International credit and welfare: A paradoxical theorem and its policy implications

This paper considers a developing nation that faces a foreign exchange shortage and hence its demand for foreign goods is limited both by its income and its foreign exchange balance. Availability of international credit relaxes the second constraint. We develop a simple model of strategic interaction between lending institutions and firms, and show that the availability of international credit at concessionary rates can leave the borrowing nation worse off than if it had to borrow money at higher market rates. This ‘paradox of benevolence’ is then used to motivate a discussion of policies pertaining to international lending and the Southern government's method of rationing out foreign exchange to the importers.     

Monetary policy and noise traders: A welfare analysis

This paper studies the choice of monetary policy regime in a small open economy with noise traders in forex markets. We focus on two simple rules: fixed exchange rates and inflation targeting. We contrast the above two rules against optimal policy with commitment under productivity shocks. In general, the presence of noise traders increases the desirability of a fixed exchange rate regime. We also evaluate the welfare impact of Tobin taxes in this milieu. These taxes help unambiguously in the absence of productivity shocks; their welfare impact under productivity shocks depends on the monetary regime in place and trade elasticity between domestic and foreign goods.     

Household-level analysis of the impacts of electricity consumption on welfare and the environment in Cambodia: Empirical evidence and policy implications

Cambodia’s biomass consumption is the most dominant energy source at residential sector, and its use is mainly for cooking and heating which could affect health due to indoor air pollution. The biomass is mainly sourced from wood cutting and forest-encroachment that could impact the environment due to reduction of forest at considerable scale. By using the data 2015 of Cambodia Socio-Economic Survey, the study investigates the impacts of electricity consumption on household welfare, such as earnings and the school performance of children in the households, and further to investigate its impacts on the environment. The study found that household’s access to electricity with ability to spend on electricity consumption contributes to the positive household welfare effects and environment via a reduction of biomass consumption, and the more household spends on biomass, the more they are prone to sickness of lung problem. The study also confirmed the important role of human capital formation for the positive impact on the welfare and the environment. These findings lead to policy implications that would improve affordable access to electricity to ensure that all households can use electricity for their basic needs and productivity, and also to reduce the negative effects on environment.     

The impacts of energy insecurity on household welfare in Cambodia: Empirical evidence and policy implications

This study investigates the impacts of energy insecurity on household welfare in Cambodia. The notion of energy insecurity is not well understood in the literature as well as in local contexts. This study defines household energy insecurity as the status quo derived from the interplay of inadequate and insufficient energy consumption that prevents households from meeting basic energy needs. The notion of energy insecurity can only be well understood by investigation in the local context as it varies from place to place. Households facing insufficient energy consumption may forgo many other opportunities. Once energy security has been defined in the Cambodian context, the study employs multiple regression models using the Cambodia Socio-Economic Survey Data (2015) to investigate the impacts of household energy insecurity. The study confirmed that energy insecurity has enormous negative impact on welfare of the households, with a further negative impact on the human capital formation of the children. The findings will lead to policy implications to improve household energy security, and thus impact economic, social, and environmental development.     

Does welfare policy affect residential choices? An empirical investigation accounting for policy endogeneity

This paper studies how changes in welfare policy affect welfare recipients' residential choices. Although several empirical studies have stressed that welfare policy may affect residential choices of welfare recipients, few studies have simultaneously taken into account that residential choices of welfare recipients are also likely to affect welfare policy. This paper utilizes a policy reform to address this policy endogeneity. The results show that welfare policy exerts a substantial effect on residential choices of welfare recipients.     

Corporate social responsibility and strategic trade policy: An endogenous timing game and its policy implications

This study incorporates the corporate social responsibility (CSR) initiatives of a domestic firm and analyses strategic trade policy towards a foreign firm in a different market structure. We show that the tariff rate under a foreign (domestic) firm's leadership is lowest when the degree of CSR is large (small). We also show that the foreign firm's leadership yields the highest welfare when the degree of CSR is intermediate, while the domestic firm's leadership yields the highest welfare otherwise. In an endogenous‐timing game, we show that a simultaneous‐move outcome is the unique equilibrium when the degree of CSR is small; thus, it is never socially desirable. We also show that the domestic firm's leadership can be an equilibrium, which results in the highest welfare when the degree of CSR is large. Finally, when the degree of CSR is large, collusive behaviours between the domestic and foreign firms can increase welfare.     

