What are the ethics of welfare economics? And,are welfare economists utilitarians?

Four questions: (1) What is welfare economics? (2) Is it an ethical system?  (3) How do welfare economists differ from one another? And (4), how do they differ from other economic ethicists? Then utilitarianism is discussed. I was taught, and have inferred to others, that welfare economists are utilitarians. They are not. Welfare economics is an atypical form of welfare consequentialism: consequentialist in that whether an act or policy is right or wrong is a function of only its consequences—the adjective “welfare” because the only consequences that matter are the welfare (well-faring) consequences. Most welfare consequentialists are neither welfare economists nor utilitarians. And, most moral philosophers are not welfare consequentialists—neither are most normal folk.     

Is There an Austrian Approach to Transition?

This paper discusses the meaning of the term transition and its implications for policy making. It is suggested that an Austrian view would enhance a better understanding of what has been happening in Central and Eastern Europe in the past decade. Within this framework, the analysis should be based on three criteria: acquisition of knowledge, individual responsibility, free entry. It concludes that future transition analysis should devote more attention to the way a number of subjectivistic features drive institutional change, as well as to the features of the new opportunity sets made available to individuals.     

One date,one break?

This paper demonstrates that the conventional approach of using official liberalisation dates as the only existing breakdates could lead to inaccurate conclusions as to the effect of the underlying liberalisation policies. It also proposes an alternative paradigm for obtaining more robust estimates of volatility changes around official liberalisation dates and/or other important market events. By focusing on five East Asian emerging markets, all of which liberalised their financial markets in the late, and by using recent advances in the econometrics of structural change, it shows that (i) the detected breakdates in the volatility of stock market returns can be dramatically different to official liberalisation dates and (ii) the use of official liberalisation dates as breakdates can readily entail inaccurate inference. In contrast, the use of data-driven techniques for the detection of multiple structural changes leads to a richer and inevitably more accurate pattern of volatility evolution emerges in comparison with focussing on official liberalisation dates.     

Are Asian technology gaps due to human capital quality differences?

This paper adopts the meta-frontier framework using DEAP software to analyse the technological gap and level of catch-up of the three regions in Asia (namely, Southern Asia, Eastern Asia and ASEAN5) with respect to the Asian technology as a whole for the period 1980–2006. Countries in Eastern Asia displayed a technology gap ratio of 1.000 which posits that this region defines the best practice frontier for Asia. Meanwhile, countries in Southern Asia region displayed an improvement in technical efficiency and productivity relative to the Asian frontier but lagged in terms of technological advancement. All three regions recorded a lag in technological advancement with respect to the best practice frontier. In order to progress technologically, these countries should be equipped with the necessary infrastructure and human capital to encourage foreign investment and growth. The countries in Eastern Asia and ASEAN5 recorded the strongest productivity growth performance as a group when compared to the countries in Southern Asia. In Southern Asia and ASEAN5 region, the technology gap ratio is below 1.000 subsequent to the 1997/98 financial crisis. On the contrary, East Asia kept up with the benchmark frontier during most of the sample period inclusive of the period after the financial crisis.     

Back to Buchanan? Explorations of welfare and subjectivism in behavioral economics

In light of behavioral findings regarding inconsistent individual decision-making, economists have begun to re-conceptualize the notion of welfare. One prominent account is the preference purification approach (PP), which attempts to reconstruct preferences from choice data based on a normative understanding of neoclassical rationality. Using Buchanan’s notion of creative choice, this paper criticizes PP’s epistemic, ontological, and psychological assumptions. It identifies PP as a static position that assumes the satisfaction of given ‘true preferences’ as the normative standard for welfare. However, following Buchanan, choice should be understood dynamically as a process whereby preferences constantly regenerate. Accordingly, the meaning of welfare emerges from an ongoing quest for individual self-constitution. If this holds true, then rationality axioms cannot serve as a priori normative standards. Instead, creative imagination and learning processes must remain central to any understanding of welfare in economics.     

Does entry improve welfare? A general equilibrium approach to competition policy

We consider a simple general equilibrium model with imperfect competition. Firms are price takers in the input market and compete à la Cournot in some or all of the product markets and their technologies display constant returns to scale. We show that an increase in the number of firms in a given sector does not always improve welfare. We also provide a characterization in terms of mark-up rates of the sectors for which entry is welfare enhancing. Our results challenge the common idea that mergers with no cost synergy are not desirable for consumers.     

How to Increase R&D in Transition Economies? Evidence from Slovenia

The recent initiative of the European Union Lisbon Agenda to increase levels of R&D investment is addressed by studying the determinants of R&D investment in one of the recent EU entrants, Slovenia. Previous empirical literature—mainly cross‐sectional in nature—has tested the demand–pull hypothesis and found that overall R&D expenses may be driven by output demand. We use a panel of more than 150 of the largest Slovene firms over the period 1996–2000, modeling firms' R&D behavior within an error‐correction framework and estimating it in a system GMM specification. While we find that sales have a significant role in inducing R&D expenditures, we also show that the availability of internal funds and wage bargaining represent important factors determining R&D expenses. Moreover, firms owned by insiders (workers and/or managers) and/or firms with dispersed ownership (small shareholders) display higher R&D investments than firms owned by privatization investment funds or by other firms.     

