Low Opportunity Cost Research Articles

Opportunity cost: A systematic application to surgery

Opportunity cost is the potential gain or loss when a person chooses to perform an activity over its next best alternative. With respect to surgery, opportunity cost can occur if a less efficient technology uses more operating time than its next best alternative. This additional operating time could be used in a productive way that, when economically valued, adds a "cost" to the less efficient technology. Although fundamental to the economist's view of costs and widely used in economic assessments, opportunity cost analysis is infrequently used in economic evaluation of surgical technology. Previous cost comparison studies in the surgical literature have not addressed opportunity cost when estimating the efficiency of competing technologies. With increasing healthcare costs and new technologic advancements in surgery, a surgeon's ability to understand opportunity cost and apply it when choosing between two comparable technologies is essential. Our objective is to present a system to estimate the opportunity cost for given surgical specialties and present a model to demonstrate its principle. To demonstrate the principle of opportunity cost, our model used a hypothetical scenario comparing two clinically equivalent technologies that differed in that the use of one device (Device A) extended operating time in a hypothetical procedure by 30 minutes compared to its competitor device (Device B). How this extra operating time could potentially be used was then valued using the opportunity cost calculated by our study design. Our study design included 5 surgical procedures from 5 surgical specialties that were elective, profitable, high-volume (performed more than 100 times per year), and had a duration of less than 240 minutes. The data were taken from a university hospital setting in 2007 and included procedure volume, profit margin, and duration. The outcome measure was opportunity cost, which was estimated by dividing the selected procedure's profit margin by its duration. Surgical specialty results are presented in the accompanying Tables. Otolaryngology has the highest opportunity cost at $38/min. This cost was calculated by using myringotomy as the procedure that was elective, short in duration, performed in high volume, and provided the highest profit margin. By applying our model, the otolaryngology surgeon using the less efficient Device A to perform a hypothetical procedure would incur an opportunity cost of $1,140 ($38/min x 30 min). This is because he could have performed additional myringotomy procedures in the time saved had he instead used the more efficient Device B in his hypothetical cases. General surgery has the lowest opportunity cost at $9/min; laparoscopic inguinal hernia repair was the procedure used for its calculation. Under the same model, the general surgeon using Device A would incur an opportunity cost of $270 ($9/min x 30 min). This is because the general surgeon could have performed additional laparoscopic femoral/hernia repairs had she used the more efficient Device B in her hypothetical cases. In acknowledging opportunity cost, a surgeon can more accurately compare the efficiency of competing surgical devices. This comparison is carried out by estimating and applying a dollar amount to the potential utility of time created by the use of the less efficient device.

Fertility Determinants and Economic Uncertainty: An Assessment Using European Panel Data

This paper examines the determinants of fertility, using panel data for twenty-seven European countries. We employ panel co-integration to estimate fertility as function of demographic and economic variables. We show that low fertility in most industrialized countries in Europe is due to low infant mortality rates, high female employment, low nuptiality rate and high opportunity cost of having children. Using two measures of economic uncertainty, which are associated with labor market decisions - a production (an output) volatility measure and the unemployment rate - we examine to what extent economic insecurities affect fertility decisions. The empirical results show that both measures of economic uncertainty have a significant negative impact on fertility implying that labor market insecurities might be a significant factor affecting fertility decisions.

Profitable Swedish lamb production by economies of scale

Economic sustainability assumes profitability (revenues ≥ costs including annual cash expenses as well as family labor and investments). Calculations suggest that sheep flocks of more than 500 ewes can be profitable under Swedish conditions whereas smaller flocks are unprofitable unless they are managed by cheap existing resources including buildings, fences, machinery and family labor with low or no opportunity costs. Despite these economies of scale less than 1% of the Swedish sheep flocks have 500 or more ewes. Possible reasons are, according to interviews with lamb producers which have built up for Swedish conditions large sheep flocks of 90–900 ewes (average 380), growth sacrifices when developing large flocks and lack of accessible cheap land for providing large flocks with pasture and winter forage. The growth sacrifices reducing revenues or increasing costs during or immediately after the growth period include low production of primiparous ewes, reclamation of additional land and capital costs of new buildings before the flock has been expanded to the intended number. The cash-flow is another problem for expanding sheep operations. Profitable lamb production presupposes large areas of land with zero or low opportunity costs. In fertile flatlands the opportunity costs are too high and in forest-dominated regions it is difficult to get hold of large enough areas near the farm centre for pasture and winter feed production. The latter problem can be solved by leasing cheap land further away and transporting feed and grazing animals, and by extending present pastures by incorporating adjacent overgrown pastures, marginal arable land and forest land. Another requirement for long-term profitable lamb production is to reduce the costs of new sheep sheds below what is a common cost level in Sweden.