Optimal fiscal decentralization: Redistribution and welfare implications

The literature has been inconclusive regarding the welfare effects of fiscal decentralization (FD), defined here as the extent to which local governments collect and spend local tax revenues. We present an original model to investigate formally the distributional and welfare implications of FD. In contrast to the standard approach that compares the implications of full FD with that of centralization, we consider that the central government chooses the level of FD to maximize welfare in a heterogeneous country. Noncooperatively, local governments choose their tax collection effort to maximize local utility. We show that an increase in the tax rate leads optimal FD to increase so as to compensate for the welfare loss from decreasing optimal local tax effort. Hence, welfare and income distribution improve in FD at its intermediate, rather than extreme, levels. We coin this result as the decentralization-Laffer curve. As regional spillovers increase, FD is less desirable as it deteriorates welfare and income distribution. This finding provides a novel support for the decentralization theorem and contributes to the fiscal policy debate.     

Politically influenced counterterrorism policy and welfare efficiency

The paper examines how two targeted countries strategically deploy their counterterror forces when lobbying defense firms influence counterterror provision. For proactive measures, lobbying activities in a single targeted country lessen underprovision, raise overall counterterrorism, and reduce terrorism. Welfare decreases in the lobbied country but increases in the other targeted country owing to enhanced free riding. Lobbying influence on the targeted countries' welfare is tied to terrorists' targeting preferences and how the lobbied government weighs citizens’ welfare. Lobbying in both targeted countries may result in the first-best equilibrium. International policy coordination may lead to less efficient outcomes than the noncooperative equilibrium.     

The rhetorical fantasy of energy transitions: implications for energy policy and analysis

This article explores the rhetoric of four energy transitions. It begins by summarising research on the intersection of fantasy, technology and the sociology of expectation. It then looks at how ideas of progress, modernity, cheapness, abundance and hope influence the way society perceives new energy technologies, causing them to overestimate benefits and underestimate challenges. Our rhetorical analysis finds in case studies of steam engines, gasoline automobiles, hydroelectric dams and nuclear reactors that newly ‘discovered’ sources of energy or newly invented technologies are always assumed to provide infinitely abundant energy and to have the potential to create positive utopian changes in society. We conclude by noting the salient implications of these rhetorical themes for energy planners, analysts and scholars.     

Open-access renewable resources and pollution: Trade and policy implications in a two-country model

We examine the interaction between the relative inter-industry pollution externality and resource stock externality of harvesting in deciding trade patterns and welfare gains from trade in a two-country model (less-developed countries) with renewable resources in the absence of resource management. This paper focuses on the impacts of trade policies on resource conservation and welfare outcomes in two countries with different environmental management regimes. Differences in pollution management standards between both countries determine the direction of trade flow and gains from trade in a diversified production case. The country with a lower pollution intensity parameter, an exporter of resource goods, certainly experiences welfare loss in the post-trade steady-state and may also suffer a decline in utility throughout the transition path. However, a country with higher pollution intensity and importers of resource goods tend to gain from trade. Under national open-access resources, given that pollution is regulated up to a certain point in both countries, this study finds that implementing better restrictions on only one externality factor is not optimal from a post-trade welfare perspective. Lastly, from the point of view of policy suggestion, this paper offers an optimal trade policy that the economic and environmental effects of enforcing import tax on resource goods are likely to be Pareto-improving consequences compared to the implications of using an export tax.     

Unemployment and the welfare effects of trade policy

Abstract.  In this paper the welfare effects of tariffs and import quotas in the presence of involuntary unemployment are derived and compared. The framework used is the standard model of a competitive small open economy with many goods and factors. Optimum levels of the respective trade policy instruments are derived, as well as welfare increasing reform strategies. In all cases, the labour intensity of the import‐competing sectors turns out to be a crucial variable for deriving the welfare effects. JEL classification: F13, F16     

Public enterprises,planning and policy adoption: three welfare propositions

Despite widespread privatizations over the last three decades, public enterprises, as production units under government control, are still present in several countries and sectors. While the academic and political debate on the costs and benefits of privatization is vast, a focus on the rationale for public enterprises, from the standpoint of Social Cost Benefit Analysis, is missing. This paper aims at filling this gap and provides a normative discussion on public enterprises in a general equilibrium setting. The conditions under which public provision may be beneficial and the metrics for evaluating polices and projects under (a)symmetric information and (non)benevolent governments are presented in three welfare propositions. The main policy message points to the overall quality of institutions as a necessary pre-condition for socially desirable public enterprises. A sound institutional environment provides policy-makers with the correct incentives to design and implement meaningful policies even if public administrators adopt sub-optimal plans. Institutions should constrain self-interested policy-makers from disrupting the key welfare signals for policy adoption as well as for project appraisal, while bias in management is a relatively less important concern.     

