Relative Opportunity Costs Research Articles

Off-budget revenues and debt limit in municipalities in the Wielkopolska

The paper aims to assess whether the size of municipal off-budget activities carried out by municipally-owned companies (MOCs) depends on the municipality’s outstanding debt and unused debt capacity. The fiscal debt rule limits municipal debt capacity based on the individual debt ratio. In other words, the article attempts to establish whether and to what extent the size of off-budget financing through fees for local public services provided by MOCs depends on the municipality’s financial situation. We use panel data of 89 municipalities in Wielkopolska voivodeship (499 observations) retrieved from consolidated financial statements, reports on surplus/deficit of municipalities for 2010–2018, the Bank of Local Data and information on the MOC’s ownership structure and revenue volume obtained from the Orbis database. The models were estimated by the General Method of Moments (GMM) on a total sample of all municipal shareholders of MOCs in the Wielkopolska voivodeship. We show that municipalities shifted off-budget activities in response to fiscal debt limit restrictions valid since 2014 and election years. Furthermore, the structure and size of budgeted activity are linked to municipal activities’ relative opportunity costs. It is because increasing municipal fees generates lower political costs than raising taxes or local fees. Thus, we show that the fiscal debt constraint introduced in 2014 raises the scale of shifting expenditure off-budget using MOCs in the Wielkopolska voivodeship.

Up around the bend? How transport poverty can lead to social exclusion in a low-income community in Lagos, Nigeria

Well planned and executed urban mobility policies are essential for economic, social, and environmental development. Cities in developing countries, in particular, face serious problems involving infrastructure, traffic congestion, and services accessibility. These factors, made worse by poor planning, lead to social inequality. This paper conducts a multidimensional analysis of how travel times and the related opportunity costs lead to transport-related social exclusion (TRSE) situations in Ajegunle, in Lagos, Nigeria. Our contribution to the literature is to extend and quantify the TRSE framework in the case of a low-income community in a developing country. The methodology applies an interdisciplinary research design that uses open-access remote-sensing and route planning web applications (Google Maps, Google Earth, and Lara.ng) and a critical literature review, embedded in a TRSE framework. Thereby we obtain the difference between the estimated and the ideal travel times that residents of this community take to reach locations offering five different services – education, work, shopping, leisure, and health – distributed in seven locations across the city. Based on the difference between the estimated and ideal travel times, which on average is between half an hour and two hours, we calculate the opportunity cost based on local living wages as benchmark, which results in an average between 7.6% and 27.4% of the daily wages. This concept captures a temporal and spatial valuation, expressed in monetary terms, of the impact of an inadequate public transport system on poorer residents' everyday lives. This analysis using the TRSE framework shows that poor public transport, and consequently high opportunity costs, translates into social exclusion in this low-income community. Finally, we recommend a set of practical transport, urban-planning, and social policies that can remedy this predicament.

Measurement of the Correlation Degree between Rural Family Fertility Willingness and the Development of China's Labor Original Equipment Manufacturing Industry.

At present, China is facing problems such as the decline of fertility rate, gender imbalance, serious aging, and the reduction of youth and working population, which will have an adverse impact on the long-term development of social economy. Based on the literature review, combined with China's financial family data, combined with the innovative calculation model of the correlation between rural family fertility willingness and labor original equipment manufacturing (OEM) industrial development, through the empirical analysis of rural families, this paper investigates the relationship between fertility willingness and the development and endogeneity of labor OEM industry and finds that female labor participation has a significant negative impact on the number of children in rural families. Spouse labor participation has a negative effect on the number of children in rural families. The regression coefficient of women's willingness to have two children for career development is significant and negative (c1=−0.181, P=−0.003 < 0.01), and that of women's family status is significant and negative (c1=−0.998, P=0.031 < 0.01). The relative opportunity cost of birth of individual operators is more concentrated in the range of 50%–80%. The results show that the development of labor OEM industry is significantly influenced by the fertility willingness of rural families. This paper concludes that differentiated policies and measures should be taken according to the type of industrial promotion.