Poverty and spatial dimensions of non-timber forest extraction

ABSTRACTConservationists promote non-timber forest products (NTFP) to simultaneously alleviate poverty and conserve ecosystems. Unfortunately, little is known about how such products actually contribute to poverty alleviation, or how various complementary policies such as green marketing campaigns or cooperative management might impact resource health and users' welfare. This paper develops a simple NTFP extraction model that focuses on spatial and labor market dimensions of use in both managed and unmanaged settings. The model contrasts patterns of spatial use, resource health, and income generation under open access and community-managed institutions. We then test the conceptual model by investigating the case of xate production in the rainforest of Chiapas, Mexico, using survey work conducted over two separate periods. The empirical investigation reveals spatial patterns and labor market outcomes predicted by the model. We find NTFP use is mainly conducted by households with low opportunity costs of time and fewer income generation opportunities.

Labor allocation to non-timber extraction in a Mexican rainforest community

This paper analyzes the determinants of participation in the extraction of xate palm, the most important non-timber forest product in the Mexican Lacandona Rainforest ( Selva Lacandona) in terms of its contribution to cash income for households. Results show that low opportunity costs and low human capital, two strong correlates of rural poverty, significantly explain the degree of participation in xate extraction. This gives reasons to be moderately optimistic about the poverty-reduction potential of programs that successfully increase the price of xate received by extractors.

Determinants of Support for European Integration

The electorate's ability to influence the European agenda through European elections and national referenda has led to a close inspection of public attitudes by both academics and politicians. Taking a micro-level approach, this article contributes to the larger literature on the formation of public attitudes and aims at identifying the factors that influence public attitudes towards European integration in Bulgaria, one of the new member states. We use a national survey and rely upon utilitarian, value-based and heuristic factors to test several hypotheses. Although our data confirm the argument that support is higher in countries with lower opportunity costs of transferring sovereignty to the European Union, we also find that EU membership is assessed by projecting potential benefits for future generations rather than self-centered expectations of immediate returns.

Who is Likely to Become Self Employed in Vietnam?

This paper investigates how workers' opportunity costs affect their entry into self employment in Vietnam. This is important since workers with high opportunity costs who enter self-employment only if motivated by high rewards will contribute a lot to productivity and economic growth, while workers with low opportunity costs who are motivated out of desperation will contribute little. It also provides an indication of the opportunities that foreign firms interested in directly investing in Vietnam are likely to encounter. Other research in Vietnam has found evidence that existing self-employed workers are not just a disadvantaged informal sector. To gauge new self-employment opportunities, this paper focuses on those who entered self-employment in a one-year period, whether they were successful or not. I find that a worker's opportunity cost can increase or decrease the probability of self-employment, depending on the source of the opportunity cost. Therefore the self-employed should make a moderate contribution to economic growth and foreign companies will find some opportunities with high-expected returns and may find some with low returns.

Who Becomes an Entrepreneur? Labor Market Prospects and Occupational Choice

Why do some people become entrepreneurs (and others don't)? Why are firms so heterogeneous, and many firms so small? To start, the paper briefly documents evidence from the empirical literature that the relationship between entrepreneurship and education is U-shaped, that many entrepreneurs start a firm out of necessity, that most firms are small, remain so, yet persist in the market, and that returns to entrepreneurship have a much larger cross-sectional variance than returns to wage work. Popular models of firm heterogeneity cannot easily account for the U-shape or for the persistence of low-productivity firms. The paper shows that these facts can be explained in a model of occupational choice between wage work and entrepreneurship where agents are heterogeneous in their ability as workers, and starting entrepreneurs face uncertainty about their project's productivity. Then, if agents' expected productivity as entrepreneurs is increasing and not too concave in their ability as workers, the most and the least able individuals choose to become entrepreneurs. This sorting is due to heterogeneous outside options in the labor market. Because of their low opportunity cost, low-ability agents benefit disproportionately from the ability to pursue only good business projects and abandon low-productivity ones. This also makes them more likely to immediately abandon a project for a new one. Data from the NLSY79 gives support to these two predictions. Individuals with relatively high or low wages when employed, or with a high or low degree, are more likely to be entrepreneurs or to become entrepreneurs, and spend more time in entrepreneurship. Among entrepreneurs, more of the firms run by individuals with low wages when employed, or with a low degree, are abandoned after only a year.

Do Opportunity Costs Matter in a Sequential Contribution Public Goods Game?

