High Welfare Costs Research Articles

The financial accelerator, wages, and optimal monetary policy

I study the effects of labor market outcomes on firms' loan demand and credit intermediation. I first show in partial equilibrium that the presence of frictions in the banking sector lowers the capital factor demand elasticity to changes in real wages. This finding helps to connect the substitutability of labor and capital with credit conditions. Second, I use a new Keynesian banking model with an endogenous financial accelerator mechanism to study the role of lower capital factor demand elasticity in the transmission mechanism of monetary policy. Stabilizing nominal wages is close to the optimal monetary policy because it coincides with stabilizing the credit spread, the net worth gap, and the output gap. Inflation stabilization, in turn, imposes a policy trade-off with high welfare costs.

Diversity and phage sensitivity to phages of porcine enterotoxigenic Escherichia coli.

Enterotoxigenic Escherichia coli (ETEC) is a diverse and poorly characterized E. coli pathotype that causes diarrhea in humans and animals. Phages have been proposed for the veterinary biocontrol of ETEC, but effective solutions require understanding of porcine ETEC diversity that affects phage infection. Here, we sequenced and analyzed the genomes of the PHAGEBio ETEC collection, gathering 79 diverse ETEC strains isolated from European pigs with post-weaning diarrhea (PWD). We identified the virulence factors characterizing the pathotype and several antibiotic resistance genes on plasmids, while phage resistance genes and other virulence factors were mostly chromosome encoded. We experienced that ETEC strains were highly resistant to Enterobacteriaceae phage infection. It was only by enrichment of numerous diverse samples with different media and conditions, using the 41 ETEC strains of our collection as hosts, that we could isolate two lytic phages that could infect a large part of our diverse ETEC collection: vB_EcoP_ETEP21B and vB_EcoS_ETEP102. Based on genome and host range analyses, we discussed the infection strategies of the two phages and identified components of lipopolysaccharides ( LPS) as receptors for the two phages. Our detailed computational structural analysis highlights several loops and pockets in the tail fibers that may allow recognition and binding of ETEC strains, also in the presence of O-antigens. Despite the importance of receptor recognition, the diversity of the ETEC strains remains a significant challenge for isolating ETEC phages and developing sustainable phage-based products to address ETEC-induced PWD.IMPORTANCEEnterotoxigenic Escherichia coli (ETEC)-induced post-weaning diarrhea is a severe disease in piglets that leads to weight loss and potentially death, with high economic and animal welfare costs worldwide. Phage-based approaches have been proposed, but available data are insufficient to ensure efficacy. Genome analysis of an extensive collection of ETEC strains revealed that phage defense mechanisms were mostly chromosome encoded, suggesting a lower chance of spread and selection by phage exposure. The difficulty in isolating lytic phages and the molecular and structural analyses of two ETEC phages point toward a multifactorial resistance of ETEC to phage infection and the importance of extensive phage screenings specifically against clinically relevant strains. The PHAGEBio ETEC collection and these two phages are valuable tools for the scientific community to expand our knowledge on the most studied, but still enigmatic, bacterial species-E. coli.

Wells or Welfare? Macroeconomic implications of the Canadian oil subsidy

The study constructs a general equilibrium model to investigate the macroeconomic effects of oil production and investment subsidies. To make the model reflect real-life situations, the study incorporates Canadian economic data and uses a Bayesian method to fine-tune the model. Although subsidies boost the short-term economic effects of oil price shocks, they lead to overall losses in economic welfare over time, regardless of the channel through which they are provided. The study shows that a less aggressive headline inflation-targeting monetary policy combined with an efficient tax system is more beneficial in terms of welfare maximisation. The findings suggest three essential and complementary policies: a gradual phase-out of oil subsidies, starting with investment subsidies due to their relatively high welfare cost; increased investment in the green energy sector to reduce carbon footprints and offset the decline in oil and gas sectors; and improved coordination between fiscal and monetary policies.

Smoking habits and osteoporosis in community-dwelling men subjected to dual-X-ray absorptiometry: a cross-sectional study.

Active and Environmental Tobacco Smoke (ETS) are a global cause of death. Osteoporosis (Op) is the most common metabolic bone disorder worldwide, impacting on mortality and disability, with high health and welfare costs. Active smoking is a known risk factor for Op, but there is few information regarding Op and ETS in men. The study aim is to evaluate the association between smoking habits and Op in community-dwelling men that have been subjected to Dual-X-ray Absorptiometry and completed a questionnaire about their own and cohabiter's smoking habits. We performed a cross-sectional study based on administrative data. This study is part of the SIMON protocol. The binary logistic regression analysis was used to estimate the role of ETS on the risk of Op, adjusting for age, body mass index (BMI), type 2 diabetes mellitus (T2DM) and eGFR. Four hundred sixteen men were selected and, based on questionnaire replies, 167 were classified as current smokers (CS), 93 as passive smokers (PS) and 156 as never smokers (NS). NS showed a lower prevalence of past fragility fracture, radiological features of osteoporosis and hypovitaminosis D compared to PS and CS (p < 0.05). NS showed a lower prevalence of Op compared to PS and CS, also after correction for age, BMI, T2DM and eGFR (p < 0.05). The study results demonstrate that PS and CS have a higher risk of Op, fragility fractures and vitamin D deficiency compared to NS.

