Marginal Cost Research Articles

Horizontal Partial Cross Ownership and Innovation*

We study the effects of partial cross ownership (PCO) among rival firms on their incentives to innovate. PCO in our model gives rise to a price effect due to its effect on price competition and hence on the marginal benefit from investment, as well as a cannibalization effect which arises because each firm internalizes part of the negative externality of its investment on the rival's profit. We show that overall, PCO may benefit or harm consumers depending on the size of the PCO stakes, their degree of symmetry, the size of the innovation, its marginal cost, and whether it is drastic or not.

A Factor‐Augmented New Keynesian Phillips Curve for the European Union Countries

AbstractIn this paper, a factor‐augmented version of the New Keynesian Phillips curve (NKPC) is assessed using a data set comprised of a large panel of European Union (EU) member countries. The factor‐augmentation is natural given that country‐level inflation rates are highly co‐moving. The presence of unattended common factors is important because it raises the issue of omitted variables bias, as the real marginal cost, which is a regressor of the NKPC, is likely to load on the same factors as inflation. One possibility here is to employ the regular instrumental variables approach. However, if the external instruments load on the same factors as the error term of the NKPC, the instruments would be invalid and the results would therefore likely be misleading. Motivated by this last observation, the present paper proposes a new estimator of the NKPC that allows for very general forms of factor dependencies and endogeneity. Our results provide evidence in support of the NKPC, but only after the presence of common factors has been appropriately accounted for.

Some real Life Application of Derivatives in Economics

In this assignment, we addressed the usage of derivatives in several areas of economics, such as demand elasticity, cost minimization, and profit maximization. In addition, derivatives are used to calculate marginal revenue, marginal cost, and marginal product. This work is motivated by the work of [1-24].

Cost-effective reductions in greenhouse gas emissions: Reducing fuel consumption or replacing fossil fuels with biofuels

Greenhouse gas emissions from the transport sector can be reduced by decreasing fuel use by different means, and by blending biofuels into fossil fuels. A cost-effective combination of these measures is determined by spatially specific characteristics such as fuel demand, feedstock production costs, and greenhouse gas emissions from the feedstock production. We developed a spatially explicit model to explore the role of reduced transport fuel use and increased use of domestically produced biofuel, respectively, in a cost-effective policy for greenhouse gas abatement. The model is applied to domestic lignocellulosic biofuel from agricultural land, gasoline, and diesel for road transport in Sweden. The results show that the use of biofuel is particularly cost-effective under low and modestly stringent abatement targets. For more stringent targets, decreased fuel end use dominates the abatement portfolio. Replacing the emissions target by a biofuel production target increases the marginal cost of reducing emissions by up to 250%. With the current vehicle fleet, technical constraints on blend-in possibilities limit the role of biofuels at higher target levels.

Water Pricing and Quotas: A Quantitative Analysis from a Private and Social Perspective

AbstractThe current situation of structural water scarcity due to the rise in demand, the reduction in supply as a consequence of climate change, increasingly frequent drought periods, and overall quantitative pressure on water resources creates a need for economic instruments to reduce the amount of water used, especially in the agricultural sector. Thus, water pricing and allocation quotas (proportional reduction of allocations) may be suitable tools to reduce demand or allocate scarce water resources. For a comparative analysis of the performance of these two measures, a Positive Mathematical Programming model has been developed, using the Guadalquivir River Basin as a case study. Additionally, the analysis takes into account the revenue generated from water pricing and the marginal cost of public funds. The results indicate that, from the farmer’s perspective, quotas result in smaller losses than water pricing. However, when considering water pricing along with the revenue generated from this measure, this mechanism would be more beneficial for society as a whole, since the taxes collected could be used for other purposes, albeit with efficiency losses measured by the marginal cost of public funds and the excess burden of taxation.

How much does dysphagia cost? Understanding the additional costs of dysphagia for New Zealand in patients hospitalised with stroke.

