Old-age benefits and retirement decisions of rural elderly in Brazil

I estimate the impact of social security benefits on retirement decisions of rural workers by studying changes in the rules governing old-age benefits for rural workers in Brazil. I focus on a reform implemented in 1991, which reduced the minimum eligibility age, increased benefits, and extended the program to non-heads of households. Because those benefits come with no strings attached — they are not means or retirement tested — any behavioral response is a pure income effect. The main finding of the paper is that access to old-age benefits is a strong determinant of retirement of rural workers in Brazil: receiving old-age benefits increases the probability of not working by about thirty-eight percentage points and reduces total hours per week by 22½ h.     

Countries, regions and trade: On the welfare impacts of economic integration

We study the impact of falling international trade costs and falling national transport costs on the economic geography of countries involved in an integration process. Each country is formed by two regions between which labor is mobile, whereas there is no international mobility. Goods can be traded both nationally and internationally at positive, but different, costs. A decrease in trade costs and/or in transport costs has a direct impact on prices and wages, which allows us to account for the impact of changes in these parameters on the economic geography and welfare of each country. We show that, as trade barriers fall, the benefits of integration come after its costs. We also show that national transport policies are of the beggar-thy-neighbor type. On both counts, policy coordination is required in the process of economic integration.     

Structural gravity equations with intensive and extensive margins

Abstract .  Recent trade models with heterogeneous firms have changed the interpretation of gravity equations. Chaney (2008) shows that the effect of distance on the number of exporters and average exports depends on key parameters characterizing the elements of market structure. We use firm-level export data to estimate the structural parameters of Chaney's model. Controlling for the fixed costs of exporting, our estimated parameters match, for 28 out of 34 industries, the model's theoretical predictions. Our industry parameters allow us to evaluate separately the effect of transport costs and tariffs on trade, without having to resort to detailed data on trade frictions.     

THE ECONOMIC VALUE OF PREVENTING RESPIRATORY AND CARDIOVASCULAR HOSPITALIZATIONS

This article provides estimates of the economic benefits of reducing respiratory and cardiovascular hospitalizations based on cost of illness and willingness to pay. The willingness-to-pay estimates indicate that individuals value prevention of a five-day hospitalization event at an average of approximately $2,400. Average total costs of illness per hospitalization are $22,000–39,000. A comprehensive cost-of-illness estimate that includes value of time losses for the hospitalization and at-home recovery periods provides a close approximation of total costs borne by third parties plus individual willingness to pay. Both exceed previous cost-of-illness estimates by about 10–25%. (JEL D61, I18, Q25 )     

Skills, agglomeration and segmentation

This paper studies the role of skill heterogeneity in “new economic geography” models of location. In our setting, products are both horizontally and vertically differentiated, and producing higher quality goods requires workers with higher skills. Selling to customers based in a different location entails iceberg-type transport costs and additional “communication costs” consisting of a fixed quality loss. We show that the presence of pecuniary externalities creates a mechanism which always promotes spatial sorting of workers according to their skill levels. In particular, in all stable equilibria, workers with higher skill choose to stay in the location where aggregate skill and income is higher, while the less skilled stay in the other.     

Access to capital in rural Thailand: An estimated model of formal vs. informal credit

This paper analyzes the mechanism underlying access to credit, focusing on two important aspects of rural credit markets. First, moneylenders and other informal lenders coexist with formal lending institutions such as government or commercial banks, and, more recently, micro-lending institutions. Second, potential borrowers presumably face sizable transaction costs in obtaining external credit. We develop and estimate a model based on limited enforcement and transaction costs that provides a unified view of these facts. Based on data from Thailand, the results show that the limited ability of banks to enforce contracts, more than transaction costs, is crucial in understanding the observed diversity of lenders.     

Public pension and household saving: Evidence from urban China

We relate household savings to pension reform, to explain the high household savings rates in urban China from a new perspective. We use the exogenous – policy-induced – variation in pension wealth to estimate explicitly the impact of pension wealth on household savings, and obtain evidence of a significant offset effect of pension wealth on household savings. Although the size of the effect depends on the parameter values assumed, the finding that household savings are affected by pension reform is robust. Our estimates show that, under plausible scenarios, pension reform boosted household savings rates in 1999 by about 6–9 percentage points for cohorts aged 25–29 and by about 2–3 percentage points for cohorts aged 50–59. Our results also indicate that declining pension wealth reduces expenditure on education and health more than on other consumption items.     