Migration, segregation och pauperisering i det svenska samhällets periferi

The article is based on a survey of segregation in three Swedish rural municipalities (Bollnäs, Nordanstig and Söderhamn). Statistics show nationally large gaps between foreign-born and domestic-born in terms of the level of employment, living conditions and level of education. The gap also reflects significant differences between rich and relatively poor neighborhoods or areas. In interviews, a segregation emerges that is not visible in the statistics, for example, the experience that society has been marginalized and torn apart, and differences between young people who have a middle-class background and working-class background in relation to an urban norm to move from the municipalities. On the whole, a number of themes are raised where segregation is associated with ethnic groups, poorer areas and cultural problems. An analysis of how society’s globalization has changed the relationship between social classes, the distribution of resources and capital, and created ”winning” and ”losing” regions, makes it clear that segregation is above all a matter of relative wealth and poverty. In the municipalities, the addition of migrants becomes a pauperization, as migrants usually lack the economic, social and cultural capital that is valued in society, while the region is weakened due to emigration and relatively high welfare costs. The article therefore suggests that segregation should be counteracted by new types of solutions, aimed at the root causes, and at building resilient communities. It would also give the research on segregation and integration a new task, where the starting point is a criticism of ongoing attempts to ethnicise and culturalize economic and geographical inequalities.

Losers amongst the Losers:: The welfare effects of the great recession across cohorts

This paper studies the effect of deep recessions on intergenerational inequality by quantifying the welfare effects on households at different phases of the life cycle. Deep recessionary episodes are characterized by large declines in the prices of real and financial assets and in employment. The former levies high welfare costs on older households who own financial wealth, the latter determines labour income losses and destroys the human capital of younger cohorts, lowering their productivity. The paper extends previous analyses in the literature by including permanent labour income losses in an OLG model calibrated to match the Great Recession. The analysis shows that younger households lose more than double of all other living cohorts, as younger household become unemployed and experience a decline in their future income. The dynamics of households’ consumption and portfolio composition between 2007 and 2013 in the US are consistent with the predictions of the model.

The Financial Accelerator, Wages, and Optimal Monetary Policy

This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap.

Brexit: A comparison of dynamic voting games with irreversible options

A large polarized electorate decides repeatedly between a reversible alternative (REMAIN) and an irreversible alternative (LEAVE) in an environment where the aggregate short-term effects of the decision vary from period to period. Decisions by simple majority or by a too low supermajority may perform poorly under circumstances where it is socially optimal to never LEAVE, as they can exhibit equilibria where LEAVE is chosen quickly. In general, a too low supermajority rule can have much higher welfare costs than a too high supermajority rule. If REMAIN also becomes permanent when it wins by a large enough margin, and if a new vote is triggered otherwise, particularly poor performances of the simple majority rule are avoided. The large asymmetry in potential welfare costs disappears, and the majority requirement becomes a relatively less important instrument.

Potential integration of Chinese and European emissions trading market: welfare distribution analysis

Central to the aims of the Paris Agreement, an integrated carbon market could potentially be a practical bottom-up option for effective and efficient mitigation. This paper quantifies the welfare effects of integration of Emission Trading Scheme (ETS) between the European Union (EU) and China. Using the European version of the computable general equilibrium model GEMINI-E3, our assessment reveals that integrating trading markets benefits both regions through the decrease welfare costs from abatements. China’s welfare improves through net gain of selling the allowance, while the EU experiences lower deadweight loss. This effect is stronger to some notable countries in the EU, with high energy-intensive industries such as Poland and the Czech Republic. While a few others, such as Netherlands and Ireland, face higher welfare costs from negative trade gain. Limiting the trade quotas to 40% captures most of the EU welfare gain coming from CO2 trading. Further analysis at the sectoral level reveals that market integration significantly minimizes the loss of competitiveness of European energy-intensive industries and reduces international leakage. Our finding thus confirms the potential of the emissions trading market as an effective instrument to facilitate multilateral coordination in global mitigation.

