Equity-efficiency Trade-off Research Articles

Contracts for primary and secondary care physicians and equity-efficiency trade-offs

We analyse how payment systems for general practitioners (GPs) and hospital specialists affect inequalities in healthcare treatments, referrals, and patient health. We present a model of contracting with two providers, a GP and a hospital specialist, with patients differing in severity and socioeconomic status, and the GP only receiving an informative signal on severity. We investigate four health system configurations depending on whether the GP refers and the specialist treats only high-severity patients or patients with any severity. We show that an increase in the GP fee, which induces GPs to refer only high-severity patients, increases utilitarian welfare but also increases inequities in access to specialist visits. A reduction in the DRG reimbursement to hospital specialists, which induces specialists to treat only high-severity patients, increases utilitarian welfare but also increases inequities in access to specialist visits when the GP refers only high-severity patients.

The Efficiency-Equity Trade-off in a Federal System: Local Financing of Schools and Student Achievement

AbstractFederalism theorists debate the desirability of funding local services from local revenues or inter-governmental grants. Tiebout expects efficiency gains from local funding, but Oates says it perpetuates inequalities. Research using data from national probability samples has yet to show whether efficiency-equity trade-offs are associated with funding sources. We describe the trade-off in education by estimating the effect of revenue share from local sources on math and reading achievement. Data come from national probability samples of student performances on tests administered between 1990 and 2017. Relationships are estimated with OLS descriptive models, event study models of school finance reforms, and geographic discontinuity models that exploit differences in state funding policies. For every ten-percentage point increase in local revenue share, mean achievement rises by 0.05 standard deviations (sd) and socio-economic achievement gaps widen by 0.03sd. Voice and exit channels moderate the size of the efficiency-equity trade-off. Implications for inter-governmental grant policy are discussed.

Optimizing water allocation in an inter-basin water diversion project with equity-efficiency tradeoff: A bi-level multiobjective programming model under uncertainty

Achieving optimal water allocation in an inter-basin water diversion project is a challenge that involves multilevel stakeholders, and the uncertainty and disequilibrium of water allocation further intensify competition among different stakeholders. This study proposes a bi-level multiobjective programming model for water allocation in inter-basin water diversions that considers equilibrium sustainability. The model integrates interval parameter programming, fuzzy credibility-constrained programming, bi-level multiobjective programming, and the Gini coefficient into a general framework. The model not only balances the stakeholders at different levels to ensure water allocation equity but also comprehensively considers the fuzzy uncertainty of parameters and constraints to obtain the interrelationship among water diversion, water allocation satisfaction, and efficiency objectives. The developed model was applied to allocate water for the Hanjiang-to-Weihe Water Diversion Project in Shaanxi Province, China. The results showed that 1) the model derived a feasible tradeoff between upper basin manager and lower regional managers under different water diversion scenarios; 2) water allocations and objectives at each level are sensitive to changes in the credibility of water diversion; 3) the new model improves the equity of water allocation and ensures the efficient allocation to various stakeholders at each level based on a comparison of the proposed model with a model that does not consider equilibrium. The proposed model can help decision makers choose the optimal scheme based on their acceptable risk level to achieve a more efficient and sustainable water allocation for inter-basin water diversions.

Distributional Benefits of Rooftop Solar Capacity

This paper explores the distribution of environmental benefits created by rooftop solar capacity in the United States. We find that benefits are increasing with income, indicating regressivity, but that households of color receive greater per capita benefits on average. Moreover, we document minimal efficiency-equity trade-off: capacity allocations that maximize total environmental benefits are nearly identical to allocations that maximize benefits received by disadvantaged groups. Thus, existing solar capacity forgoes up to $2 billion annually in environmental benefits as well as substantial improvements in distributional outcomes, further suggesting that the suboptimality of existing solar policy cannot be rationalized on equity grounds.

The Future of Wild-Caught Fisheries: Expanding the Scope of Management

In recent years, the approach to wild-caught fisheries management has expanded beyond traditional single-fishery management. This article examines potential market failures within the fisheries sector that may arise because of a failure to account for key features of wild-caught fisheries and that can be addressed by an expanded scope. These market failures include multiple species caught together, multiple fisheries targeting the same stock, and other ecological and socioeconomic interconnections within ecosystems. We also examine market failures that may arise when external factors such as climate change and species invasions are not considered in fisheries management policy or if policies do not consider multisector use of seascapes, linkages between water pollution and fisheries, and market failures that cut across fisheries and nonfishery sectors and involve the underprovision of publicly available data and a lack of information sharing along the supply chain. We find that policies that address these market failures typically have distributional effects; that is, there will be winners and losers, even if aggregate efficiency increases. We conclude that research and policy design need to explicitly consider equity-efficiency trade-offs when seeking to address market failures, and we propose policy and research priorities that support the sustainability of wild-caught seafood.