Russia and Eastern Europe: Is Transition Over?

Though it is still to early to assess the final outcome of transformation in Central and Eastern Europe, since 1995 there is a growing perception that the transition process is by and large completed in Central Europe and even in Eastern Europe. This is not yet the case where Russia is concerned. It is not just that the process began later; what happened there is still percieved as confusing and unclear, and hence gives way to very contrasting judgements. Hence emphasis is put on Russia in the following review essay.     

Qualifications,discrimination, or assimilation? An extended framework for analysing immigrant wage gaps

In this paper, we analyze immigrant wage gaps and propose an extension of the traditional wage decomposition technique, which is a synthesis from two strains of literature on ethnic/immigrant wage differences, namely the assimilation literature and the discrimination literature. We estimate separate wage equations for natives and a number of immigrant groups using panel data sample selection models. Based on the estimations, we find that the immigrant wage gap is caused by a lack of qualifications and incomplete assimilation, and that a large fraction of that gap would disappear if only immigrants could find employment and thus accumulate work experience.First version received: June 2001 / Final version received: October 2003The project has been supported financially by the Danish Research Agency (the FREJA grant) and TSER. Furthermore, the first author received support from the Danish Social Science Research Council (SSF) while this work was undertaken. We are grateful for comments from the editor of Empirical Economics, Bernd Fitzenberger, two anonymous referees, several seminar and conference participants, and for the research assistance done by Thomas H. Jensen.     

Would you like to shrink the welfare state? A survey of European citizens

The fundamental problems facing European welfare states – high unemployment and unsustainable public pensions plans in particular – have been in the political debate for years, so why have we seen so little reform? To find out, we surveyed the opinions of citizens in France, Germany, Italy and Spain on their welfare states and on various reform options. This is what we found. First, most workers underestimate the costs of public pensions, though they are aware of their unsustainability. Second, the status quo is a majoritarian outcome: a majority of citizens opposes cuts to social security and welfare spending, but also opposes further increases. Since population ageing without reform implies an automatic expansion, our results suggest that most citizens would favour reforms that stabilize but do not shrink the current welfare states. Third, many would welcome changes in the allocation of benefits. A large number of workers in Italy and Germany would be willing to opt out of public pensions and replace them with private pensions, though the details of how this scheme is formulated matter for its popularity. And many Italians and Spaniards would welcome an extension of the coverage of unemployment insurance. Fourth, conflicts over the welfare state are mainly shaped by the economic situation of the respondent, while political ideology plays a limited role. Disagreements are found along three dimensions: young versus old, rich versus poor, and 'outsider' versus 'insider' in terms of labour market status. From a practical point of view, this suggests that there is scope to bundle reforms strategically in order to build a large and mixed coalition of supporters.
— Tito Boeri, Axel Börsch-Supan and Guido Tabellini     

Africa: On the Rise,but to Where?

Africa's hitherto negative image is now being rapidly replaced by a new persona: ‘Africa on the rise’. Developed mainly from Africa's growth experience, this re-imaging of Africa has generated considerable interest even among Africanists concerned that the continent has often been the target of crisis jokes. Even more notably, the rebranding of Africa has gained traction in corridors of power and centres of finance. For this latter group, however, the narrative signals more than a cultural repackaging. It is about confirming that Africa is ripe and ready to host investment and to open up markets in areas where they did not exist or existed but were not capitalist in form. Either way, however, the ‘Africa on the rise’ narrative achieves a major political and economic goal. Neglecting ethical questions about sustainable jobs, inequality and ecological crisis, while extolling the virtues of capital accumulation, it extends a particular neoliberal ideology which favours people with market power, not the majority with precarious positions or their relationship with nature.     

The Economic Demography Transition: Is China's ‘Not Rich,First Old’ Circumstance a Barrier to Growth?

Around 1980 China adopted a reformist economic agenda and a restrictive population policy. China's consequential ‘getting old before rich’ discourse is herein advanced into the ‘economic demography transition’ and economic demography matrix (EDM). EDM transition analysis of 182 economies from 1996 to 2016 identifies: i) China to be one of many ‘poor‐old’ economies; and ii) a majority of countries recently entering the high‐income group were first old. These results question China's 1980 s‐based fears that early demographic transition would stall development and also call for enhanced nuance in understanding economic and demographic change links.     

The politics of growth: Can lobbying raise growth and welfare?

We consider a setup where lobbyist firms undertake contributions to an office-motivated policy maker in exchange for profit increasing regulations, in a general equilibrium model of R&D-driven growth. We find that, despite increasing concentration—which leads to higher prices and less varieties—lobbying may stimulate growth and increase welfare by means of an expansion in aggregate demand if its real costs are small. This conclusion is supported by a simple calibration exercise.     