Dysphagia (i.e., disordered swallowing) is a consequence of stroke. Existing literature on the marginal cost of dysphagia after stroke is limited and ignores long-term impacts. Our aim was to determine the marginal 12-month cost attributable to dysphagia, including health-related quality of life (HRQoL) impacts, among patients hospitalised with stroke in New Zealand. Secondary analysis of observational data from the REGIONS Care study, a national study from New Zealand of consecutively hospitalised patients with acute stroke between 1st May 2018 and 30th October 2018 including an outcome survey at 12 months among those who provided consent. Patients were identified as dysphagic if they received a swallow screen in hospital resulting in a Speech Language Therapist review. Patients that required a nasogastric feeding tube in hospital were classified as 'severe'. Optimal linear propensity score matching was utilised to provide a group for patients to compare with stroke and dysphagia. All costs were converted to 2021NZ$. Overall, of the 2,379 patients in the REGIONS cohort (51% male, median age:78), 40% (944/2,379) were dysphagic (52% male, median age: 78), and 5% (111/2,379) were classified as severely dysphagic. Within 12-months of hospital discharge, dysphagia reduced HRQoL overall by 0.06 index points (95%CI, 0.028 to 0.100), and severe dysphagia by 0.12 index points (95%CI, 0.03 to 0.20). The estimated marginal 12-month cost attributable to stroke-related dysphagia was $24,200 on average per patient. This estimate includes the additional hospitalisation costs ($16,100), community rehabilitation services ($570), hospital-level aged residential care ($4,030) and reduced HRQoL ($3,470) over a 12-month period post-hospital discharge. The overall total marginal cost for those with severe dysphagia was $34,000 per patient. We report cost estimates to 12 months from a national perspective on the additional costs and HRQoL outcomes of dysphagia for people hospitalised with stroke in New Zealand. Findings provide a novel contribution internationally since few prior studies have extended beyond the acute hospital phase of care. By quantifying the economic burden, we provide information to decision makers to improve dysphagia management strategies and ultimately enhance the overall HRQoL for people with stroke and dysphagia.

Methane output across life stages in sheep, how it differs from lambs to adult ewes using portable accumulation chambers.

Methane (CH4) produced from enteric fermentation is a potent greenhouse gas produced by ruminant animals. Multiple measurements are required across life stages to develop an understanding of how CH4 output changes throughout the animal's lifetime. The objectives of the current study were to estimate CH4 output across life stages in sheep and to investigate the relationship between CH4 output and dry matter intake (DMI). Data were generated on a total of 266 female Suffolk and Texel animals. Methane and carbon dioxide (CO2) output, estimated using portable accumulation chambers, and DMI, estimated using the n-alkane technique outdoors and using individual penning indoors, were quantified across the animal's life stage; as lambs (< 12 months), nulliparous hoggets (12 to 24 months) and ewes (primiparous or greater; > 24 months). Ewes were further classified as pregnant, lactating and dry (non-pregnant and non-lactating). Multiple measurements were taken within and across life stages on the same animals. A linear mixed model was used to determine if CH4 and CO2 output differed across life stages and using a separate linear mixed model the factors associated with CH4 output within each life stage were also investigated. Methane, CO2 output and DMI differed by life stage (P<0.05), with lactating ewes producing the greatest amount of CH4 (25.99g CH4/day) and CO2 (1711.6g CO2/day), while also having the highest DMI (2.18kg dry matter/day). Methane output differed by live-weight of the animals across all life stages (P<0.001). As ewe body condition score increased CH4 output declined (P<0.05). Correlations between CH4 output measured across life stages ranged from 0.26 (SE 0.08; lambs and lactating ewes) to 0.59 (SE 0.06; hoggets and pregnant ewes), while correlations between CO2 output measured across life stages ranged from 0.12 (SE 0.06; lambs and hoggets) to 0.65 (SE 0.06; hoggets and lactating ewes). Dry matter intake was moderately correlated with CH4 (0.44; SE 0.04) and CO2 output (0.59; SE 0.03). Results from this study provide estimates of CH4 output across life stages in a pasture-based sheep production system and offer valuable information for the national inventory and the marginal abatement cost curve on the optimum time to target mitigation strategies.