Financing public schools with private funds: Efficiency–equity trade-off of multi-stakeholder school financing in Punjab, Pakistan

Governments and development partners encourage public school authorities to mobilize private funds from diverse non-state stakeholders as a means to expand funding sources to provide quality education for all. While financing public schools with private funds is expected to promote the efficient use of resources due to increased accountability, it raises concerns about financial equity. Using public school panel data from Learning and Educational Achievements in Punjab Schools (LEAPS) in Pakistan, this study examines how private funds mobilized from different stakeholders are associated with efficiency in educating students at a given achievement level and equity in school finance. School fixed effects analyses show that schools relying on education fees or local community contributions were more likely to reduce inefficient capital expenditure. In girls’ schools, financial dependency on private donors is also associated with a reduction in capital expenditure. However, the results suggest that a heavy reliance on education fees and private donors makes schools less efficient. I find no evidence that mobilizing private-fund revenue widened financial inequity. The findings demonstrate the importance of understanding the differential effects of private-fund revenue to develop effective multi-stakeholder financing systems that improve student achievement in a cost-effective manner and ensure financial equity.

Evaluating the distributive effects of a micro-credit intervention

Most analyses of randomized controlled trials of development interventions estimate an average treatment effect on the outcome of interest. However, the aggregate impact on welfare also depends on distributional effects. We propose a simple method to evaluate efficiency–equity trade-offs in the utilitarian tradition of Atkinson (1970). This involves an estimation of the average treatment effect on a monotone concave function of the outcome variable, whose curvature captures the degree of inequality aversion in the welfare function. We argue this is preferable to the current practice of examining distributional impacts through sub-group analysis or quantile treatment effects. We illustrate the approach using data from a credit delivery experiment we implemented in West Bengal, India.

Electricity Tariff Rebalancing in Emerging Countries: The Efficiency-equity Tradeoff and Its Impact on Photovoltaic Distributed Generation

Existing tariff schemes often fail to achieve basic economic objectives. They set prices per unit that either exceed or fall short the social marginal cost and produce unfair distributional outcomes. In many cases, electricity rates also contribute to unsustainable fiscal deficits due to the (almost) generalized electricity subsidies. Moreover, inefficient residential tariffs do not favor the adoption of green technologies and the investment in energy efficiency improvements. We argue that the efficient deployment of green technologies, and more generally, the clean energy transition, will require electricity tariff reforms. In this paper, we use household level data and hourly industry data from Mexico to show how more efficient pricing mechanisms (such as a two-part tariff scheme in the context of efficient nodal pricing), combined with well-design environmental regulations (e.g., net-metering schemes) and correctly targeted transfer programs (e.g., means testing mechanisms) can improve economic, social, and environmental outcomes significantly, all at once.

Exploring the nexus of equality and efficiency in healthcare

PurposeThis study aims to explore the nexus of equality and efficiency by considering public hospitals' development dynamics, capacity and technology indicators.Design/methodology/approachData was collected from the Ministry of Health Public Hospital Almanacs from 2014 to 2017. The Gini index (GI) is used to estimate the inequality of distribution of hospital performance indicators. A bias-corrected efficiency analysis is calculated to obtain efficiency scores of public hospitals for the year 2017. A path analysis is then constructed to better identify patterns of causation among a set of development, equality and efficiency variables.FindingsA redefined path model highlights that development dynamics, equality and efficiency are causally related and health technology (path coefficient = 0.57; t = 19.07; p < 0.01) and health services utilization (path coefficient = 0.24; t = 8; p < 0.01) effects public hospital efficiency. The final path model fit well (X2/df = 50.99/8 = 6; RMSEA = 0.089; NFI = 0.95; CFI = 0.96; GFI = 0.98; AGFI = 0.94). Study findings indicate high inequalities in distribution of health technologies (GI > 0.85), number of surgical operations (GI > 0.70) and number of inpatients (GI > 0.60) among public hospitals for the years 2014–2017.Originality/valueStudy results highlight that, hospital managers should prioritize equal distribution of health technology and health services utilization indicators to better orchestrate equity-efficiency trade-off in their operations.