Insurance and rural welfare: what can panel data tell us?

Assessing the scope for insurance in rural communities usually requires a structural model of household behaviour under risk. One of the few empirical applications of such models is the study by Rosenzweig and Wolpin (1993 Rosenzweig, MR and Wolpin, K. 1993. Credit market constraints, consumption smoothing, and the accumulation of durable production assets in low-income countries: investment in bullocks in India. Journal of Political Economy, 101: 223–44. [Crossref], [Web of Science ®] , [Google Scholar]) who conclude that Indian farmers in the ICRISAT villages would not benefit from the introduction of formal weather insurance. In this article we investigate how models such as theirs can be estimated from panel data on production and assets. We show that if assets can take only a limited number of values the coefficients of the model cannot be estimated with reasonable precision. We also show that this can affect the conclusion that insurance would not be welfare improving.     

Does Democracy Lead to a Better Environment? Deforestation and the Democratic Transition Peak

The relationship between democracy and environment is subject to controversy. Some scientists find that democracy has a positive impact in reducing environmental disruption. Other scholars claim that democracy tends to accelerate environmental degradation. By using deforestation rates as a proxy for environmental disruption, we suggest that both sides might be right. Our quantitative analysis has three important outcomes. First, there is evidence of an inverted U-shaped relationship between deforestation and democracy. Second, countries in democratic transition experience the highest deforestation rates, compared to non-democracies and mature democracies. Third, in explaining deforestation rates democracy has larger explanatory power than income. This last result implies that in reducing deforestation rates the emphasis should not only be on economic development but even more on democratization.     

Technology gaps in European banking: Put the blame on inputs or outputs?

This paper investigates the production efficiency of 12 European banking systems over the period 1997–2004, taking into account possible technology heterogeneity. Using a non-parametric metafrontier framework, efficiency and metatechnology ratio measures are computed and decomposed into input- and output-invariant components. Empirical findings indicate the existence of significant and rather increasing technology heterogeneity within European banking. A typology of the national banking systems is also developed, based on the overall productive performance with respect to the European technological edge, the absorptive capacity and the role of knowledge spillover effects. Decomposition results draw attention to catching up policies focusing on input and/or output scale adjustments.     

The EU Structural Funds and trust in politicians: another unwanted outcome?

Empirica - Amidst concerns about the effectiveness of the EU Structural Funds and discoveries of their unintended effects, could it be that they also undermine trust in politicians in the recipient...     

Green, Brown, and Now White Certificates: Are Three One Too Many? A Micro-Model of Market Interaction

In recent years, European environmental policy has focused primarily on the reduction of carbon emissions and on fostering the expansion of renewable energy production. In 2008, the EU established the 20/20/20 vision, demanding that carbon emissions and energy consumption both be reduced by 20%, and that the production of Green Energy be further increased in order to account for 20 percent of total energy production by 2020. Regarding the reduction of emissions, a cap-and-trade system (Brown Certificates) was implemented. for the fostering of so called renewable, i.e. Green, energy different nations chose different measures, such as direct subsidies, feed-in-tariffs (e.g. Germany), or Green Certificate markets based on a quota system (e.g. Denmark). Recently, a market-based instrument (White Certificates) intended to improve efficiency of non-commercial energy consumption is also on the agenda of several European nations (demand side management). All of these instruments are directed towards the energy market. Therefore, this paper deals with identifying interdependencies and trade-offs that might occur, if both, supply and demand side, of a single market are regulated by different policy measures. Our results show that, in fact, significant interdependencies and trade-offs exist. In our model, a feed-in tariff in combination with an emission cap or tax renders the most favorable results??in the absence of demand side management.     

Social investment: A guiding principle for welfare state adjustment after the crisis?

The European welfare states have undergone a significant amount of change over the last decades. In light of the unresolved tensions resulting from changed macroeconomic conditions, the emergence of new social risks as well as from the consequences of the Great Recession and its aftershocks, more adjustments are needed. The present paper investigates the current outlook on welfare state change, retracing its socio-economic drivers and the salient steps that were undertaken to reform welfare states in the last decades. Since the outbreak of the crisis, calls to adopt a social investment perspective on welfare state reform intensified, both in the academic field and at the EU policy-level. Ample space is therefore devoted to the discussion of this perspective, its conceptual basis, and implementation. For a number of reasons, social investment seems the most appropriate approach to frame the objectives that contemporary welfare states have to pursue and to devise a consistent set of policies. The objections which have been moved against the social investment perspective have however to be taken seriously. Moreover, current developments indicate diverging trends across EU Member States, with lack of progress in those countries which are most in need of a social investment strategy. To become an effective policy paradigm, the social investment perspective thus needs a stronger anchoring within the EU architecture and more co-ordinated commitment from Member States.