Transitioning towards human–large carnivore coexistence in extensive grazing systems

In light of escalating threats to biodiversity, conflicts between humans and large carnivores in production landscapes must be resolved. We explore how interactions between humans, large carnivores, and livestock can be modified to promote coexistence. We identify four rationales for building coexistence capacities in extensive rangeland livestock production systems: (1) livestock production is a dominant terrestrial land use; (2) large carnivores provide critical contributions to ecological functions; (3) the persecution of large carnivores has high ethical, welfare, reputational and social costs; and (4) a growing body of evidence shows that lethal control can be counterproductive to reducing predation risk. Two key leverage points to foster human-carnivore coexistence are the adoption of preventive non-lethal innovations, and the creation of an enabling environment. Leverage points must be appropriate at the local landscape scale and contribute towards global efforts to conserve large carnivores.

High cost child welfare cases: Child characteristics and child welfare services

The IV-E Waivers and Family First Prevention Services Act prioritize prevention services, including services that reduce out-of-home placements. Placement in out-of-home care is associated with a variety of adverse outcomes as well as high costs to society. Studies that focus on utilization of health services suggest that these costs are not evenly distributed among recipients, and that high utilizers make up a small percentage of individuals who utilize a disproportionate share of resources. The purpose of the paper is to examine child characteristics and child welfare services associated with high welfare costs, defined as the top decile of child welfare costs. Results indicate that older age of child, child sexual abuse and/or neglect, and inability of parent to provide care are associated with high child welfare costs. Parental substance abuse or domestic violence in the household are less common among children with high costs. High cost children are more likely to have serious behavioral problems perhaps reflecting the severity of these problems. Residential treatment and group home placements and services were also associated with having high costs.

Climate policy and power producers: The distribution of pain and gain

Climate policies do not affect all power producers equally. In this paper, we evaluate the supply-side distributional consequences of emissions reduction policies using a simple and novel partial equilibrium model where production takes place in technology-specific sites. In a quantitative application hydro, wind and solar firms generate power combining capital and sites which differ in productivity. In contrast, the productivity levels of coal, gas and nuclear technologies are constant across sites. We parameterise the model to analyse the effects of stylised tax and subsidy schemes. Carbon pricing outperforms all other instruments and, crucially, leads to more equitable outcomes on the supply side. Technology-specific and uniform subsidies to carbon-free producers result in a greater welfare cost and their supply-side distributional impacts depend on how they are financed. Power consumption taxes have exceptionally high welfare costs and should not be the instrument of choice to reduce emissions or to finance subsidies aiming to reduce emissions.

The Financial Accelerator, Wages, and Optimal Monetary Policy

This paper studies the effects of labor market outcomes on firms’ loan demand and on credit intermediation. In a first step, I investigate how wages in the production sector affect bank net worth and the process of financial intermediation in partial equilibrium. Second, the role of the identified channels are studied in general equilibrium using a new- Keynesian DSGE-model with financial frictions and an endogenous financial accelerator mechanism. Third, I investigate how perfect and imperfect labor markets, in a setting with interactions between production factor costs and the intermediation of credit, affect the transmission mechanism of monetary policy. The analysis reveals that financial frictions reduce the factor demand elasticity of capital to a change in wages. This finding is relevant for the determination of optimal monetary policy, both for financial shocks and supply shocks inflation stabilization imposes high welfare costs. At the same time, stabilizing nominal wages becomes welfare beneficial by reducing both the volatility of the credit spread and the output gap.

Losers Amongst the Losers: The Welfare Effects of the Great Recession Across Cohorts

This paper studies the effect of deep recessions on intergenerational inequality by quantifying the welfare effects on households at different phases of the life cycle. Deep recessionary episodes are characterized by large declines in the prices of real and financial assets and in employment. The former levies high welfare costs on older households who own financial wealth, the latter determines labour income losses and destroys the human capital of younger cohorts, lowering their productivity. The paper extends previous analyses in the literature by including permanent labour income losses in an OLG model calibrated to match the Great Recession. The analysis shows that younger households lose more than double of all other living cohorts, as younger household become unemployed and experience a decline in their future income. The dynamics of households’ consumption and portfolio composition between 2007 and 2013 in the US are consistent with the predictions of the model. JEL Classification: E21, D31, D58, D63, D91

Welfare costs in patients with rheumatoid arthritis and their partners compared with matched controls: a register-based study.