This paper compares behavior of heterogeneous groups with homogeneous groups in public goods production. In heterogeneous groups members differ in their opportunity costs of contribution, while in homogeneous groups, members have the same opportunity costs. Members of three-player groups sequentially make all-or-nothing contributions towards the production of a public good where contribution decisions, payoffs, and opportunity costs of preceding players in the group are known to each group member. We find that heterogeneous groups perform better than homogeneous groups controlling for average opportunity costs at the group level. Our results also indicate that subjects develop an endogenous contribution norm to sustain public goods production where subjects in the first positions, and subjects with relatively low opportunity costs contribute most often.

The Evolutionary Origins of Human Patience: Temporal Preferences in Chimpanzees, Bonobos, and Human Adults

To make adaptive choices, individuals must sometimes exhibit patience, forgoing immediate benefits to acquire more valuable future rewards [1-3]. Although humans account for future consequences when making temporal decisions [4], many animal species wait only a few seconds for delayed benefits [5-10]. Current research thus suggests a phylogenetic gap between patient humans and impulsive, present-oriented animals [9, 11], a distinction with implications for our understanding of economic decision making [12] and the origins of human cooperation [13]. On the basis of a series of experimental results, we reject this conclusion. First, bonobos (Pan paniscus) and chimpanzees (Pan troglodytes) exhibit a degree of patience not seen in other animals tested thus far. Second, humans are less willing to wait for food rewards than are chimpanzees. Third, humans are more willing to wait for monetary rewards than for food, and show the highest degree of patience only in response to decisions about money involving low opportunity costs. These findings suggest that core components of the capacity for future-oriented decisions evolved before the human lineage diverged from apes. Moreover, the different levels of patience that humans exhibit might be driven by fundamental differences in the mechanisms representing biological versus abstract rewards.

International competitiveness of Turkish agriculture: a case for horticultural products

Abstract This paper defines competitiveness as the ability of a country to increase its share of domestic and export markets, especially when they have a comparative advantage in a product and can produce at a lower opportunity cost. This paper briefly covers the theoretical information on this topic and provides empirical evidence of how domestic resource cost (DRC) can determine international competitiveness. A country is said to have a comparative advantage in the production of tradable goods if that country's production is efficient; if not, then it has a comparative disadvantage. The concept of comparative advantage has two meanings: The first definition states that efficiency of production is compared to two or more trading nations, and when the nations with the lowest opportunity costs are relatively more efficient, they have a comparative advantage. The other meaning of comparative advantage refers to the efficiency of different kinds of production within the domestic economy, which are compared i...

Corruption, Bribery, and Wait Times in the Public Allocation of Goods in Developing Countries

AbstractWhat are the nexuses between corruption, bribery, and wait times in the public allocation of goods in developing countries? This question has received scant attention in the literature. Consequently, we use queuing theory to analyze models in which a good is allocated publicly, first in a non‐preemptive corruption regime and then in a preemptive corruption regime. Specifically, for both regimes, we calculate wait times for citizens who pay bribes and for those who do not. Second, we use these wait times to show that bribery is profitable for citizens with a high opportunity cost of time. Third, we show that high and low opportunity cost of time citizens will have dissimilar preferences as far as the corruption regime is concerned. Finally, we conclude with some across‐citizens and across‐corruption regimes observations about the value of preemption, the benefit from bribery, and a measure of resource misallocation in the economy.

Corruption, Bribery, and Wait Times in the Public Allocation of Goods in Developing Countries

What are the nexuses between corruption, bribery, and wait times in the public allocation of goods in developing countries? This question has received scant attention in the literature. Consequently, we use queuing theory to analyze models in which a good is allocated publically, first in a non-preemptive corruption regime and then in a preemptive corruption regime. Specifically, for both regimes, we calculate wait times for citizens who pay bribes and for those who do not. Second, we use these wait times to show that bribery is profitable for citizens with a high opportunity cost of time. Third, we show that high and low opportunity cost of time citizens will have dissimilar preferences as far as the corruption regime is concerned. Finally, we conclude with some across citizens and across corruption regimes observations about the value of preemption, the benefit from bribery, and a measure of resource misallocation in the economy.

The impact of bank venture capital on initial public offerings

Studies of the role of venture capital in the IPO process generally assume that all venture capitalists are alike. We relax this assumption and focus on the role of venture capitalists affiliated with either commercial or investment banks. We find that firms backed by these bank venture capitalists experience a lower opportunity cost of going public. This result holds mainly for small issuers, suggesting that banks are superior to traditional venture capitalists in providing certification services to this segment of the market. We also find that bank venture capital-backed firms experience a less negative abnormal return at lockup expiration, which is consistent with the hypothesis that banks are motivated, at least in part, by ‘relationship building’ when providing venture capital funding.

