Estimation of the public benefits of urban water supply improvements in Ethiopia: a choice experiment

Improving existing drinking water supply services in developing countries depends crucially on available financial resources. Cost recovery rates of these services are typically low, while demand for more reliable services is high and rapidly growing. Most stated preference-based demand studies in the developing world apply the contingent valuation method and focus on rural areas. This study examines household Willingness to Pay (WTP) for improved water supply services in a choice experiment in an urban area in Ethiopia, a country with the lowest water supply coverage in Sub-Saharan Africa. The design of the choice experiment allows estimation of the value of both drinking water supply reliability and safety. The estimated economic values can be used in policy appraisals of improved supply investment decisions. Despite significant income constraints, households are willing to pay up to 80% extra for improved levels of water supply over and above their current water bill. Women and households living in the poorest part of the city with the lowest service levels value the improvement of water quality most. As expected, also averting behaviour and expenditures play an important role.     

Using revealed and stated preference data to estimate the scope and access benefits associated with cave diving

In a single-site travel cost model framework, revealed and stated preference data are jointly estimated to provide the first use-value estimate associated with recreational cave diving. Focusing on one of Florida's first magnitude springs, we estimate average per-person per-trip use values of approximately $155, generating annual cave diving use values in the region of $1075. Further, in an investigation of potential site quality changes, we find that divers are sensitive to scope effects with an additional cave system increasing annual per-person use values by approximately $100, while improved access yields an additional $50 in per-person annual consumer surplus. Finally, three additional model specifications are estimated and indicate that divers use different travel cost preferences when assessing their revealed and stated preference trip counts but a single preference structure to evaluate site quality changes.     

东北地区城乡统筹协调发展路径分析

面对区域经济新一轮的竞争,推进东北地区城乡统筹协调发展意义重大.东北地区由于自然禀赋、地理结构和经济社会发展历史的高度一致性,决定了东北三省城乡统筹协调发展路径的相似性.在加快区域经济发展中,要运用工业反哺农业,城市支持乡村等综合手段,走出一条以新农村建设为重点的统筹城乡发展新路径.     

Macroeconomic determinants of bank spread in Latin America: a recent analysis with special focus on Brazil

Latin America has one of the highest interest margins in the world; furthermore, credit to private sector and bank spread are negatively correlated. Brazil, in particular, has one the highest bank spreads in the world – it is even so far the highest one among the Latin American economies. Indeed, despite of the decline in interest rates since mid‐1999, bank spread in Brazil continues to be extremely high in international terms, and in recent years has stood at around 40 percentage points. This paper intends to explore the discussion in the recent literature on bank spread about what determines bank spread in Latin America, with special focus on the Brazilian case, seeking in particular but not exclusively to analyze the macroeconomic determinants of bank spread in recent times.     

Using inverted Engel curves to estimate material standards of living in a household

This article demonstrates how to estimate latent total consumption expenditure or material standard of living in households by inverting estimated Engel curves. While the conventional estimator, total purchase expenditure, is unbiased for latent total household consumption expenditure, it is not variance minimizing since it is an un-weighted sum. In two stages, this article derives a variance-minimizing, unbiased estimator by first estimating and inverting Engel curves; then combining the estimators from the inverted Engel curves. The employed latent variable method allows for utilization of non-expenditure relations. The suggested method may help improve the accuracy in studies of consumption inequality and tax evasion.      

Using experimental economics to measure the effects of a natural educational experiment on altruism

Economic research examining how educational intervention programs affect primary and secondary schooling focuses largely on test scores although the interventions can affect many other outcomes. This paper examines how an educational intervention, a voucher program, affected students' altruism. The voucher program used a lottery to allocate scholarships among low-income applicant families with children in K-8th grade. By exploiting the lottery to identify the voucher effects, and using experimental economic methods, we measure the effects of the intervention on children's altruism. We also measure the voucher program's effects on parents' altruism and several academic outcomes including test scores. We find that the educational intervention positively affects students' altruism towards charitable organizations but not towards their peers. We fail to find statistically significant effects of the vouchers on parents' altruism or test scores.     

Using demographic identification to estimate the effects of board size on corporate performance

Motivated by agency theory, we investigate the effect of board size on corporate outcomes. To address endogeneity, we exploit the variations in the director-age populations across the states in the US. We argue that firms with access to a larger pool of potential directors tend to have larger boards. Consistent with this notion, our empirical results show that firms located where the size of the director-age population is larger have significantly larger board size. Because the director-age population represents broad demographic trends outside of any firm’s control, it is unlikely related to firm outcomes or policies and should be exogenous. Using the director-age population as our instrument, we estimate the effects of board size on firm value and profitability. Our approach is less vulnerable to endogeneity and is more likely to show a causal effect.     