For the Benefit of All: Fiscal Policies and Equity-Efficiency Trade-Offs in the Age of Automation

For the Benefit of All: Fiscal Policies and Equity-Efficiency Trade-Offs in the Age of Automation

Electricity Tariff Design Via Lens of Energy Justice

Distributed Energy Resources (DERs) can significantly affect the net social benefit in power systems, raising concerns pertaining to distributive justice, equity, and fairness. Electricity tariff and DERs share a symbiotic relationship whereby the design of the former directly impacts the economic efficiency and equity in the system. Current tariff design approaches suffer from opaque efficiency-equity trade-offs and are also agnostic of the externalities that affect both economic efficiency and equity. Therefore, this paper develops a justice-cognizant tariff design framework that improves the economic efficiency of tariff without sacrificing its distributional equity, and encompasses economic welfare, social costs of environmental and public health impacts, and socio-economic and demographic characteristics of electricity consumers. The proposed framework is based on a Single Leader Single Follower (SLSF) game incorporating a multi-objective optimization problem, and is evaluated on four different tariff structures. The SLSF game is reformulated as a Multi-Objective Problem with Equilibrium Constraints (MOPEC) and is solved by integrating the objective sum method for multi-objective optimization and Scholtes's relaxation technique for equilibrium constraints. We compare the economic efficiency and equity of the proposed framework using the 11-zone New York ISO and 7-bus Manhattan power networks. The results demonstrate that spatially- and temporally-granular tariffs ensure equity and economic efficiency at a lower energy burden to consumers.

Regional responses to macroeconomic and regional policy in Poland

PurposeThe purpose of this paper is to investigate regional impact of macroeconomic and regional policy impulses, using our newly developed multi-regional computable general equilibrium (CGE) model for three, structurally distinctive Polish macro-regions.Design/methodology/approachIn this study, we build an interregional social accounting matrix for Poland and use it to develop a small scale, three-region CGE model, reflecting the size of regional economies and cross-regional differences in industrial structures, while also explicitly accounting for the dynamics of main economic relationships across regions, such as interregional flows in commodities, labor and capital. The model is subsequently use to simulate regional effects of various policy impulses.FindingsWe demonstrate important cross-regional differences in the transmission mechanism of macro-level policies, which either affect regional output and its individual components (as in the case of imposing shocks to VAT or PIT rates) or are limited to the components, while preserving a rather uniform impact on output (as in the case of imposing shocks to wages). Furthermore, we contribute to the regional policy equity-efficiency trade-off debate, by illustrating quantitatively how, due to structural differences, spatially targeted expenditure measures might promote either regional convergence or aggregate output growth at the country-level.Originality/valuePrior to our study, regional CGE models have not been used to simulate spatial distribution of aggregate shocks in Poland or in any other CEE country. Another originality of our study lies in comprehensive evaluation of various policy impulses, from the perspective of their impact on the respective region, spillovers to the other regions and its overall, country-level effect.

Equitable Vessel Traffic Scheduling in a Seaport

In the global maritime transportation network, the on-time performance of cargo transportation depends largely on the service capacity and accessibility of seaports. When opportunities for infrastructure expansions are not available, seaport congestion mitigation may require effective scheduling of the vessel traffic in the port waters. Although existing works on vessel traffic scheduling focus on minimizing vessel delays, this paper studies a novel vessel traffic scheduling problem that aims to address the inter-shipping line equity issue. We develop a lexicographic optimization model that accounts for two conflicting performance measures: efficiency, which favors minimizing total vessel delay; and equity, which favors balancing the impacts of delays fairly among shipping lines. Our model allows the port operator to quantify the efficiency-equity tradeoff and make the best vessel traffic scheduling decisions. For solving the model, we develop an effective two-stage solution method in which the first stage solves two single-objective models to obtain the maximum system efficiency and equity, whereas the second stage trades between efficiency and equity and seeks the best compromise between the two conflicting objectives. We apply our model and solution method on instances generated from the operational data of the Port of Shanghai. Our computational results show that an efficiency-oriented model can lead to highly inequitable traffic plans, whereas inter-shipping line equity can be achieved at only mild losses in efficiency, indicating that the consideration of inter-shipping line equity can lead to satisfactory service at both the vessel level and the shipping line level.

Fiscal fragmentation and crime control: Is there an efficiency-equity tradeoff?

Fiscal fragmentation and crime control: Is there an efficiency-equity tradeoff?

