Pre-existing Market Research Articles

The Implications of Pre-Existing Market Power Distortions for Electric Vehicle Tax Policies: Evidence from Colombia

The Implications of Pre-Existing Market Power Distortions for Electric Vehicle Tax Policies: Evidence from Colombia

Incidental Adaptation: The Role of Non-climate Regulations

When a non-climate institution, policy, or regulation corrects a pre-existing market failure that would be exacerbated by climate change, it may also incidentally induce climate adaptation. This regulation-induced adaptation can have large positive welfare effects. We develop a tractable analytical framework of a corrective regulation where the market failure interacts with climate, highlighting the mechanism of regulation-induced adaptation: reductions in the climate-exacerbated effects of pre-existing market failures. We demonstrate this empirically for the US from 1980 to 2013, showing that ambient ozone concentrations increase with rising temperatures, but that such increase is attenuated in counties that are out of attainment with the Clean Air Act’s ozone standards. Adaptation in nonattainment counties reduced the impact of a 1 °C increase in climate normal temperature on ozone concentration by 0.64 parts per billion, or about one-third of the total impact. Over half of that effect was induced by the standard, implying a regulation-induced welfare benefit of $412–471 million per year by mid-century under current warming projections.

DEFENSIVE MEDICINE AND MEDICAL MALPRACTICES IN INDIA: AN ECONOMIC ANALYSIS

Medical science claims to have developed several ways of controlling health risks, increasing safety standards and protocols related to medical practices and procedures but it cannot claim that it has eliminated all other kinds of risks associated with it. The recent spurt in the litigation against medical professionals for medical negligence and the claim for redressal or compensation has shaken the confidentiality and patient-doctor relationship to a new high level. The increasing cost of medical malpractice litigation has increased the practice of defensive medicine. It is a medical practice that can be said as an act of economic security against potential allegations of negligence. The present study on economic analysis of medical malpractices and practice of defensive medicine focuses on a pre-existing market relationship between medical negligence and the resultant defensive practices adversely affecting many aspects of human life. The present research is divided into five sections. The first section deals with the nature of the existing market and the economic analysis of the relationship between medical negligence liability and its potential impact on the practice of defensive medicine. The aforesaid market relationship is much more pronounced in the western countries. It is based on the understanding of cost of litigation, the expectation of liability in excess to actual damages and the benefits accruing out of practicing defensive medicine in response to the above situation. However, in the context of India the relationship is not that simple. Particularly, when medical malpractice litigations are not very common practice by the victims and the so-called existing healthcare industry is already running at kickbacks for referring patients, inflating bills and thereby promoting defensive medical practices. In order to promote efficient transactions, exchanges and economic efficiency in the above market, role of legal means cannot be denied. The second part of the study examines the role of the insurance industry in dealing with medical claims. In an inefficient insurance market, insured medical claims remain low and out-of-pocket medical expenditure remains very high. This unethical socio-economic malpractice is economically inefficient and thereby inducing loss of socio-economic welfare of the people. The third section delves upon the unintended socio-economic impacts of the medical malpractices and defensive practice. Particularly in a welfare state like India, it neither results in an activity reinforcing excellence in the medical profession nor helps in achieving the constitutional mandate of ‘Right to Health’. An individual’s sense of wellbeing is incomplete in the absence of his physical as well as mental wellbeing and both of them are responsible for country’s economic and social development. The fourth part examines the relationship of law with defensive medicine. The role of law in regulating the market and thereby reducing healthcare costs is very important. Although it is very difficult to have correct estimates of medical liability costs and various components of it, the growing concerns related to increasing practice of defensive medicine has to be adequately addressed by law. The fifth and the last section discusses the conclusions and recommendations. Today, when the entire world is going through a phase of health crisis, the concerted effort of citizens and government becomes indispensable. In a country like India accessibility and affordability of medical facilities and insurance has to be ensured. With the continuous increase in health care costs the very objective of fair distribution of available healthcare facilities has become a difficult and unachievable task. In order to deal with the above complex and perplexing problem we need greater involvement of economics, law and suitable public policies. India’s fragmented health infrastructure may result in economic inefficiency, reduction in social and economic welfare, wastage of scarce medical resources and high-cost treatment.