Using Engel curves to estimate bias in the Canadian CPI as a cost of living index

Abstract.  Semiparametric Engel curves are used to infer bias in the Canadian CPI as a Cost of Living Index. The budget share of food has long been used as an indicator of welfare. We compare households with the same levels of CPI deflated total expenditure over the period 1978–2000. Differences in the expenditure share of food are attributed to the CPI failing to capture changes in costs of living. We employ a novel econometric approach using a single index penalized linear spline model. Over the period, we find that the CPI overstated changes in the cost of living between 1.33 and 1.86% for the four household types considered. JEL classification: D1, C1     

The impact of public smoking bans on well‐being externalities: Evidence from a policy experiment

Recent studies on the effects of anti‐smoking policies on subjective well‐being present mixed results and do not account for potential externalities, especially among couples. We contribute to the literature by evaluating the impact of smoking bans on well‐being externalities among smokers and non‐smokers as well as couples of different types of smokers. We exploit the policy experiment provided by the timing of the UK public smoking bans and measure well‐being via the GHQ . We employ matching techniques combined with flexible difference‐in‐differences fixed effects panel data models on data from the British Household Panel Survey. The joint use of matching with fixed effects specifications allows building more comparable treatment and control groups, producing less model‐dependent results and accounting for individual‐level unobserved heterogeneity. We find that public smoking bans appear to have a statistically significant short‐term positive impact on the well‐being of married individuals, especially among women with dependent children. These effects appear to be robust to alternative specifications and placebo tests and are discussed in the light of the economic theory and recent evidence.     

Foreign direct investment in OECD countries: a special focus in the case of Greece

Foreign Direct Investment (FDI) is considered as an important instrument for economic development all over the world. The aim of this paper is to examine the FDI inflows determinants for 24 OECD countries. To this end we employ annual data from 1980 to 2012 for a series of potential FDI determinants that have been identified as the most important by the relevant literature. Our empirical strategy employs both the standard fixed effects panel as well as a dynamic panel approach. The empirical findings highlight the importance of market size, trade openness, unit labor cost, schooling, taxation, gross capital formation, institutional variables, and ROA/ROE as significant FDI determinants. In the case of the dynamic panel model those FDI inflows determinants are not uniform for all country groups. Additionally, the results indicate that corporate tax rates clearly affect FDI attractiveness. This finding is robust when testing different countries subgroups. The present study has important policy implications indicating the factors that host economies should place emphasis on in order to attract FDI inflows. Policy makers should not only pay attention to the corporate tax rate level but they should also design a simple, stable and transparent taxation system that minimizes the relevant business risk.     

Correction to: Framing effects on risk-taking behavior: evidence from a field experiment in multiple choice tests

Experimental Economics -     

Using threshold cointegration to estimate asymmetric price transmission in the Swiss pork market

This paper employs threshold cointegration tests that allow for asymmetric adjustment towards a long-run equilibrium relationship to examine the relationship between producer and retail pork prices in Switzerland. The short-run adjustments are also examined with asymmetric error correction models that are compared to the conventional symmetric error correction models. The results indicate that price transmission between the producer and retail levels is asymmetric, in the sense that increases in producer prices that lead to declines in marketing margins are passed on more quickly to retail prices than decreases in producer prices that result in increases in the marketing margins.     

Using data envelopment analysis approach to estimate the health production efficiencies in China

By using Data Envelopment Analysis approach, we treat the health production system in a certain province as a Decision Making Unit (DMU), identify its inputs and outputs, evaluate its technical efficiency in 1982, 1990 and 2000 respectively, and further analyze the relationship between efficiency scores and social-environmental variables. This paper has found several interesting findings. Firstly, provinces on frontier in different year are different, but provinces far from the frontier keep unchanged. The average efficiency of health production has made a significant progress from 1982 to 2000. Secondly, all provinces in China can be divided into six categories in terms of health production outcome and efficiency, and each category has specific approach of improving health production efficiency. Thirdly, significant differences in health production efficiencies have been found among the eastern, middle and western regions in China, and among the eastern and middle regions. At last, there is significant positive relationship between population density and health production efficiency but negative relationship (not very significant) between the proportions of public health expenditure in total expense and efficiency. Maybe it is the result of inappropriate tendency of public expenditure. The relationship between abilities to pay for health care services and efficiency in urban areas is opposite to that in rural areas. One possible reason is the totally different income and public services treatments between rural and urban residents. Therefore, it is necessary to adjust health policies and service provisions which are specifically designed to different population groups. __________ Translated from Jingji Yanjiu 经济研究 (Economic Research Journal), 2006, (7): 92–105     

Theory of negative consumption externalities with applications to the economics of happiness

This paper investigates the problem of obtaining Pareto efficient allocations in the presence of negative consumption externalities. In contrast to the conventional wisdom, we show that even if consumers’ preferences are monotonically increasing in their own consumption, one may have to dispose of resources to achieve Pareto efficiency when negative consumption externalities exist. We provide characterization results on destruction both for pure exchange economies and for production economies. As an application, our results provide an explanation to Easterlin’s paradox: average happiness levels do not increase as countries grow wealthier. We thank an anonymous referee, Xiaoyong Cao, Li Gan, and Tapan Mitra for helpful comments and suggestions that improved the exposition of the paper. The first author thanks the National Natural Science Foundation of China and Private Enterprise Research Center at Texas A&M University for financial support.     