Market configurations when marginal costs are quality‐dependent

AbstractMost quality‐then‐price decision models under vertical product differentiation consider a predetermined market configuration. We endogenize market configuration considering quality‐dependent marginal costs and conclude that a strictly interior full coverage duopoly holds for some parameter values, unveiling the relevance of this commonly assumed market structure. Moreover, we show that a monopoly never arises in equilibrium, and (i) there are multiple equilibria at the frontier between interior and corner full coverage duopoly, (ii) the market is fully (partially) covered when relative tastes' heterogeneity is low (high), and (iii) there is a discontinuity in the transition from partial coverage to full coverage duopoly.

THE PREFERRED EXTERNALITIES-CORRECTING SYSTEM FOR PRACTICAL APPLICATION

This study sets two goals which are represented by the answers to the following two basic questions. What are the possibilities of national policy-makers in terms of the efficient correction of negative externalities? Since available externality correction systems give suboptimal ex post results, which system is preferable, and under what conditions? The possibilities of the policy-maker to ensure the social optimum are determined by ‘enlightenment’ (‘knowledge’) and ‘commitment’ to social goals. When the actual (ex post) marginal private costs for emission reduction are higher than the planned (ex ante) marginal private costs for emission reduction, and when the marginal social benefit is elastic, the Cap-and-Trade system is more undesirable than the price system. When the actual (ex post) marginal private costs for emission reduction are greater than the planned (ex ante) marginal private costs for emission reduction, and when the marginal social benefit is inelastic, the price system is more undesirable than Cap-and-Trade system.

Least-cost decarbonization pathways for electricity generation in Finland: A convex quantile regression approach

This study investigates the least-cost decarbonization pathways in the Finnish electricity generation industry in order to achieve the national carbon neutrality goal by 2035. Various abatement measures, such as downscaling production, capital investment, and increasing labor and intermediate inputs, are considered. The marginal abatement costs (MACs) of greenhouse gas emissions are estimated using the convex quantile regression method and applied to unique register-based firm-level greenhouse gas emission data merged with financial statement data. We adjust the MAC estimates for the sample selection bias caused by zero-emission firms by applying the two-stage Heckman correction. Our empirical findings reveal that the median MAC ranges from 0.1 to 3.5 euros per tonne of CO2 equivalent. The projected economic cost of a 90% reduction in emissions is 62 million euros, while the estimated cost of achieving zero emissions is 83 million euros.

Dry matter intake in US Holstein cows: exploring the genomic and phenotypic impact of milk components and body weight composite

Large data sets allow estimating feed required for individual milk components or body maintenance. Phenotypic regressions are useful for nutrition management, but genetic regressions are more useful in breeding programs. Dry matter intake (DMI) records from 8,513 lactations of 6,621 Holstein cows were predicted from phenotypes or genomic evaluations for milk components and body size traits. The mixed models also included days in milk, age-parity subclass, trial date, management group, and body weight change during 28- and 42-d feeding trials in mid-lactation. Phenotypic regressions of DMI on milk (0.014 ± 0.006), fat (3.06 ± 0.01), and protein (4.79 ± 0.25) were much less than corresponding genomic regressions (0.08 ± 0.03, 11.30 ± 0.47, and 9.35 ± 0.87) or sire genomic regressions multiplied by 2 (0.048 ± 0.04, 6.73 ± 0.94, and 4.98 ± 1.75). Thus, marginal feed costs as fractions of marginal milk revenue were higher from genetic than phenotypic regressions. According to the energy-corrected milk formula, fat production requires 69% more DMI than protein production. In the phenotypic regression, it was estimated that protein production requires 56% more DMI than fat. However, the genomic regression for the animal showed a difference of only 21% more DMI for protein compared with fat, while the sire genomic regressions indicated approximately 35% more DMI for fat than protein. Estimates of annual maintenance in kg DMI / kg body weight/lactation were similar from phenotypic regression (5.9 ± 0.14), genomic regression (5.8 ± 0.31), and sire genomic regression multiplied by 2 (5.3 ± 0.55) and are larger than those estimated by NASEM (2021) based on NEL equations. Multiple regressions on genomic evaluations for the 5 type traits in body weight composite (BWC) showed that strength was the type trait most associated with body weight and DMI, agreeing with the current BWC formula, whereas other traits were less useful predictors, especially for DMI. The Net Merit formula used to weight different genetic traits to achieve an economically optimal overall selection response was revised in 2021 to better account for these estimated regressions. To improve profitability, breeding programs should select smaller cows with negative residual feed intake that produce more milk, fat, and protein.