The Implications of Pre-Existing Market Power Distortions for Electric Vehicle Tax Policies: Evidence from Colombia

The Implications of Pre-Existing Market Power Distortions for Electric Vehicle Tax Policies: Evidence from Colombia

Environmental efficiency of wine grape production in Mendoza, Argentina

The natural characteristics are a valuable asset for the production of wine grapes, but the availability of quality water and the composition of the soil are decisive in semi-arid areas. The province of Mendoza is a prestigious region for the production of wine that is going through a period of water scarcity, which implies a greater use of groundwater that could compromise the availability of resources and trigger salinity levels. This paper evaluates the environmental performance of winegrowers in the face of a productive threat such as the saline content in irrigation water. We estimate environmental efficiency based on a directional output distance function using the salinity hazard of irrigation as an undesirable output. The average environmental performance is 0.88 and it can be reduced by participating in producer groups, receiving technical assistance, increasing the density of the vineyard, and receiving an energy subsidy for irrigation. In addition, the shadow price of the salinity hazard reveals that higher salinity content in irrigation water and soil characteristics cause excessive irrigation at the expense of environmental and economic performance. Furthermore, the pre-existing market price relationship, water balance and district characteristics can deflate shadow prices, but only vineyards with joint water sources can benefit from this.

The sensitivity of oil price shocks to preexisting market conditions: A GVAR analysis

This study develops a Global Vector Autoregression (GVAR) model to simulate various types of shocks to oil markets and to see whether such shocks are time-sensitive in oil markets. Our model extends the canonical Mohaddes and Pesaran (2016) model temporally (to 2018Q3), spatially (including Russia, Iran, and Venezuela), and by adding oil inventories as an additional country-specific variable. Two of its characteristics make GVAR particularly suited to this analysis. First, the GVAR framework is specifically designed to account for the interaction between many countries. Second, world oil supplies and inventories are modeled jointly with key global and country-level macroeconomic variables. The results indicate conditions existing in the markets prior to the disturbance determine the global economic implications of an oil price shock. To cite only one example, a negative price shock in markets characterized by loose inventories will have significant negative implications for real GDP in the consuming nations, specifically Europe Latin America, and the Asia Pacific. In tight markets, on the other hand a negative price shock has the potential to increase real GDP for the world as a whole.

The role of technological innovation in global climate policy

This research builds a dynamic model of the global economy and climate with three endogenous knowledge stocks. We confirm that the contribution of induced R&D in global climate change is shown to be very sensitive to the elasticity of substitution between energy and other factors of production since growth patterns of all types of research depend on whether inputs are gross complements or gross substitutes. The second, the duplication externality. Induced R&D generates a lower abatement cost reduction if we externalize duplication in the business as usual scenario. Third, the initial level of research expenditure. Higher initial levels of energy-related R&D shares would create a market size effect, leading to an increased contribution of induced R&D. Fourth, the inter-firm knowledge spillovers. Firms are not successful in capturing all the benefits they create, as many benefits flow out into other firms free of charge. These benefits are called inter-firm knowledge spillovers. Fifth, first-best and second-best policies. The first-best policy fully internalizes the inter-firm knowledge spillovers, which leads to increases in the levels of all types of research, whereas the second-best policy does not internalize it, which leads to induced changes in research resulting from the carbon tax affecting pre-existing market distortions. Sixth, a research dividend effect and tax burden effect. The tax may induce an increase in research expenditure, which would increase the welfare and consumption levels. Finally, the results demonstrated that induced R&D has a limited role in the abatement cost reduction of carbon emissions overall.