A Theory of Collateral Requirements for Central Counterparties

This paper develops a framework for designing collateral requirements in a centrally cleared market. Clearing members post collateral—initial margins and default funds—to increase their pledgeable income, thereby committing to risk management. The two types of collateral, however, are not perfect substitutes. By achieving loss mutualization, default funds are economically more efficient than initial margins in aligning members’ incentives for risk management ex ante. The optimal mix of collateral resources balances the efficiency in providing incentives with their relative opportunity costs. Our model predicts increased use of initial margins under stringent capital requirements and of default funds under distressed market scenarios.This paper was accepted by David Simchi-Levi, finance.

Real-time payment in cross-border operations considering local competition and tax-planning

Real-time payment (RTP) enabled by FinTech is changing the cross-border B2B transactions that have frequently suffered from delay payment issues. In this paper, we study a supply chain where a multinational firm (MNF) produces products in its domestic manufacturing division and then sells them to overseas customers through both its retailing division and a local retailer. We investigate the supply chain parties' preferences for RTP by considering the trade-offs among the MNF's tax-planning, the cash opportunity cost, and the downstream competition between the MNF's retailing division and the local retailer. We find that the retailing division and the local retailer always have conflicts of interest facing RTP so their preferences cannot be aligned. For the MNF, interestingly, we find that RTP can be preferred even if the MNF's relative cash opportunity cost is large, depending on the tax disparity between its manufacturing and retailing divisions. We also find that tense local competition will motivate the MNF to prefer RTP, especially when the tax disparity is sufficiently small.

Understanding how opportunity cost affects multi-objective conservation investment in the Central and Southern Appalachian Region (USA)

SummaryConsensus does not exist for which cost forms (i.e., one accounting solely for explicit cost and the other for both explicit and opportunity costs as in relative opportunity cost) are used in calculating return on investment (ROI) for conservation-related decisions. This research examines how the cost of conservation investment with and without inclusion of the opportunity cost of the protected area results in different solutions in a multi-objective optimization framework at the county level in the Central and Southern Appalachian Region of the USA. We maximize rates of ROI of both forest-dependent biodiversity and economic impact generated by forest-based payments for ecosystem services. We find that the conservation budget is optimally distributed more narrowly among counties that are more likely to be rural when the investment cost measure is relative opportunity cost than when it is explicit cost. We also find that the sacrifice in forest-dependent biodiversity per unit increase in economic impact is higher when investment cost is measured by relative opportunity cost rather than when measured by explicit cost. By understanding the consequences of using one cost measure over the other, a conservation agency can decide on which cost measure is more appropriate for informing the agency’s decision-making process.

Forecasting Performance of Commercial Property Investments in Lagos Metropolis

Investors rely on statistical forecasts to guide their investment decisions. Given the relative opportunity cost associated with these decisions, and the huge financial implication of commercial property investments, such insights are invaluable; because investors can choose investments from an informed position. Despite this recognised benefit of forecasting, there has been little focus on forecasting the performance (total returns) of commercial property investments in Lagos Metropolis. This paper, therefore, aims to forecast the total returns of two commercial property investment types (shops and offices) in five sub-markets (Yaba, Ikeja, Ikoyi, Victoria Island and Lagos Island) within the Lagos property market. In doing so, the study uses longitudinal data for the capital and rental values of commercial property investments in Lagos between 2006 to 2018 alongside a simple regression model for 2019-2021 predicted total returns. Autocorrelation was used in testing the predictive validity of this data set. Furthermore, multiple-forecasts were evaluated simultaneously for accuracy and, together, they illustrate the difficulty of compiling a robust dataset in the absence of a central database. This paper suggests that the sampled total returns for the five sub-markets fluctuate and tend to decline as seen in the Ordinary Least Square Regression technique for 2019 to 2021. The results also suggest a low autocorrelation in most of the sub-markets, which indicates that the observed pattern of returns may not continue. This paper recommends that investors be wary of commercial property investment in Lagos Metropolis, due to the observed poor performance (low and fluctuating total returns). It is also recommended that a property database be constructed to improve property data reliability and allow for the application of complex quantitative forecasting techniques.