Estimating returns to education in urban China: Evidence from a natural experiment in schooling reform

Whereas there is a large literature on estimating returns to education in China, few studies have attempted to address the endogeneity of schooling choices. We explore the arguably exogenous changes in the duration of secondary education as the instrumental variable to identify the causal effect of years of schooling in urban China. The schooling years in most middle schools were reduced from three years to two years during the Cultural Revolution. The Chinese government gradually restored the middle school education years from two years to three years after 1978. An important feature of these policy changes is their large geographic variations. From local gazetteers, we find out the exact years when education years were reduced from three to two and when they were restored from two to three. Using the exogenous variation in schooling reform, we estimate that the returns to education are 12.7% for both monthly wage and disposable income.     

Asymmetric search and prospect theory: choice experiment on consumer willingness to search in the gasoline retail market

We use an internet survey conducted among a representative random sample of drivers in the State of Ohio consisting of a choice experiment designed to examine the mechanism driving asymmetric search. The internet survey affords us the opportunity to overcome endogeneity difficulties by imposing exogenous price changes on gasoline consumers to examine the decision-making process behind intended search decisions. We randomly assigned participants to one of five price treatments (either 2.5 or 5% above or below their reported expected price, or no change). We provide a simple empirical model to derive testable implications under prospect theory and use the internet survey to test them. Results indicate that among the respondents who faced prices below their expected price, only 12% chose to search, whereas 45% searched when prices were above. Further, we find results consistent with asymmetric search being driven by prospect theory. The change in consumers’ willingness to search is twice as large when prices exceed expectations by 2.5% relative to when prices exceed them by 5% suggesting that consumers derive utility of finding a good deal evaluated relative to a reference price. We show that this result is inconsistent with standard utility theory or consumers using alternative reference prices.     

Endogenous timing in the switching of technology with Marshallian externalities

We analyze endogenous timing in the switching of technology. Each user chooses when to purchase a new product which embodies new technologies characterized by Marshallian externalities. The technological switch occurs when a large number of users purchase new products. Under complete information, multiple market equilibria exist, and one of the equilibria in which technological switching occurs is efficient. However, if we introduce even a small amount of uncertainty, the switch is delayed in the unique equilibrium under perfect competition, resulting in a loss of social welfare. The market power of a monopolistic supplier of new products alleviates this inefficiency.     

Willingness to accept compensation for the environmental risks of oil transport on the Amazon: A choice modeling experiment

This paper looks at the question of whether subsistence level/indigenous people place a value on the preservation of ecosystems independent of direct impacts of environmental change, such as impacts on their production activities. The economics literature generally suggests that non-use values don't exist among the poor and in the informal sector of the economy. We examine this issue through a choice modeling experiment. A survey was conducted of rainforest communities who live on the banks of the Amazon River (Rio Solimões), in the vicinity of proposed oil and gas pipelines. The data were analyzed in the choice modeling framework, revealing relatively high amounts of compensation that were necessary in order to accept the potential ecosystem damages associated with oil transport, even if the people were completely compensated for direct damages such as loss of access to productive resources. These results suggest that environmental quality is important for its own sake, a result that is very different from the implicit assumption among many economists.     

The public value of improving a weather forecasting system in Korea: a choice experiment study

The Korean government plans to improve the quality of its weather forecasting system in order to increase its public utility. The benefits arising from the implementation of this plan should be measured. To this end, this study applies a choice experiment to four attributes: the update frequency of both short- and medium-range forecasts, and the accuracy of both. A survey of 1000 randomly selected households was undertaken in Korea. In the study results, the marginal willingness-to-pays, respectively, for one more update of the short-range forecast per day, for a 1% increase in the accuracy of the short-range forecast, for changing the update frequency of the medium-range forecast from once a day (reference level) to twice a day, and for a 1% increase in the accuracy of the medium-range forecast as a result of improving the weather forecast service were estimated to be KRW 499.3 (USD 0.45), 108.3 (0.10), 346.5 (0.31), and 80.9 (0.07) per household per month. The findings can provide policy-makers with useful information for both evaluating and planning improvements in the weather forecasting system.     

A note on the energy consumption of urban slums and rural areas in Brazil

Direct energy consumption in São Paulo, Brazil, for slums and rural areas were compared, with the conclusion that they are very similar for the same expenditure regardless of the geographical area in which they occur. Slums are shown to be more energy efficient. The relevance of these results to account for changes in energy consumption due to social changes is emphasized.