The failure of private health services: COVID-19 induced crises in low- and middle-income country (LMIC) health systems

ABSTRACT For decades, governments and development partners promoted neoliberal policies in the health sector in many LMICs, largely motivated by the belief that governments in these countries were too weak to provide all the health services necessary to meet population needs. Private health markets became the governance and policy solution to improve the delivery of health services which allowed embedded forms of market failure to persist in these countries and which were exposed during the COVID-19 pandemic. In this article, we analyse the manifestations of these market failures using data from an assembled database of COVID-19 related news items sourced from the Global Database of Events, Language, and Tone. Specifically, we identify how pre-existing market failure and failures of redistribution have led to the rise of three urgent crises in LMICs: a financial and liquidity crisis among private providers, a crisis of service provision and pricing, and an attendant crisis in state-provider relations. The COVID-19 pandemic has therfore exposed important failures of the public-private models of health systems and provides an opportunity to rethink the future orientation of national health systems and commitments towards Universal Health Coverage.

Do Credit Supply Shocks Affect Employment in Middle-Income Countries?

This paper studies the extent to which increases in bank credit supply available for small and medium firms can foster formal employment in Mexico. We use a detailed dataset containing loan-level information for all loans extended by commercial banks to private firms in Mexico during the 2010-2016 period, when the economy was relatively stable. To obtain exogenous variation in credit supply, we exploit differences in the regional presence of Mexican banks across local labor markets by combining pre-existing market shares with national-level changes in banks’ credit supply, after accounting for local credit demand shocks. Then, we use employment registry data to compare changes in the number of formal workers registered by small and medium firms in local labor markets differently exposed to these shocks. We find that credit supply shocks have a large impact on formal employment: a positive credit shock of one standard deviation increases yearly employment growth by 0.45 percentage points (13 percent of the mean). Our results differ from the null to small effects identified by previous literature for developed countries, suggesting that credit supply shocks play a more prominent role for employment creation (and destruction) in low and middle-income countries.

Impacts of a national lockdown on smallholder farmers’ income and food security: Empirical evidence from two states in India

In early 2020, the unprecedented nature of COVID-19 prompted India, among many other countries, to put in place stark measures to stem the virus’ spread and the cost of human lives. We analyze data from phone-based surveys on disruptions to agricultural production and food security, administered with 1515 smallholder producers in the states of Haryana and Odisha. We find substantial heterogeneity in how the lockdown affected farmers in these two states, which is likely related to existing structural differences in market infrastructure and to differences in state-specific COVID-related policies. In Odisha, where mechanization is limited, farmers spent more on labor to harvest their crops, and distress selling was more prevalent due to the absence of a well-functioning procurement system for their crops. In Haryana, preexisting market infrastructure allowed the state to sustain procurement at stable prices, limiting impacts on smallholder production. As consumers, farmers in Haryana faced more disruptions than those in Odisha, due to reduced availability of foods in the markets, whereas farmers in Odisha benefited from more diverse cropping patterns and increased local supply of foods following transport restrictions.

Firms’ social responsibility and workers’ motivation at the industry equilibrium

We consider an industry in which firms compete at two levels: the labor market and the product market. In the labor market, two types of workers coexist: socially responsible workers or not. Firms may strategically use responsible activities (CSR) to screen and elicit greater effort from responsible workers. By doing so, virtuous firms lower their production costs and display a competitive advantage in the product market. As a consequence, CSR strategies by firms shape the toughness of the competition in that market. In turn, incentives that firms have to invest in CSR are dampened when competition becomes harsher. Hence, we identify a twofold relationship between CSR and competition. Given the feedback effects on the competitive pressure, an increase in workers’ social awareness may reduce the overall level of socially responsible investment in the industry. We also show that an exogenous increase in competition may positively or negatively affect the corporate social performance depending on pre-existing market conditions.

