Benevolent Social Planner Research Articles

Linking methodologies to assess climate impacts and circular economy strategies along supply chains

This paper introduces a generic hybrid methodology for assessing economic and environmental impacts along interconnected supply chain markets, considering both the material/product level and the market mechanisms that govern resource allocation. The methodology is illustrated by considering a competitive market and benevolent social planner variant of a supply chain equilibrium (SCE) model, applied to the specific case of single-use and reusable plastic bottles in Belgium. The benevolent social planner optimises a societal welfare function that includes all relevant revenues and costs along the plastic bottle supply chains – including external environmental damage costs. These costs comprise climate damage and are incorporated into the SCE model by combining life cycle assessment data with economic data. The main advantage of this model setup is that it better represents policy reality because it allows to study the effectiveness and efficiency of the simultaneous implementation of multiple circular strategies, their interactions, and possible rebound effects. The findings indicate that when all climate costs are internalised simultaneously, the competitive market solution approaches that of the benevolent social planner. Yet, when policymakers have fewer instruments at their disposal in relation to the number of environmental externalities, the welfare impact of competitive market solutions is limited or even negative. Moreover, key circular economy practices such as material intensity reduction and green design are particularly lagging behind compared to their welfare-optimising levels.

Temptation and self‐control for the impure benevolent planner: The case of heterogeneous discounting

AbstractThis paper presents a “behavioral” model of a normative benevolent social planner, who faces a self‐control problem when he/she is in charge of aggregating diverse and conflicting preferences of individuals. The model is presented in the context of aggregating preferences over intertemporal streams of social outcomes, in which Zuber and Jackson and Yariv have shown the impossibility of a time‐consistent and Paretian social objective function. Unlike previous studies, our investigation focuses on the compatibility of the Pareto condition with the impure social planner who has a dynamically consistent self‐control utility function characterized by Gul and Pesendorfer. Assuming that the social planner is tempted to adopt the majority's opinion when there is a conflict of opinions among individuals, the paper characterizes an aggregation form in which the planner is allowed to depart from dictatorship in ex‐post choice under noncommitment.

Pricing energy consumption and residential energy‐efficiency investment: An optimal tax approach

AbstractWe analyze a Pareto optimal income tax problem à la Mirrlees in which households consume three types of goods: energy goods, energy‐efficient investments, and nonenergy goods. The two main ingredients of our normative analysis are: (i) an indirect relationship between energy and the satisfaction of energy needs, as energy‐efficient investments transform energy into services, such as light, heating, and air conditioning; and (ii) imperfect information of the policy designer as regards the level of energy efficiency of households' housing and their labor market productivity. Each household differs with respect to these two latter characteristics, and the government designs a nonlinear income tax combined with energy and energy‐efficient investment nonlinear pricing that maximizes a weighted sum of households' utilities. We show that a benevolent social planner should distort energy prices in a way that depends on the difference between the saturation of energy needs and the complementarity between energy and the level of energy efficiency in the provision of energy services. A sufficient condition for energy consumption to be subsidized is that the rebound effect is small. Second, when individuals can invest in energy efficiency on top of energy consumption, these investments should always be subsidized and the marginal subsidy should always be higher than the one on energy consumption.

Mirage on the horizon: Geoengineering and carbon taxation without commitment

We show that, in a model without commitment to future policies, geoengineering breakthroughs can have adverse environmental and welfare effects because they change the (equilibrium) carbon taxes. In our model, energy producers emit carbon, which creates a negative environmental externality, and may decide to switch to cleaner technology. A benevolent social planner sets carbon taxes without commitment. Higher future carbon taxes both reduce emissions given technology and encourage energy producers to switch to cleaner technology. Geoengineering advances, which reduce the negative environmental effects of the existing stock of carbon, decrease future carbon taxes and thus discourage private investments in conventional clean technology. We characterize the conditions under which these advances diminish—rather than improve—environmental quality and welfare, and show that given current estimates of costs and environmental damages, these conditions are likely to be satisfied in our model.

Optimal liquidity allocation in an equity network

We study an optimal liquidity allocation problem in a distressed financial system when agents are embedded in a network of cross-ownership. We construct a model in which a benevolent social planner allocates a limited amount of funds to rescue agents facing liquidity shortages and whose liquidation can be avoided if the shortage is met. A discrete allocation problem arises in this setting and the “Balas” algorithm is employed to solve this problem. Solving the optimal liquidity allocation problem over a class of core–periphery equity network topologies, we establish the existence of a threshold value of exposures levels between core and peripheral nodes above which the social planner would allocate available funds to the periphery and below which to the core. The algorithm demonstrates how monetary and fiscal authorities may implement rescue plans when the size of the fund is limited and could thus serve as a new intervention tool in the arsenal of policymakers.