Optimal power flow incorporating renewable uncertainty related opportunity costs

AbstractIn this paper, an optimal power flow solution method incorporating a cost model that associates the uncertainty‐related expense incurred with the use of renewable energy sources, viz., solar and wind, is demonstrated. Wind speed and solar radiation are assumed to follow Weibull and normal distributions and the uncertainty is simulated using Monte‐Carlo approach. Wind turbine mathematical model is used to estimate the wind generator output, while the same for solar PV is estimated using PV‐inverter models. The uncertainty‐induced opportunity cost for both the renewable sources is composed of the costs due to both power excess and deficit. These cost components are indicative of the reserve requirement and loss of benefit, due to the unavailability of the corresponding generation. This research models and integrates the opportunity costs of renewable generation into a conventional OPF formulation, which is then solved using four variants of particle swarm optimization method. Among these, mutation‐based PSO approach provided better results than others. The test system used is modified IEEE 39‐bus network and the performance of the method as well as the effect of the uncertainty cost is evaluated under multiple renewable penetration levels. The results also indicate that solar generation is preferred over wind in terms of the uncertainty cost, while the use of stochastic natured renewable systems is economically justified and preferred over thermal generators.

Exploration of the Windfall and Market Entrepreneurship During the Great Recession

Market innovative entrepreneurs have the desire of exploring declining economic markets to seek for windfall. They seek to profit heavily from adverse market conditions. The Great Recession may have presented some economic disasters, rage, and hardship to many people in the housing market in the 2000s but to the innovative market entrepreneurs, it presented some economic opportunities for experiencing a market windfall. Mostly, the objective of this exploratory study is to highlight the impact of the opportunistic events created by the housing foreclosure fillings, completed foreclosures, and home repossessions on the indexed price of housing that harbors the related opportunity cost. The increased indexed price of the housing driven by the fluctuation of both the quantity demanded and produced of housing seems to have led to the entrepreneurial windfall profit during the recession.

Central Clearing and the Sizing of Default Funds

This paper develops a framework for designing collateral requirements in a centrally cleared market. Clearing members post collateral—initial margins and default funds—to increase their pledgeable income, thereby committing to risk management. The two types of collateral, however, are not perfect substitutes. By achieving loss mutualization, default funds are economically more efficient than initial margins in aligning members' incentives for risk management ex ante. The optimal mix of collateral resources balances the efficiency in providing incentives with their relative opportunity costs. Our model predicts increased use of initial margins under stringent capital requirements, and of default funds under distressed market scenarios.

“Medium-Scale” Forestland Grabbing in the Southwestern Highlands of Ethiopia: Impacts on Local Livelihoods and Forest Conservation

Tropical forest provides a crucial portion of sustenance in many rural communities, although it is increasingly under pressure from appropriations of various scales. This study investigated the impacts of medium-scale forestland grabbing on local livelihoods and forest conservation in the southwestern highlands of Ethiopia. Data were generated through interviews, discussions and document review. The results indicate that state transfer of part of the forestland since the late 1990s to investors for coffee production created in situ displacement- a situation where farmers remained in place but had fully or partially lost access to forest- that disrupted farmers’ livelihoods and caused conflicts between them and the investors. Court cases about the appropriated land and related imprisonment, inflicted financial and opportunity costs on farmers. Farmers considered the livelihood opportunities created by the companies insufficient to compensate for loss of forest access. Companies’ technology transfers to farmers and contributions to foreign currency earnings from coffee exports have not yet materialized. Forest conservation efforts have been negatively affected by deforestation caused by conversion to coffee plantations and by farmers’ efforts to secure rights to forestland by more intensive use. The medium-scale forestland grabbing has been detrimental to farmers’ livelihoods and forest conservation in a way that recalls criticism of large- and mega-scale land grabbing since 2007–2008. The overall failure to achieve the objectives of transferring forestland to investors highlights a critical need to shift institutional supports to smallholders’ informal forest access and management practices for better development and conservation outcomes.