Principals and District Leaders Navigating the Marketplace: Lessons From Texas, New York, and Pennsylvania

Due to the growth of school choice across the United States as well as declining enrollment in some districts, schools are experiencing increasing competition for students. As a result, principals and school district leaders in high-choice districts are now expected to develop strategies such as branding, marketing, and community outreach to attract and retain students. Yet, there is a lack of literature exploring whether principals and district leaders are prepared to navigate these competitive spaces effectively, ethically, and equitably. Our study examines how principals and district leaders experience competition as well as their perspectives and practices in terms of marketing their school. In order to understand this complex process, we juxtapose theoretical perspectives on family and community partnerships with more mainstream market theories and critiques. We then apply these frameworks on three unique cases along the Texas–Mexico border, a low-income area of New York City, and rural Pennsylvania. Data were collected primarily through interviews with principals, superintendents, and other district leaders. We find that in all three cases, principals and district leaders felt they had to engage in marketing practices. Yet, some principals clearly embraced market-based rhetoric while others viewed strong community engagement as a means for maintaining enrollment. The three cases also reveal critical equity issues regarding principal experience, district support, and preexisting market hierarchies. We conclude with a discussion considering how districts can create equitable conditions for marketing and how leadership preparation programs can prepare principals and school leaders to work ethically and effectively in competitive spaces.

Responses to rival exit: Product variety, market expansion, and preexisting market structure

Research SummaryThis study investigates incumbent responses to a main rival's exit. We argue that long‐time rivals have developed an equilibrium by offering a mix of overlapping and unique products and by choosing geographic proximity to each other. A rival's exit, however, disrupts this equilibrium and motivates surviving firms to expand in both product and geographic spaces to seek a new equilibrium. Using data from all U.S. Best Buy stores before and after the exit of Circuit City, we find that Best Buy uses product variety expansion as its major response in markets where Circuit City was colocated, but it more often responds by opening new stores in non‐colocated markets. Regardless of preexisting market structures, the magnitude of product variety expansion decreases with the opening of new stores.Managerial SummaryHow do surviving firms respond to a major rival's exit? By studying Best Buy's responses to Circuit City's withdrawal, we find the survivor expands in both product space (increasing product variety) and geographic space (opening new stores), due to two motives. First, the survivor strives to fill in “holes” left in the market. Second, the survivor experiences uncertainty in the postexit world wherein its reference point is gone, threat of potential entry looms, and it lacks information about new entrants. Thus, it must deter potential entry ex ante by preempting many prime product and geographic locations. Best Buy also responds according to preexisting market structures, primarily through product variety expansion in markets wherein Circuit City was colocated and through opening new stores in non‐colocated markets.

The Real Estate Market in the Aftermath of September 11

This study examines the reaction of the financial markets to the terrorist attack on the World Trade Center and how their behavior compared to the subsequent resolution in the corresponding real asset markets. This event provides an ideal setting to evaluate the accuracy of the market's reaction to external shocks since, unlike almost all studies of economic events, this tragedy was certainly unanticipated and thus absent from pre-existing market expectations, its overall impact was unclear, and the subsequent week of market closure gave market participants sufficient time to sort out the complex impact of the event on market prices. Our analysis of Real Estate Investment Trusts (REITs) with New York office exposure outside of the downtown area shows that, during the period of market closure and the first trading day, the equity market did not accurately anticipate how this event would impact office REITs. Specifically, we find that REITs with significant exposure to the New York market showed significant gains relative to REITs without New York exposure (an average difference of 4.057% of market value from the close on September 10 to the opening on September 17), and that this abnormal return disappeared only in November 2001. However, an examination of the underlying real asset market's performance over the first few months after September 11 shows that New York properties significantly under-performed similar office properties in the U.S. This evidence provides little support for the notion that financial markets can rapidly and correctly price significant shocks to the underlying economy.

Creditor control and product-market competition

Abstract We explore how rival firms respond when firms in their industry violate debt covenants. We find that rival firms increase advertising expense, and that this increase is proportional to the size of industry violators’ pre-existing market share. Rival firm product-market share also increases in the industry market share of violators, and this relation is more pronounced when products are more substitutable. Rival firm operating performance also increases in proportion to the industry market share of violators. Overall, these findings suggest that the increased creditor control associated with covenant violations has a significant influence on rival firms and product-market competition.