Malthusian stagnation is efficient

This article studies socially optimal allocations, from the point of view of a benevolent social planner, in environments characterized by fixed resources, endogenous fertility, and full information. Individuals in our environment are fully rational and altruistic toward their descendants. Our model allows for rich heterogeneity of abilities, preferences for children, and costs of raising children. We show that the planner's optimal allocations are efficient in the sense of Golosov et al. (2007). We also show that efficient allocation in the endogenous fertility case differs significantly from its exogenous fertility counterpart. In particular, optimal steady state population is proportional to the amount of fixed resources and the level of technology, while steady state individual consumption is independent of these variables, a sort of “Malthusian stagnation” result. Furthermore, optimal allocations exhibit inequality, differential fertility, random consumption, and a higher population density of poorer individuals even when the planner is fully equalitarian and faces no aggregate risk or frictions.

Global health care system after coronavirus: Who has responsibility to protect

Imagine unimaginable today -the world without borders with a democratically elected benevolent social planner fixing the global health care system so as to make it beneficial for all leaving no one behind. She will probably be following a strategy based on (but not limited to) several general principles.

The political economy of state responses to infectious disease.

How can public policy best deal with infectious disease? In answering this question, scholarship on the optimal control of infectious disease adopts the model of a benevolent social planner who maximizes social welfare. This approach, which treats the social health planner as a unitary “public health brain” standing outside of society, removes the policymaking process from economic analysis. This paper opens the black box of the social health planner by extending the tools of economics to the policymaking process itself. We explore the nature of the economic problem facing policymakers and the epistemic constraints they face in trying to solve that problem. Additionally, we analyze the incentives facing policymakers in their efforts to address infectious diseases and consider how they affect the design and implementation of public health policy. Finally, we consider how unanticipated system effects emerge due to interventions in complex systems, and how these effects can undermine well‐intentioned efforts to improve human welfare. We illustrate the various dynamics of the political economy of state responses to infectious disease by drawing on a range of examples from the COVID‐19 pandemic.

The Political Economy of State Responses to Infectious Disease

How can public policy best deal with infectious disease? In answering this question, scholarship on the optimal control of infectious disease adopts the model of a benevolent social planner who maximizes social welfare. This approach, which treats the social health planner as a unitary “public health brain” standing outside of society, removes the policymaking process from economic analysis. This paper opens the black box of the social health planner by extending the tools of economics to the policymaking process itself. We explore the nature of the economic problem facing policymakers and the epistemic constraints they face in trying to solve that problem. Additionally, we analyze the incentives facing policymakers in their efforts to address infectious diseases and consider how they affect the design and implementation of public health policy. Finally, we consider how unanticipated system effects emerge due to interventions in complex systems, and how these effects can undermine well-intentioned efforts to improve human welfare. We illustrate the various dynamics of the political economy of state responses to infectious disease by drawing on a range of examples from the COVID-19 pandemic.

Public sector bureaucracies and economic growth

Public sector bureaucracies are key players in modern advanced economies, in particular for the smooth functioning of the roles assigned to the government sector, such as the provision and organization of welfare state services, and the implementation of the (economic) institutional framework, including as regards the tax code and the guarantees of legal certainty for economic agents. From this perspective, a proper functioning of bureaucratic bodies is crucial for potential growth. Thus, cross-country differences in the quality of bureaucracies can explain, to a large extent, differences in economic growth among them. The operation of self-interested bureaucracies, insofar as their objective function differs from the one of the benevolent social planner (government), can lead to regulatory capture, damaging efficiency and economic incentives, labor market misallocation, and inefficient fiscal policies. In this paper, first, we engage in a thorough review of the extant literature, framing the discussion of the main channels by means of a small-scale dynamic, stochastic general equilibrium model. Second, we provide an empirical exercise that illustrates the links between bureaucratic/institutional quality and economic growth.

Comment on “Accuracy in Public Law Enforcement under Political Competition”

In this Comment, I discuss Marie Obidzinski’s (2019) paper considering the effects of political competition on the accuracy of law enforcement and criminal justice. The paper develops an economic model to explain the empirical findings of Lin (2007) and McCannon (2013). The model generates novel insights, showing that political competition does not foster optimal enforcement and accuracy in criminal justice and that distortions are generated by political competition relative to the Becker’s (1968) optimality benchmark by a benevolent social planner. The model shows that when law enforcement actors operate under the pressures of political competition, they engage in lower than optimal levels of enforcement and accuracy for small crimes and a higher than optimal levels of enforcement and accuracy for larger crimes.