An appraisal of the LQI as an approach to setting target reliabilities in ISO 2394:2015

The idea of coupling economics and safety into one optimization exercise, and hence deriving target reliabilities explicitly from socio-economic consequences of limit state violation, appeared in the JCSS Probabilistic Model Code around the turn of the century; the effort culminated in the form of a Life Quality Index (LQI)-based marginal lifesaving costs (MLSC) methodology in ISO 2394:2015 for determining maximum acceptable failure probabilities, pT, in life safety limit states for civil engineering structures across all nations. Unfortunately, while the methodology does yield adequate levels of safety when applied to structures in the developed countries, the recommended values of pT turn out to be one to two orders of magnitude higher, and unacceptable to every known standard in the world including its own earlier edition (ISO 2394:1998) when applied to structures in the developing world (exemplified by India) with identical functions and expected fatalities. This arises from two shortcomings: (1) an MLSC approach is generally unable to provide an independent constraint on monetary optimization, and (2) the LQI-based measure of MLSC constraint is strongly dependent on a country’s per capita GDP (g) and the resultant pT is effectively governed by the reciprocal of g. This paper recommends continuing with the absolute − not marginal − consequences of violating life safety limit states, and setting constraints on monetary optimization that are consistent with fatality risks from engineering activities more universally accepted to be safe.

A Marginal Cost Consensus Scheme With Reset Mechanism for Distributed Economic Dispatch in BESSs

A Marginal Cost Consensus Scheme With Reset Mechanism for Distributed Economic Dispatch in BESSs

A Binary-State Continuous-Time Markov Chain Model for Offshoring and Reshoring

We present a two-country model (North and South) that describes the phenomenon of offshoring and reshoring. The model is a continuous time-controlled Markov chain with binary states. The main trade-off involves production costs and transaction costs between one country and another. In the first part of this paper, we identify the key parameters of the model: the difference in unit production costs between the two countries considered, the marginal cost of transitioning between countries, and the incentive paid by the North country to all companies that have not relocated at the end of the planning interval. The final goal of our paper is to understand how national tax incentives can influence this process.

Incorporating operational constraints into long-term energy planning: The case of the Egyptian power system under high share of renewables

This study assesses the performance of Egypt's energy system on a short-term basis to ensure that it can handle a high share of renewable energy, as predicted in the long-term planning up to 2040. PLEXOS software is used for short-term analysis to simulate operational performance on an hourly basis while considering the constraints of Unit Commitment (UC) and Economic Dispatch (ED). The long-term energy planning model, which covered the years 2020–2040 with chosen representative years (2020 as the base year and 2025, 2030, 2035, and 2040), was validated by the short-term operational model. The results from the short-term analysis indicate that by the year 2040, 69.5 % of the electricity mix from renewable energy sources (excluding hydro) can be accommodated, representing a slightly lower capacity than the 70 % predicted by the long-term plan. Due to the high share of intermittent renewable energy sources, traditional generators will experience excessive cycling in 2040. The average weighted short-run marginal cost in 2040 is projected to be 7.8 USD/MWh, compared to 18.37 USD/MWh in 2020, due to the low operating costs of renewable energy plants and their high penetration in 2040. Various operational techniques have been suggested to reduce the curtailment of renewable energy to achieve only 1.2 % of the total energy generation of the system by 2040. Additionally, other adjustments to the system operation are being considered to maintain a balance in the power system on a short-term basis.

