Knowledge that Transforms

Many people have noticed that it's getting too hot lately. But most suggested remedies have been micro oriented and have neglected the role of macro policies. To see how these policies would work, I construct a simple macroeconomic theory based on efficiency wages.' This choice of framework is natural because the efficiency-wage model has already been successful in analyzing unemployment, which is another social problem. The adaptation of the model to the weather suggests that many other applications would also be fruitful. The key observation is that workers' supply of effort depends on their wage, relative to that available elsewhere, and on the temperature. If firm i employs Ni workers, the effective supply of labor input can be written as