Nobel Prize winner William Nordhaus has called climate change "the ultimate challenge for economics." Economists increasingly have been trying to understand how rising tides and global temperatures will impact resource allocation around the globe, as well as the potential policy tools that can help curb damage to our natural world. SMU professor Klaus Desmet says that a lot of those analyses are missing a critical factor: migration. Desmet coauthored a paper in the American Economic Journal: Macroeconomics that examines how economic output will be affected over the next 200 years as humans move away from coastal areas threatened by rising sea levels. Although losses in vulnerable Southeast Asian cities such as Bangkok and Shanghai will still be very significant, their research shows overall GDP declines are substantially less than predicted by models that don't account for spatial shifts in economic activity. The AEA's Chris Fleisher spoke with Desmet about the impacts of rising sea levels on the global economy and the trade-offs between short-run costs of migration and long-run benefits.

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