Cost-effectiveness of erosion mitigation to meet water clarity targets in the Manawatū-Whanganui Region of New Zealand

Soil erosion is a significant environmental issue worldwide. It affects water quality, biodiversity, and land productivity. New Zealand government agencies and regional councils work to mitigate soil erosion through policies, management programmes, and funding for soil conservation projects. Information about cost-effectiveness is crucial for planning, targeting, and implementing erosion mitigation to achieve improvements in sediment-related water quality. While there is a good understanding of the costs of erosion mitigation measures, there is a dearth of literature on their cost-effectiveness in reducing sediment loads and improving water quality at the catchment level. In this study, we estimate the cost-effectiveness of erosion mitigation measures in meeting visual water clarity targets. The analysis utilizes the spatially explicit SedNetNZ erosion process and sediment budget modelling in the Manawatū-Whanganui Region and region-specific mitigation costs. The erosion mitigation measures considered in the analysis include afforestation, bush retirement, riparian retirement, space-planted trees, and gully tree planting. We modelled two scenarios with on-farm erosion mitigation implemented across the region from 2021 to 2100, resulting in a 48% and 60% reduction of total sediment load. We estimate the marginal costs to achieve the visual national bottom line for water clarity, as assessed by the length of waterways that meet the clarity targets. We also estimate the marginal costs of improving average water clarity, which can be linked with non-market valuation studies when conducting a cost-benefit analysis. We find that gully tree planting and space-planted trees are the most cost-effective mitigation measures and that riparian retirement is the least cost-effective. Moreover, cost-effectiveness is highly dependent on current land use and the biophysical features of the landscape. Our estimates can be used in cost-benefit analysis to plan and prioritize soil erosion mitigation at the catchment and regional levels.

Environmental taxation of plastic bags and substitutes: Balancing marine pollution and climate change

Several countries have imposed either a ban or a tax on single-use plastic packaging, motivated by their contribution to marine plastic pollution. This may lead consumers to opt for similar unregulated substitutes, potentially undermining or even counteracting the intended effect of the policy instrument. The purpose of this study is to theoretically and empirically compare the environmental and welfare effects of the first-best Pigouvian taxes on both plastic bags and a substitute (paper bags), with two alternative second-best policy instruments: a tax on plastic products alone, and a common uniform tax on all packaging materials. The empirical analysis accounts for two different types of environmental externalities from the use of both bag types: marine pollution and greenhouse gas emissions. It also compares results for two countries, Denmark and the USA, which differ in the demand for plastic and paper bags. The theoretical analysis shows that a unilateral tax on plastic bags should equal the marginal environmental damage of plastic bags minus a fraction of the marginal environmental cost of paper bags, hence being lower than the Pigouvian tax. The optimal common tax should equal a weighted average of the marginal environmental damage of the two bag types and would be lower than the Pigouvian tax on plastics if the marginal external cost of plastic bags exceeds that for paper bags. The empirical analysis shows that for default parameters, the variation in tax level across the studied scenarios is small. It also shows that if Pigouvian taxes cannot be implemented, a common uniform tax on both bag types would result in a higher welfare gain than a tax on plastic bags alone. Sensitivity analysis reveals that the level of the second-best taxes and their associated environmental and welfare impacts are sensitive to assumptions regarding the littering rate and decay rate of plastic bags in the marine environment.

Climate mitigation potential and economic costs of natural climate solutions for main cropping systems across China