Mirage on the Horizon: Geoengineering and Carbon Taxation Without Commitment

We show that, in a model without commitment to future policies, geoengineering breakthroughs can have adverse environmental and welfare effects because they change the (equilibrium) carbon taxes. In our model, energy producers emit carbon, which creates a negative environmental externality, and may decide to switch to cleaner technology. A benevolent social planner sets carbon taxes without commitment. Higher future carbon taxes both reduce emissions given technology and encourage energy producers to switch to cleaner technology. Geoengineering advances, which reduce the negative environmental effects of the existing stock of carbon, decrease future carbon taxes and thus discourage private investments in conventional clean technology. We characterize the conditions under which these advances diminish - rather than improve - environmental quality and welfare.

On the fiscal strategies of escaping poverty-environment traps towards sustainable growth

We develop an overlapping generations (OLG) model with two intermediate inputs, clean and dirty, and one final output in order to consider the interplay between the environment, life expectancy, and capital accumulation, and to consider the possibilities of reallocating capital between the clean and dirty sectors to improve social welfare. We show that the multiple distinct steady states, (and even the continuum of steady state), may occur in a competitive economy. Hence, an economy may fall into a poverty-environment trap that is characterized by low environmental quality, low life expectancy, and therefore, low per capita physical capital, while the others may converge to the opposite steady state. The competitive steady states differ from the first-best steady state in the benevolent social planner’s viewpoint not only because of imperfect altruism between generations in the competitive economy, but also because individuals cannot internalize the effects of their savings (capital accumulation) and capital allocation on environmental quality through producing dirty intermediate inputs, whereas the social planner can. So we propose fiscal strategies towards social planner’s steady state. These fiscal strategies, which are combination of traditional Pigouvian taxes and capital income tax implemented for transition phase are quite new compared to the existing related literature. Although we focus on the transition phase, the proposed taxes are stationary. They include: (i) a set of tax and subsidy imposed on the production of dirty and clean intermediate inputs to improve environmental quality, and therefore, life expectancy and capital accumulation, in order to guarantee that an economy that is locked in a poverty-environment trapcan escape such the stagnation; and (ii) a set of taxes (subsidies) imposed on the production of intermediate inputs and capital income in order to decentralize the transition to the first-best steady state as a competitive outcome.

“Love of wealth” and economic growth

AbstractIn a Ramsey–Cass–Koopmans growth framework it is shown that for an optimum a benevolent social planner cannot have an excessive “love of wealth”. With a “right” “love of wealth” an optimum exists and implies higher long‐run per‐capita capital, income, and consumption relative to the standard model. This has important implications for comparative development trajectories. The optimum implies dynamic efficiency with the possibility of getting arbitrarily close to the golden rule where long‐run per‐capita consumption is maximal. It is shown that the optimal path attains its steady state more slowly. Thus, the beneficial effects of love of wealth materialize later than in the standard model. Furthermore, the economy can be decentralized as a competitive private ownership economy. One can then identify “love of wealth” with the “spirit of capitalism.” The paper thus implies that one needs a “right” level of the “spirit of capitalism” to realize any beneficial effects for the long run.

Water losses and optimal network investments: Price regulation effects with municipalization and privatization

Abstract We analyze optimal investments, to reduce water losses, in a regulated water industry, with perfectly inelastic demand and private information about local investment efficiency. We compare the public and private ownership cases, both subject to the same regulatory (revenue cap) mechanism. The theoretical analysis is supported by a calibration and simulation exercise. The incentive to invest is affected by ownership, financial structure and revenue cap. Overinvestment results in private firms as the cost of capital is accounted differently. In public firms: (i) the effect of the revenue cap is diluted and investments distortions with respect to a benevolent social planner are negligible; (ii) information rents are valued according to the marginal cost of public funds; (iii) the distortionary taxation and a price inelastic demand drive local politicians to maximize water revenues to finance investments and to increase municipal fiscal gains. Price differences result from differences in ownership and financial structure.