Oscillation as a Mechanism for the Maintenance of Conflicting Organizational Identities

Organizations with conflicting organizational identities suffer from internal tensions that must be managed. Prior research suggests many compelling strategies to manage these tensions (e.g., segmentation, compartmentalization, or deletion), but these strategies either momentarily or permanently limit the expression of one of these identities. This study examines the organization “Extreme Gym,” which uses a strategy that does not structurally limit the expression of its conflicting organizational identities and instead fully enacts them in the same physical space. A contrarian organizational identity “Go Hard until You Puke” is enacted for elite athletes and a conformist organizational identity “Go at Your Own Pace” is enacted for casual athletes. Analyses based on participant observation and interviews with entrepreneurs and organizational members suggest that Extreme Gym is able to manage the tensions that arise from these conflicting organizational identities through the strategy of oscillation: alternating between events that unite and stratify organizational members on a daily basis. This process privileges each organizational identity at punctuated intervals without limiting their expression. Enacting both of these conflicting organizational identities allows Extreme Gym to be similar to and different from pre-existing market offerings–a strategy that could potentially position Extreme Gym for high growth among all customer segments.

National Differentiation and Industry-Wide Scale Effects

Trade taxes are often used as (a) a first-best instrument to manipulate the terms-of-trade, or (b) a second-best instrument to correct pre-existing market distortions. We analyze the (in)effectiveness of trade taxes at achieving these two policy goals. To this end, we derive sufficient statistics formulas for first-best and second-best trade/domestic taxes in an important class of multi-industry quantitative trade models featuring market distortions. Guided by these formulas, we estimate the key parameters that govern the gains from policy in these frameworks. Our estimates indicate that (i) the gains from terms-of-trade manipulation are relatively small; (ii) trade taxes are remarkably ineffective at correcting domestic distortions; (iii) unilateral domestic policies are also ineffective as they worsen the terms-of-trade; but (iv) deep trade agreements that prohibit trade taxation and encourage a multilateral adoption of corrective policies, deliver welfare gains that are larger than any non-cooperative policy alternative.

Market mechanisms in power-to-gas systems

Power-to-gas is a versatile and effective form of energy storage by which hydrogen is generated by electrolysis. The produced hydrogen is an alternative energy vector, which can be contained within the natural gas infrastructure or other storage. By means of the rapid response of Proton Exchange Membrane electrolysers, Power-to-Gas also offers important auxiliary and regulatory power services. A MATLAB simulation illustrates that the use of pre-existing market mechanisms for the operating cost of electricity and the sale of hydrogen provide a return on investment as well as emissions reductions. These results suggest that market mechanisms may be sufficient to aid in the adoption of Power-to-Gas and should be the focus of future legislation.

Assessing Benefits of Slum Upgrading Programs in Second Best Settings

Slum upgrading programs are being used by national and city governments in many countries to improve the welfare of households living in slum and squatter settlements. These programs typically include a combination of improvements in neighborhood infrastructure, land tenure, and building quality. In this paper, the authors develop a dynamic general equilibrium model to compare the effectiveness of alternative slum upgrading instruments in a second-best setting with distortions in the land and credit markets. They numerically test the model using data from three Brazilian cities and find that the performance of in situ slum upgrading depends on the severity of land and credit market distortions and how complementary policy initiatives are being implemented to correct for these problems. Pre-existing land supply and credit market distortions reduce the benefit-cost ratios across interventions, and change the rank ordering of preferred interventions. In the light of these findings, it appears that partial equilibrium analysis used in typical cost-benefit work overstates the stream of net benefits from upgrading interventions and may in fact propose a misleading sequence of interventions.

Government policy failure in public support for research and development

Promoting Research and Development (R&D) and innovative activity is a key element of the EU Lisbon Agenda and is seen as playing a central part in stimulating economic development. In this paper we argue that, even allowing for benevolent policy-makers, informational asymmetries can lead to a misallocation of public support for R&D, hence government policy failure, with the potential to exacerbate preexisting market failures. Initially, we explore alternative allocation mechanisms for public support, which can help to minimize the scale of these government policy failures. Of these mechanisms (grants, tax credits, or allocation rules based on past performance), our results suggest that none is universally most efficient. Rather, the effectiveness of each allocation rule depends on the severity of financial constraints and on the level of innovative capabilities of the firms themselves.