CONTEXTNatural climate solutions (NCS) offer immediate and cost-effective ways to tackle the climate crisis by transforming atmospheric carbon to soil carbon or avoiding greenhouse gas emissions. However, the climate mitigation potential and economic costs of NCS for cropping systems in China remain inconclusive. OBJECTIVEThe major objectives of this study are (i) to estimate the NGHG reduction potential across Chinese main cropping systems caused by NCS, (ii) to quantify the economic costs of adopting optimal management with different abatement potentials. METHODSThe Denitrification-Decomposition (DNDC) model was used to estimate the NGHG, including SOC sequestration, N2O emissions, and CH4 emissions. After calibration, we ran the DNDC model with derived data at municipality-level. We estimated the NGHG under current management, adopting optimal management individually, and integrated optimal management to project the maximum NGHG reduction potential caused by NCS. We used the marginal abatement cost method to estimate the economic cost. RESULTS AND CONCLUSIONSThe four natural climate solutions, N fertilization management (NFM), straw returning management (SRM), tillage management (TM), and rice irrigation management (RIM) can reduce national NGHG in main cropping systems by approximately 118.8 Tg CO2-eq, 116.3 Tg CO2-eq, 35.2 Tg CO2-eq, and 74.4 Tg CO2-eq, respectively. The integrated optimal management may potentially reduce NGHG by 256.9 Tg CO2-eq, equivalent to 90.2% of current NGHG, and 80% of which can be realized at the price of CN¥ 285 (Mg CO2-eq)−1. We further identify the priority NCS for different crops and regions and conclude that nitrogen fertilization management should be the priority NCS at the national level. SIGNIFICANCEOur findings highlight the great potential of NGHG reduction by adopting NCS precisely and the importance of optimizing agricultural management as a whole, and they will help policy makers to develop smart-agriculture in China.

THE ROLE OF DIGITIZATION IN MANAGEMENT AND STRATEGIC DECISION-MAKING IN MODERN MANAGEMENT

This research aims to assess the impact of digitization on management efficiency and strategic decision-making, a pivotal aspect in the contemporary business world. By integrating digital technologies with traditional mathematical models and analyzing survey data from 250 management professionals, the study provides a comprehensive understanding of the multifaceted effects of digitization.The principal outcomes from the mathematical analyses, including Marginal Cost Analysis, Break-Even Analysis, and Linear Programming, indicate substantial improvements in operational efficiency following digitization. Specifically, Marginal Cost Analysis shows a significant decrease in the cost of production, and Break-Even Analysis reveals a reduction in the break-even point by approximately 15%, underscoring enhanced cost-effectiveness. Linear Programming results demonstrate a 20% improvement in resource allocation efficiency. The survey analysis complements these findings, revealing a positive perception of digitization in enhancing managerial adaptability, efficiency, and decision-making effectiveness, with average rating improvements of 0.3, 0.4, and 0.5 points, respectively, on a 5-point scale. Regression analysis further highlights the positive influence of technological affinity on decision-making effectiveness. However, ANOVA results suggest variability in the impact of digitization across different industry sectors, necessitating sector-specific digital strategies.Digitization significantly elevates management efficiency and strategic decision-making capabilities. The integration of digital tools with traditional management techniques results in more informed, efficient, and strategic business decisions. However, the varied impact across sectors and the rapid pace of technological advancement calls for continuous adaptation and sector-specific strategies. These findings provide vital insights for businesses navigating the digital era, emphasizing the strategic integration of digital tools in management practices for sustained success and competitiveness.

Internalization of External Cost in the Thermal Power Generation on Social Welfare Maximization

For decades, Kenya has incorporated thermal power technology into its grid to generate electrical energy using fossil fuels such as petroleum, natural gas, and coal. The burning of fossil fuels has become a major source of air pollutants and is associated with several undesirable side effects on the environment and human health. However, the impact of pollutants on environmental sustainability and public welfare has yet to be evaluated. Therefore, the purpose of this study is to evaluate the external cost of electricity generated by thermal power plants in Kenya. Both survey data and secondary data were used. The analysis was conducted using externality valuation and welfare maximization approaches, and the research hypotheses were tested using a negative binomial regression model. The annual external cost ($/2022) was determined to be $ 1,333,904,970.76, with the following distribution: environmental at $ 993,488,336.26, Public health at $ 86,760,038.01, and socio-economic at $ 253,656,596.49. Equally, the thermal power generation marginal social cost ($/2022) was determined to be 1.22 $cents/kWh with the following distribution: Marginal Private Cost (MPC) at 0.01 $cents/kWh and Marginal External Cost (MEC) at 1.21 $cents/kWh. The established marginal social cost (MSC) (i.e. Σ MPC+MEC) was 1.22 ($cents/kWh). Thus, MSC is significantly greater than the established social marginal benefit (SMB) of 0.089 ($ cents/kWh); hence, we conclude that the burden of social welfare loss is highly significant, making thermal power a non-sustainable and economic energy source.