Climate Change Taxes and Energy Efficiency in Japan

In 2003 Japan proposed a Climate Change Tax to reduce its CO₂ emissions to the level required by the Kyoto Protocol. If implemented, the tax would be levied on fossil fuel use and the revenue distributed to encourage the purchase of energy efficient equipment. Analysis using the MIT Emissions Prediction and Policy Analysis (EPPA) model shows that this policy is unlikely to bring Japan into compliance with its Kyoto target unless the subsidy encourages improvement in energy intensity well beyond Japan’s recent historical experience. Similar demand-management programs in the US, where there has been extensive experience, have not been nearly as effective as they would need to be to achieve energy efficiency goals of the proposal. The Tax proposal also calls for limits on international emission trading. We find that this limit substantially affects costs of compliance. The welfare loss with full emissions trading is 1/6 that when Japan meets its target though domestic actions only, the carbon price is lower, and there is a smaller loss of energy-intensive exports. Japan can achieve substantial savings from emissions trading even under cases where, for example, the full amount of the Russian allowance is not available in international markets.     

Economic Impacts of Improved Connectivity for ASEAN: An Application of the Geographical Simulation Model

We compare the prioritized projects of the Master Plan on ASEAN Connectivity (MPAC) and the Comprehensive Asia Development Plan (CADP) by utilizing the Institute of Developing Economies/Economic Research Institute for ASEAN and East Asia Geographical Simulation Model. The prioritized projects of the MPAC mainly focus on specific hard or soft infrastructure projects connecting one remote area of an ASEAN member state to another and thus fail to capture the full potential of the infrastructure because of neglected important links within a state. On the other hand, the CADP emphasizes the importance of economic corridors or linkages between a large cluster and another cluster. Our simulation analysis shows that CADP projects will result in an addition to gross domestic product (GDP) of $US 1544bn over the period from 2021 to 2030 (in 2010 dollars) or an impact on ASEAN countries that is 12 times larger than MPAC projects. The results strongly suggest that the CADP projects should be adopted and implemented to fully realize the potential economic growth of the ASEAN countries. Moreover, the CADP will contribute more to narrowing the development gaps among the ASEAN countries than MPAC prioritized projects.     

The labour market impact of body weight in China: a semiparametric analysis

While a positive wage effect of Body Mass Index (BMI) is widely observed in low-income developing countries, a negative wage effect of BMI is often observed in high-income developed countries. To fill the gap between these previous findings, we investigate the relationship between body weight and wages in transition economies. We focus on China, whose rapid economic growth of the 1990s was followed by a rapid increase in overweight and obesity while still experiencing significant food insecurity and underweight. we first use several parametric regression strategies to obtain a consistent estimate of the wage effects of weight. Second, we adopt a semiparametric partially linear model that allows for endogeneity of weight. Parametric regressions provide mixed results, and the sign and magnitude of their estimates are sensitive to the choice of samples and regression strategies. Semiparametric estimates provide evidence of a wage penalty for very heavy and thin persons among both men and women. The wage penalty is more significant among men than among women. Semiparametric results also indicate that parametric estimates can overstate and misrepresent the wage effects of weight for healthy weight persons due to their restrictive functional form assumptions.     

Do poverty and poor health and nutrition increase the risk of armed conflict onset?

We analyze the effects of improving the economic, food security and health status on the risk of armed cotntectflict onset, focusing on the factors related to the millennium development goals. We employ the discrete-time hazard model that allows us to examine the time-varying effects of socioeconomic factors controlling for the reverse effect of conflict. Our results show that income poverty and poor health and nutritional status are more significantly associated with armed conflict onset than GDP per capita, annual GDP growth, and the ratio of primary commodity exports over GDP. In particular, poor health and nutritional status seems to play a key role in inducing armed conflicts in poor countries. These results indicate that, when a majority of the poor and the malnourished resides in rural areas and depends on agriculture directly or indirectly, investments in public goods for agriculture and rural areas can be effective tools to achieve the multiple goals of reduced poverty, food security and armed conflict, including riots in early 2008 triggered by high food prices. Food policy can be an effective element of efforts to maintain stability.     

Food Processing Business and Agriculture Cooperatives in Japan: Market Power and Asymmetric Information*

Food processing businesses run by agriculture cooperatives (in this paper referred to as food processing cooperatives) are basically firms that are owned by the suppliers of raw materials. Typically, in this type of firm, corporate decision‐making is the responsibility of member farmers through the one member one–vote rule, and the surplus of the business is divided among them according to the amount of raw agricultural products they have supplied to the firm. This is in contrast to a conventional capitalistic firm, in which corporate decision‐making is ultimately made by the stockholders through the one share–one vote rule, and the profit is divided among them according to the amount of financial capital they have supplied to the firm. Based upon statistical data and case studies, the present paper considers some economic factors that might influence the establishment of food processing cooperatives.     

On the relationship between robustness to incomplete information and noise-independent selection in global games

This note demonstrates that a symmetric 3×3 supermodular game may fail to have any equilibrium robust to incomplete information. Since the global game solution in symmetric 3×3 supermodular games is known to be independent of the noise structure, this result implies that a noise-independent selection in global games may not be a robust equilibrium. Our proof reveals that the assumption in global games that the noise errors are independent of the state imposes a non-trivial restriction on incomplete information perturbations.     

Community enforcement when players observe partners' past play

I investigate whether a large community can sustain cooperation in the repeated prisoner's dilemma by having cheaters punished not by their victims but by third parties. In the setting where players can observe their partners' past play only, I show that cooperation can be sustained by an equilibrium that has the following two properties: players choose their actions independently of their own past play, and they are indifferent between cooperation and defection at all histories. This equilibrium carries over to the finite-population setting and is robust to noise in the process of choosing actions or of recording past play.     

The number of pure Nash equilibria in a random game with nondecreasing best responses

We randomly draw a game from a distribution on the set of two-player games with a given size. We compute the distribution and the expectation of the number of pure-strategy Nash equilibria of the game conditional on the game having nondecreasing best-response functions. The conditional expected number of pure-strategy Nash equilibria becomes much larger than the unconditional expected number as the size of the game grows.     

DEBT FORGIVENESS AND STOCK PRICE REACTION OF LENDING BANKS: THEORY AND EVIDENCE FROM JAPAN

We provide a simple model for analyzing how debt forgiveness affects the stock price of a lending bank. Our model shows that although debt forgiveness increases shareholder wealth of a bank in healthy financial condition, it decreases shareholder wealth of a bank in unhealthy financial condition. We empirically investigate the announcement effect of debt forgiveness on bank stock prices in Japanese markets. On average, lending banks experience a significant negative announcement effect with respect to debt forgiveness. Consistent with the prediction of the model, we find a negative relation between the announcement effect and the net bad loan ratio as a proxy of the unhealthiness of the financial condition of the bank.