The effects of environmental taxes and quotas on the optimal timing of emission reductions under Choquet–Brownian uncertainty

The effects of two environmental policy options for the reduction of pollution emissions, i.e. taxes and non-tradable quotas, are analyzed. In contrast to the prior literature this work endogenously takes into account the level of emissions before and after the adoption of the new environmental policy. The level of emissions is determined by solving the firm's profit maximization problem under taxes and fixed quotas. We find that the optimal adoption threshold under taxes is always larger than the adoption threshold under fixed quota, even in a setting characterized by ecological uncertainty and ambiguity – in the form of Choquet–Brownian motions – on future costs and benefits over adopting environmental policies.     

Mobile capital and the home market effect

Abstract Most existing studies examine the home market effect (HME) in a framework with immobile labour as the only production factor and the assumption of a freely traded homogeneous good is known to be crucial for the HME to emerge. This study explores the HME in the presence of mobile capital by use of a footloose capital model allowing for positive transport costs of the homogeneous good. The mobile capital generates a channel to offset the trade imbalance of a country. As a result, the HME always appears for arbitrary transport costs in both sectors of differentiated and homogeneous goods.     

Ecological discounting

Which rates should we use to discount costs and benefits of different natures at different time horizons? We answer this question by considering a representative agent consuming two goods whose availability evolves over time in a stochastic way. We extend the Ramsey rule by taking into account the degree of substitutability between the two goods and of the uncertainty surrounding the economic and environmental growths. The rate at which environmental impacts should be discounted is in general different from the one at which monetary benefits should be discounted. We provide arguments in favor of an ecological discount rate smaller than the economic discount rate. In particular, we show that, under certainty and Cobb-Douglas preferences, the difference between the economic and the ecological discount rates equals the difference between the economic and the ecological growth rates. Using data about the link between biodiversity and economic development, I estimate that the rate at which changes in biodiversity should be discounted is 1.5%, whereas changes in consumption should be discounted at 3.2%.     

Paving the Road to Export: Assessing the Trade Impact of Road Quality

Assessing the trade impacts of domestic transport costs is data demanding and analyses that examine the effects of road quality, a critical aspect in regional and public policy, practically do not exist in the international trade literature. The few studies available rely mostly on distance-based measures as proxies of transport costs which impede analyzing the trade effects of transport-infrastructure improvements. In this paper, we combine highly disaggregated records of export flows with detailed geo-referenced information of the Colombian transport network, including its road quality, as well as real measures of transport costs of shipping goods within the country to measure the trade impacts of improving road quality. We find that the trade effects of improvements in road quality are relatively small on average; however, there is considerable heterogeneity in the magnitude of the effects. We show that longer routes have larger shares of their roads in poor conditions; accordingly, the trade impacts of shipments originated in remote regions are found to be quite substantial.     

HOME MARKET EFFECT AND TRADE COSTS*

Concerning industrial location, the home market effect (HME) predicts that a large country is a net exporter of industrial goods. Recent literature shows that high transport costs in the traditional sector may obscure the HME in an early model of two sectors à la Helpman and Krugman. This paper presents an alternative model that displays the relationship between the HME and arbitrary transport costs while allowing for the derivation of analytical results by simple algebra. Our results show that the transport costs in the traditional sector do not obscure the HME but constitute a dispersion force that decreases the impact of the HME.     

Fungibility and the flypaper effect of project aid: Micro-evidence for Vietnam

While most economists assume that aid is fungible, most aid donors behave as if it is not. Recipient government responses to development project aid are studied in the context of a specific World Bank-financed project. We estimate the impact of a rural road rehabilitation project in Vietnam on the kilometers of roads actually rehabilitated and built. Using local-level survey data collected for this purpose, we test whether the evidence supports the standard economic argument that there will be little or no impact on rural roads rehabilitated, given fungibility. Instead of full fungibility, we find evidence for a “flypaper effect”. Although impacts on rehabilitated road kilometers were less than intended, more roads were built in project areas. Our results suggest that there was fungibility within the sector, but that aid largely stuck to that sector.     

Doubts or variability?

Reinterpreting most of the market price of risk as a price of model uncertainty eradicates a link between asset prices and measures of the welfare costs of aggregate fluctuations that was proposed by Hansen, Sargent, and Tallarini [17], Tallarini [30], Alvarez and Jermann [1]. Prices of model uncertainty contain information about the benefits of removing model uncertainty, not the consumption fluctuations that Lucas [22] and [23] studied. A max-min expected utility theory lets us reinterpret Tallarini's risk-aversion parameter as measuring a representative consumer's doubts about the model specification. We use model detection instead of risk-aversion experiments to calibrate that parameter. Plausible values of detection error probabilities give prices of model uncertainty that approach the Hansen and Jagannathan [11] bounds. Fixed detection error probabilities give rise to virtually identical asset prices as well as virtually identical costs of model uncertainty for Tallarini's two models of consumption growth.     