The Industrial Organization of the Japanese Bar: Levels and Determinants of Attorney Incomes

Using micro-level data (from tax records) on attorney incomes in 2004, we reconstruct the industrial organization of the Japanese legal services industry. These data suggest a bifurcated bar. The most talented would-be lawyers (those with the highest opportunity costs) pass the bar-exam equivalent on one of their first tries or abandon the effort. If they pass, they then opt for careers in Tokyo that involve complex litigation and business transactions. The work places a premium on their talent, and from it they earn appropriately high incomes. The less talented face lower opportunity costs, and willingly spend many years studying for the exam. If they eventually pass, they tend to forego the many amenities available to professional families in Tokyo and disproportionately opt for careers in the under-lawyered provinces. There, they earn monopoly rents not available in the far more competitive Tokyo market.

A Complete Characterization of Mean Wait Times for Citizens in the Nonpreemptive Corruption Regime

Recently, Batabyal and Yoo (2004) have used a queuing model with two types of citizens (high and low opportunity cost of time) to compute mean wait times in queue for the so called nonpreemptive corruption regime. The purpose of this note is to extend the Batabyal and Yoo (2004) analysis. Specifically, we first study a queuing model with n types of citizens. Next, we calculate mean wait times in queue for all n types of citizens. Finally, we discuss the implications of our findings.

A complete characterization of mean wait times for citizens in the non-preemptive corruption regime

Recently, Batabyal and Yoo (2004) have used a queuing model with two types of citizens (high and low opportunity cost of time) to compute mean wait times in queue for the so called non-preemptive corruption regime. The purpose of this note is to extend the Batabyal and Yoo (2004) analysis. Specifically, a queuing model with types of citizens is first studied. Next, mean wait times in queue are calculated for all n types of citizens. Finally, the implications of the findings are discussed.

A Clash of Generations? Youth Bulges and Political Violence

It has frequently been suggested that exceptionally large youth cohorts, the so-called “youth bulges,” make countries more susceptible to political violence. Within two prominent theoretical frameworks in the study of civil war, youth bulges are argued to potentially increase both opportunities and motives for political violence. This claim is empirically tested in a time-series cross-national statistical model for internal armed conflict for the period 1950–2000, and for event data for terrorism and rioting for the years 1984–1995. The expectation that youth bulges should increase the risk of political violence receives robust support for all three forms of violence. The results are consistent both with an expectation that youth bulges provide greater opportunities for violence through the abundant supply of youths with low opportunity costs, and with an expectation that stronger motives for violence may arise as youth bulges are more likely to experience institutional crowding, in particular unemployment. Some contextual factors have been suggested to potentially enhance the effect of youth bulges. In an empirical test of these propositions, the study suggests that youth bulges are particularly associated with an increasing risk of internal armed conflict in starkly autocratic regimes, but a similar effect is also found for highly democratic countries. The interaction of youth bulges with economic decline and expansion in higher education appear to increase the risk of terrorism but not of rioting. Recent studies in economic demography find that when fertility is sharply decreasing, causing lower dependency ratios, large youth cohorts entering the labor market may lead to economic boosts. This study finds some empirical evidence complementing these results, indicating that the effect of youth bulges on political violence may decline along with reduced dependency ratios.

Virtual water trade: an assessment of water use efficiency in the international food trade

Abstract. Amid an increasing water scarcity in many parts of the world, virtual water trade as both a policy instrument and practical means to balance the local, national and global water budget has received much attention in recent years. Building upon the knowledge of virtual water accounting in the literature, this study assesses the efficiency of water use embodied in the international food trade from the perspectives of exporting and importing countries and at the global and country levels. The investigation reveals that the virtual water flows primarily from countries of high crop water productivity to countries of low crop water productivity, generating a global saving in water use. Meanwhile, the total virtual water trade is dominated by green virtual water, which constitutes a low opportunity cost of water use as opposed to blue virtual water. A sensitivity analysis, however, suggests high uncertainties in the virtual water accounting and the estimation of the scale of water saving. The study also raises awareness of the limited effect of water scarcity on the global virtual water trade and the negative implications of the global water saving for the water use efficiency and food security in importing countries and the environment in exporting countries. The analysis shows the complexity in evaluating the efficiency gains in the international virtual water trade. The findings of the study, nevertheless, call for a greater emphasis on rainfed agriculture to improve the global food security and environmental sustainability.

The committee assignment process as an optimal contracting problem

This paper adapts a simple model from the optimal contracting literature to explain the relationship between political parties and non-incumbent candidates. The model predicts that legislators with a higher opportunity cost of government service will receive better committee assignments. Using data that spans 12 Congresses (97th to 108th), I find that when the opportunity cost of Senate service is measured by previous occupation, freshmen senators with a high opportunity cost for serving (those who were lawyers) were given good committee assignments, while freshmen senators with a low opportunity cost for serving (professors, and those with relatives already in politics) were given worse committee assignments.