substantial frictions in evaluating the risk of future sinking using novel survey evidence on subsidence and beliefs in the city. These findings together with our structural model imply that subsidence costs Mexico City $33.4 billion USD in economic costs, 52% of which are due to information frictions. Our findings highlight that groundwater depletion imposes a costly externality on both the privately and publicly built environment, and that information frictions in the housing market exacerbate these costs by putting more value in harm’s way.

Estimating the Gains from Water Trade: A Systematic Evaluation of Modeling Considerations with Nell Green Nylen, Ellen Bruno, Andrew Ayers, Michael Kiparsky, Josué Medellín-Azuara, and Sarah Null

Abstract

The gains from water trading can vary significantly depending on local conditions as well as the specifics of market design and implementation. However, models of water trading necessarily rely on assumptions that simplify the social, institutional, and environmental landscape within which a water market operates. We systematically evaluate peer-reviewed papers that estimate the gains from water trading to assess how models of water markets take this local context into account. Our results demonstrate that whether and how models incorporate key considerations varies widely, with implications for the accuracy of results. We find that estimates of the economic impacts of water trading in the published literature are more likely to consider distributional effects and incorporate features of the legal and regulatory environment than to account for third-party impacts, transaction costs, the consequences of trading for the economy at large, or the administrative costs associated with setting up and operating a market. Understanding what features a model takes into account is important for interpreting its policy implications. Researchers modeling the gains from trade could better support local decision makers by explicitly articulating their models’ capabilities and limitations.

Draft available upon request.

Differential subsidence, damages, and fragility: Evidence from a systematic analysis of structural vulnerability in Mexico City with Enrique Fernández-Torres

Abstract

Understanding the structural vulnerability of buildings and public infrastructure to differential subsidence is crucial for evaluating the risks and costs that subsidence poses in urban areas. We combine novel estimates of plot-specific differential subsidence in Mexico City with a representative survey of structural issues in both private residences and public infrastructure to estimate structural fragility curves and damage thresholds. We then extrapolate these findings from micro-data to a city-wide analysis, calculating damages and vulnerability at a city block level.