Pension reform and the efficiency-equity trade-off: Impacts of removing an early retirement subsidy

We provide empirical evidence that the removal of work disincentives embedded in retirement earnings tests can increase old-age labor supply considerably, but it does so at the cost of more income inequality. To identify causal effects, we exploit a reform of the Norwegian early retirement program, which entailed that adjacent birth cohorts faced completely different work incentives from the age of 62. The reform removed a strict retirement earnings test such that pension wealth was redistributed from early to late retirees. Given pre-existing employment and earnings patterns, this implied a considerable rise in old-age income inequality. In theory, this direct increase in inequality could be either amplified or offset by changes in labor supply. We estimate that the reform triggered a 42% increase in average hours worked during the period covered by early retirement options; however, as labor supply responses were of similar magnitudes across the earnings distribution, they did little to modify the rise in inequality. As measured by the Gini coefficient, inequality in overall old-age income rose by approximately 0.03 (21%).

Achieving sustainable development goals in agricultural energy-water-food nexus system: An integrated inexact multi-objective optimization approach

Sustainable Development Goals (SDGs) take the global challenges into a new phase, calling for reasonable resources management from holistic perspectives. This study develops a novel integrated modelling framework for sustainable agricultural energy-water-food nexus (EWFN) management, with the objectives of maximum social welfare of water resources allocation, maximum hydroelectric generation, maximum grain crop production, maximum positive farmland ecosystem service value, and minimum negative farmland ecosystem service value. The proposed framework is capable of: (1) balancing benefit efficiency and allocation equity using social welfare function; (2) reconciling conflicting targets among socio-economic, resource, and eco-environmental spheres; (3) generating sustainable water and land resources allocation strategies considering complex and uncertain environment. The proposed model was applied to the Zhanghe Reservoir irrigation area, central China. Flexible water and land resources allocation schemes among different sectors, crops, and periods were generated, as well as managerial insights into what efforts should be done were provided for decision-makers. After optimization, efficiency-equity tradeoff was balanced with social welfare index reaching [0.94, 0.99]. Optima results show that GHGs emission contributed majority of the total loss, which cannot be totally neutralized by carbon sequestration, causing negative eco-environmental impacts of [2.3, 3.4] × 108 CNY. The proposed model performs well on generating robust and coordinated solutions according to scenarios analysis and models comparison. The proposed approach has potential on achieving SDGs in agricultural EWFN system, and is portable to other agriculture-centered areas suffering from similar resources crisis.

Gini in the Taylor Rule: Should the Fed Care About Inequality?

This study investigates whether the Federal Reserve (Fed) should care about inequality. We develop a Heterogeneous Agent New Keynesian (HANK) model, which generates empirically realistic inequalities and business cycle properties observed in the U.S. data. Households in the model economy are subject to the aggregate productivity shock and to the idiosyncratic labor efficiency and preference shocks. In addition, the model distinguishes the extensive and intensive margins of labor supply. We consider the income Gini coefficient in a monetary policy rule to see how an inequality-targeting monetary policy might affect aggregate and disaggregate outcomes, as well as economic welfare. First, we find that a monetary policy rule with an explicit inequality target can be welfare improving, even if inequality becomes volatile. Second, there is an efficiency-equity trade-off: an economy should sacrifice a more volatile output in order to have smaller cyclical variations in its inequality measures. Lastly, when the Fed targets the employment of a specific group of households, it can improve economic welfare and stabilize inequality at the same time.

For the Benefit of All: Fiscal Policies and Equity-Efficiency Trade-offs in the Age of Automation

For the Benefit of All: Fiscal Policies and Equity-Efficiency Trade-offs in the Age of Automation

The Taxation of Capital Income in Canada: Analysis and Directions for Reform

This paper describes and analyzes the taxation of capital income in Canada, including the corporate income tax and the taxation of dividends and capital gains at the personal level. The paper then turns to a discussion of directions for policy reform. The perspective is that of a small open economy with highly mobile capital. I argue that a rent-based tax at the corporate level coupled with increases in the taxation of dividends and capital gains at the personal level is attractive in terms of the equity-efficiency trade-off.

Heterogeneous Workers and Federal Income Taxes in a Spatial Equilibrium

We study the geographic incidence and efficiency of an income tax by estimating a spatial equilibrium model with heterogeneous workers. The US income tax shifts households out of high-productivity cities, leading to locational inefficiency of 0.25 percent of output. Removing spatial tax distortions increases inequality because more educated households are more mobile and own larger shares of land. Flattening the tax schedule, or introducing cost-of-living adjustments or local wage adjustments leads to efficiency gains but causes substantial increases in inequality. Differences in mobility and land ownership across skill groups create an equity-efficiency trade-off that is unique to spatial settings. (JEL H24, H22, D31, J31, J24, R23)