An endogenous policy model of hierarchical government

Endogenous policy models usually neglect that government policies are frequently the result of decisions taken at different tiers by different agents, each enjoying some degree of autonomy. In this paper, policies are the outcome of the choices made by two agents within a hierarchy. A legislator decides on the budget to be successively spent by a bureaucrat. Both agents are lobbied by one or two interest groups. The combination of sequential decisionmaking and lobbying implies that the interaction between the agent at one tier and the interest group(s) depends on the exchange between the same interest group(s) and the agent at the other tier. Our results concerning multi-tier lobbying and legislatorial oversight substantially qualify the conventional wisdom related to one-tier lobbying. In particular, the reaction of the legislator to lobbying at the bureaucratic tier may make lobbying wasteful even when there is no competition from other lobbies. Moreover, the legislator benefits from lobbying only when there is competition between interest groups at the upper tier. It is also shown that competition for influence at the bureaucratic tier may work as a perfect substitute for legislatorial oversight. Extensions of the model indicate its usefulness for the analysis of decisionmaking in other multilevel governance structures, like federations or firms.     

Exploring welfare implications of resource equivalency analysis in natural resource damage assessments

Resource equivalency analysis (REA) has become the dominant method for calculating natural resource damages for biological injuries from pollution incidents. This methodology compares resources lost as a result of an incident to benefits that can be gained from a habitat or wildlife restoration project. Compensation is evaluated in terms of resource services instead of market currency. Recently, this approach has been questioned regarding its ability to provide adequate compensation based on economic welfare principles. The following paper examines these critiques and develops a model to quantify the welfare implications of using REA when some of its implicit assumptions are violated.We focus on the situation where compensatory restoration projects provide services that are comparable to those lost as a result of an incident. We examine simulation scenarios where the public has heterogeneous preferences for resources and where resource values change over time. Using the Hicks-Kaldor criterion, we find that the traditional REA provides an acceptable approximation of aggregate compensation for a reasonably wide range of economic and biological parameter combinations.     

The effects and policy implications of state aids to industry: an economic analysis

The use of state aids to industry is a poorly understood part of competition policy. Currently, the EU Commission presumes that state aids distort competition, yet it approves 98% of applications, often for social or distributional reasons. We argue that proper regulation of state aids should focus on two issues, the externalities generated and the inefficiencies arising from failures in competition between governments. We thus develop a new framework for EU policy and compare its implications with the existing practice of the EU Commission.     

An intertemporal general equilibrium analysis of financial crowding out: A policy model and an application to Australia

This paper constructs a two-period, perfect foresight general equilibrium model that analyzes crowding out. Private investment is debt financed, while government deficits are financed by money and debt. The existence of equilibrium is demonstrated and the model is applied to Australia for 1981–1982, the last years for which Australia had a fixed exchange rate. A benchmark solution is derived and two counterfactual simulations are carried out. Small increases in real government spending are found not to lead to crowding out, while an increase in the debt financed portion of the government's budget deficit does lead to crowding out.     

International interdependence and the welfare effects of monetary policy

A vertical chain of production and trade along this chain have been found to be a characteristic feature of globalized markets. This paper examines how a multistage production process that involves more than one country affects the transmission of monetary policy changes. We assume that imported and domestic inputs are required to produce final consumption goods. Monetary policy may have adverse beggar-thyself effects if the mutual dependence between countries is considerably high. The foreign country benefits from a home monetary expansion unless the competitiveness of markets is too low.     

Cost of policy choices: A microsimulation analysis of the impact on family welfare of unemployment and price changes

This paper calculates the welfare cost to families of an unemployment shock. Using U.S. data, we find an average annualized expected dollar equivalent welfare loss of $1,156 when the unemployment rate rises by one-percentage point. Relative to single families, the welfare loss is greater for married families and increases with education. We also estimate that a loss in purchasing power of 1.8% generates the same amount of welfare loss as a one percentage point rise in the unemployment rate. Additionally, the magnitude of the shock to purchasing power that a family is willing to endure to avoid a one percentage point increases in the aggregate unemployment rate rises with income. The results in this paper informs policy makers about the distributional implications of decisions likely to affect labor markets.