Rheumatoid arthritis (RA) is a chronic autoimmune disease with significant morbidity, mortality, and costs for the individual patient and for society. The purpose of this study was to examine welfare costs in patients with RA including their partners before and after initial diagnosis. Data were collected from population-based registers in the period from 1998 to 2009. A total of 25,547 Danish patients with a diagnosis of RA and 15,660 of their partners were identified and compared with 101,755 randomly selected age- and gender-matched controls and 62,681 control partners. The direct and indirect costs were calculated for patients and their partners and compared to matched controls. These included inpatient and outpatient treatment, medication, income from employment and social transfer payments. Patients with RA had statistically significantly more inpatient and outpatient costs than control subjects, i.e., treatment (€346 vs. €211), hospitalization (€1261 vs. €778), and medication use (€654 vs. €393). The costs associated with the patients were present 11years before diagnosis of RA (€1592) compared with control subjects (€1172). Furthermore, income from employment was lower for patients (€14,023) than for control subjects (€17,196). Being a partner to a patient with RA was associated with high total welfare costs. This register-based study shows that RA has significant welfare costs for patients, their partners, and society. The differences in total health costs exist up to 11years before the diagnosis of RA is established.

Welfare cost of childhood- and adolescent-onset epilepsy: A controlled national study.

Epilepsy is associated with a significant burden to patients and society. We calculated the factual excess in direct and indirect costs associated with childhood- and adolescent-onset epilepsy. Using records from the Danish National Patient Registry (1998-2002), we identified 3123 and 5018 patients with epilepsy aged 0-5years and 6-20years at the time of diagnosis, respectively. The two age groups of patients with epilepsy were matched to 6246 and 10,036 control persons without epilepsy, respectively, by gender, age, and geography. The controls were randomly chosen from the Danish Civil Registration System. Welfare costs included outpatient services, inpatient admissions, and emergency room visits based on the Danish National Patient Registry and information from the primary health-care sector based on data from the Danish Ministry of Health. This allowed the total health-care cost of epilepsy to be estimated. The use and costs of drugs were based on data from the Danish Medicines Agency. The frequencies of visits to outpatient clinics and hospitalizations and costs from primary sectors were based on data obtained from the National Patient Registry. Children with epilepsy had higher welfare costs than controls. The highest cost was found one year after diagnosis, with higher costs up to 10years after diagnosis compared with controls. Children aged 0-5years incurred greater health-care costs than those aged 6-20years. Epilepsy has major socioeconomic consequences for the individual person with epilepsy and for society.

The future of Spanish pensions

AbstractWe use an overlapping generations model economy with endogenous retirement to study the 2011 and 2013 reforms of the Spanish public pension system. These reforms delay the legal retirement ages, increase the contributivity of the system, and adopt a sustainability factor and a pension revualuation index that effectively transform the Spanish pension system into a defined-contribution pension system. We find that these reforms improve the sustainability of Spanish pensions substantially, and that they limit the tax increases that would have been necessary to finance the pension system deficits. But these results are achieved at the expense of large reductions in the real value of the average pension. This reduction is progressive and, by 2050, the average pension is approximately 30% smaller in real terms than what it would have been under the pension system rules that prevailed in 2010. We also show that these reforms are costly in welfare terms and that households born between 1950 and 1970, young disabled workers who are alive at the time of the reform, and future cohorts bear the highest welfare costs. The substantial reduction of pensions and the high welfare costs that these reforms bring about lead us to conjecture that further reforms lurk in the future of Spanish pensions.

Emissions cap or emissions tax? A multi-sector business cycle analysis

We develop a multi-sector business cycle model to analyze stochastic implications of reducing CO2 emissions with carbon permits or with carbon taxes in the presence of multiple sources of macroeconomic uncertainty. The model is calibrated to reflect the U.S. experience. As in previous studies, using a single-sector version of our model, we find that the cap regime generates lower volatility of real variables than the tax regime, but the latter may be preferable from the welfare perspective. Still, our multi-sector analysis points to the importance of the origin of the shocks in the ranking of the two instruments and to the desirability of going beyond a single-sector analysis in evaluating their merits. We find no significant difference between the cap and the tax regimes when shocks come from non-energy sectors. In contrast, the cap has lower volatility but higher welfare costs than the tax for the shocks to energy production.

Growth and welfare effects of environmental tax reform and public spending policy

This paper considers the implications of environmental tax reform and public spending policy for growth and welfare. Using a two-sector endogenous growth model where the interactions between health, education, and the environment are taken into account, we show that revenue-positive tax reforms combined with a change in the public spending structure may improve long-run growth and welfare. However, this outcome incurs relatively high welfare cost during the transition phase. This is particularly the case when the spending policy favors education spending.

Welfare Costs of Business Cycles in Turkey

How large are welfare costs related to economic aggregate fluctuations is a topic of great concern among economists at least since Lucas's (1987) model. Our analysis assesses the magnitude of such costs for Turkey by means of two approaches: aggregate and disaggregate. The former approach uses aggregate data employing three alternative trend-cycle decomposition methods which are Lucas' classical set-up with deterministic linear trend for consumption, Hodrick and Prescott filter and one in which consumption trend is stochastic and whose implementation is performed using Beveridge–Nelson decomposition. The results of both approaches suggest that Turkey has high welfare costs associated with business cycles.