Competition in the traditional sector does not matter for the ‘Core–Periphery’ model

We modify Paul Krugman’s (1991) ‘Core–Periphery’ model by replacing the traditional competitive sector with a monopolistically competitive one. We show that the structure of spatial equilibria remains the same as in the original model. This result continues to hold true under Cournot or Bertrand oligopolistic competition with free entry in the traditional sector. The key factor that explains why the nature of competition in the traditional sector does not matter for the spatial equilibria is constant expenditure shares–due to nested Cobb–Douglas and CES preferences–which imply that trade in the traditional sector is independent from its sectoral characteristics.     

Rising trade costs? Agglomeration and trade with endogenous transaction costs

Abstract.  While transport costs have fallen, the empirical evidence also points at rising total trade costs. In a model of industry location with endogenous transaction costs that seeks to replicate features from the machinery industry, we show how and under which conditions a decline in transport costs can lead to an increase in the total cost of trade. The subtle relationship between (endogenous) transport costs and the sensitivity of trade to distance is also explored.     

Valuing the non-timber forest products in the Mediterranean region

The potential of non-timber forest products (NTFPs) in the Mediterranean region as a source of livelihood and sustainable development has been widely recognized. Yet, surprisingly few efforts have been made to value them comprehensively. Valuation efforts usually focused on selected NTFPs traded on formal markets, at local level. This paper aims to provide comprehensive estimates of NTFPs benefits at national and regional level in the Mediterranean region. Six major groups of NTFPs are identified: firewood, cork, fodder, mushrooms, honey and other NTFPs. Valuation is based on a wide variety of techniques, drawing on official statistics, and supplemented by results of local surveys. It shows that at Mediterranean level, NTFPs provide annual benefits of about €39/ha of forests, accounting for about a fourth of the total economic value of forests estimated by this study. The average estimate for southern countries (€54/ha) is considerably higher than for northern (€41/ha) and eastern countries (€20/ha). The paper reveals the degree of importance of the main NTFPs benefits for the country groups and the region as a whole. It also discusses some reasons of concern when drawing policy tools for improving rural income and forest conservation in the Mediterranean.     

Road to productivity: Effects of roads on total factor productivity in Indian manufacturing

A denser road network lowers transport costs and stimulates manufacturing total factor productivity (TFP). The placement of roads, however, is likely to be non-random. For identification, we exploit cross-state variation in the strength of centre-state partisan alignment that asymmetrically affects road building in aligned states. Using panel data on manufacturing establishments in India from 1998 to 2012, we find that, a 1% increase in road density raises value-added TFP by about 0.25%, on average. A closer examination reveals that the effect varies by plant characteristics and road type. Younger establishments are more likely to gain from a denser road network with highways playing a prominent role. The results are robust to imperfections in the instrument and to other sensitivity checks.     

Do transport costs have a differential effect on trade at the sectoral level?

This article aims to analyse the determinants of transport costs and to investigate their influence in international trade with a sample of disaggregate trade data. First, we estimate a transport-cost function using cross-section data on maritime and overland transport for four sectors: agro-industry, ceramic tiles, motor vehicle parts and accessories, and electrical and mechanical household appliances, obtained from interviews held with Spanish exporters and logistics operators in 2001. Second, we study the relationship between transport costs and trade and estimate the elasticity of trade with respect to transport costs for each sector. Important differences for high value- and low value-added sectors are observed. The trade-equation estimation shows that higher transport costs significantly deter trade, especially in high value-added sectors.     

The wage and non-wage costs of displacement in boom times: Evidence from Russia

This paper analyzes the costs of job loss over the years of a booming economy, 2003–2008, using unique data from the Russian Longitudinal Monitoring Survey. In addition to analyzing standard labor market outcomes, such as forgone earnings, employment, hours worked and wage penalties, our unique data set allows us to investigate additional non-wage costs of displacement, in particular, fringe benefits, the propensity to have an informal employment relationship or a temporary contract. We find that displaced individuals face large foregone earnings following displacement, which are heterogeneous across education and ownership type of firm from which the worker separated. There is no evidence of wage penalties for re-employed displaced workers. However, we find an increased probability of working in informal or temporary jobs if previously displaced and a reduction in the number of benefits.