Corruption and socially optimal entry

The paper investigates the effects of corruption in the entry-certifying process on market structure and social welfare for a Cournot industry with linear demand and costs. To gain entry, a firm must pay a bribe-maximizing official a fixed percentage of anticipated profit, in addition to the usual set-up cost. This would lead to a monopoly, but only in markets without pre-existing or shadow-economy firms. A benevolent social planner may preempt the harmful effects of corruption by either manipulating the number of pre-existing firms in the market, or by setting up two independent (corrupt) licensing authorities. A socially optimal number of firms in the market may be reached by choosing the right number of pre-existing firms or by having exactly two licensing authorities. These mechanisms may be seen as restoring second-best efficiency in settings characterized by two major sources of distortion: Imperfect competition and corruption. We also show in an extension that the basic insights carry over in a qualitative sense to a model with quadratic costs and first best entry regulation.

Optimal Pollution Taxation and Abatement When Leisure and Environmental Quality are Complements

We study optimal environmental policy in a world featuring multiple stable economic-ecological equilibria. There is a two-way interaction between the macro-economy and the environment. We assume that the society under consideration finds itself in a high pollution equilibrium and show that a benevolent social planner is in principle able to engineer substantial welfare gains by choosing the appropriate mix of Pigouvian (capital) taxation and abatement activities. During the initial phase of the policy, abatement is used to reduce the inflow of dirt to zero whereas the tax is employed to bring down the stock of the polluting capital input in an optimal fashion. In the long run abatement is no longer needed and the capital tax settles down at its externality-correcting Pigouvian level. For a plausible parameterization optimal abatement takes place for up to twenty-five years whilst the long-run pollution tax never exceeds seven percent of gross operating surplus. In order to escape out of the pollution trap the full force of the available environmental instruments is only needed temporarily.

Public social monitoring reports and their effect on a policy programme aimed at addressing the social determinants of health to improve health equity in New Zealand

The important role that monitoring plays in advancing global health is well established. However, the role of social monitoring as a tool for addressing social determinants of health (SDH) and health equity-focused policies remains under-researched. This paper assesses the extent and ways in which New Zealand's (NZ) Social Reports (SRs) supported a SDH- and health equity-oriented policy programme nationally over the 2000-2008 period by documenting the SRs' history and assessing its impact on policies across sectors in government and civil society.We conducted key-informant interviews with five senior policy-makers and an e-mail survey with 24 government and civil society representatives on SRs' history and policy impact. We identified common themes across these data and classified them accordingly to assess the intensity of the reports' use and their impact on SDH- and health equity-focused policies. Bibliometric analyses of government publications and media items were undertaken to empirically assess SRs' impact on government and civil society.SRs in NZ arose out of the role played by government as the "benevolent social welfare planner" and an understanding of the necessity of economic and social security for "progress". The SRs were linked to establishing a government-wide programme aimed at reducing inequalities. They have been used moderately to highly in central and local government and in civil society, both within and outside the health sector, but have neither entered public treasury and economic development departments nor the commercial sector. The SRs have not reached the more universal status of economic indicators. However, they have had some success at raising awareness of, and have stimulated isolated action on, SDH.The NZ case suggests that national-level social monitoring provides a valuable tool for raising awareness of SDH across government and civil society. A number of strategies could improve social reports' effectiveness in stimulating action on SDH.

Optimal Degree of Funding of Public Sector Pension Plans

This paper explores the optimal degree of funding of public sector pension plans. It is assumed that a benevolent social planner decides on the contribution of current taxpayers to the funding of public sector pensions next period, weighing the interests of current and future tax payers. Two elements play a role in the optimal funding decision: the optimal-portfolio choice (i.e. the tradeoff between the expected excess return and the additional risk of funding vis-a-vis pay-as-you-go) and intergenerational redistribution (i.e. whether the current generation of tax payers is willing and capable to prefund the pension obligations of current public sector workers or shifts the burden to future generations via a pay-as-you-go scheme). The optimal degree of funding appears to vary over time, depending not only on the relative weight given to the current generation, risk aversion, and the distribution of financial risk and human capital risk, but also on the actual state of the economy, i.e. on wage income, funding in the past and the realization of the excess return on this funding.

An alternative approach to income taxation

We take an alternative approach to income taxation in this paper. We view the income tax schedule as the outcome of a voting process, rather than the optimal choice of a “benevolent social planner”. We show that it is very likely for majority voting to lead to the adoption of a regressive income tax schedule, depending on the per capita government revenue requirement and the mean productivity of the population, which is in sharp contrast with the result derived from the traditional “benevolent social planner” approach to income taxation; and that given the adoption of a regressive income tax schedule, the income tax schedule would become less regressive as the ratio of the per capita government revenue requirement over the mean productivity of the population increases. Our work might shed some light on both the prevalent adoption of regressive state tax systems and the cross-state difference in terms of tax systems.