Implementation Shortfall in Transaction Cost Analysis: A Further Extension

Implementation shortfall, originally proposed by Perold and later expanded by Wagner and Edwards and Kissell, can adversely affect portfolio performance if it is not properly managed through implementation strategy as a result of price impact, timing cost, and inability to complete total transactions. The authors further classify implementation shortfall to give traders a better understanding of opportunity cost and a method to control any or all of these costs while executing trades. They suggest that after thorough back testing, market price trend analysis, and pretrade analysis, setting price limits efficiently will ensure that the first trading–related and residual trading–related opportunity cost will be as low as possible for the trader, thus lowering overall implementation shortfall.

Socioeconomic constraints on the technological choices in rural sewage treatment.

Technological innovation is one of the potential engines to mitigate environmental pollution. However, the implementation of new technologies sometimes fails owing to socioeconomic constraints from different stakeholders. Thus, it is essential to analyze constraints of environmental technologies in order to build a pathway for their implementation. In this study, taking three technologies on rural sewage treatment in Hangzhou, China as a case study, i.e., wastewater treatment plant (WTP), constructed wetland (CW), and biogas system, we analyzed how socioeconomic constraints affect the technological choices. Results showed that socioeconomic constraints play a key role through changing the relative opportunity cost of inputs from government as compared to that of residents to deliver the public good-sewage treatment-under different economic levels. Economic level determines the technological choice, and the preferred sewage treatment technologies change from biogas system to CW and further to WTP along with the increase of economic level. Mismatch of technological choice and economic level results in failures of rural sewage treatment, e.g., the CW only work well in moderately developed regions in Hangzhou. This finding expands the environmental Kuznets law by introducing the coproduction theory into analysis (i.e., inputs from both government and residents are essential for the delivery of public goods and services such as good environmental quality). A match between technology and socioeconomic conditions is essential to the environmental governance.

English

This study explores the major challenges that affect students’ enrollment and participation and the key measures schools take to mitigate the challenge and help students continue their education. The data were collected from 23 secondary school grade nine students in Amahara Regional State in Ethiopia using the structured questionnaires from students and teachers as well as by using semi-structured interview from school principals. The results suggest that the major challenges were family related ( opportunity cost of students, family issue such as parental conflict, taking care of family members) factors and associated with individual characteristics of students (disability, illness) are prominent ones. The study also made clear that though the effect size is very small, there is a statistically significant difference between urban and rural students in the reasons for their drop out from school. This study also highlights that schools do not facilitate conditions for poor children to be supported by NGOs or exempt them from school fees. They also do not provide food and health services for poor children. In addition, schools have no guidance and counseling or social worker who can support students when they face problems in schools. Moreover, though schools have no corporal punishment policies and procedures, schools implement other punishment techniques such as to miss class if they arrive late. Key words: Challenges, transition, intervention, primary school, secondary school.

The economic impact of childhood food allergy in the United States.

R Gupta, D Holdford, L Bilaver, A Dyer, JL Holl, D Meltzer. JAMA Pediatr. 2013;167(11):1026–1031 The goal of this study was to determine the economic impact of childhood food allergy in the United States and caregivers’ willingness to pay for food allergy treatment. The study was a cross-sectional survey of 1643 US caregivers of a child with a current food allergy. Caregivers were asked to quantify the direct medical, out-of-pocket, lost labor productivity, and related opportunity costs. Caregivers were also asked about their willingness to …

The cost of useful knowledge and collective action in three fisheries

In a complex environment knowledge is valuable and its acquisition is costly; as a result people are careful about what to learn and how to learn it. We suggest that the dynamics of the “local” environment strongly influences the method that individuals choose to acquire useful knowledge and is one of the principal determinants of the way they compete and cooperate. We focus on the way different environments lead to different costs, especially the relative opportunity costs, of search and communication and, consequently, to the emergence of different patterns of persistent cooperation and competition. In predictably regular and in predictably random environments, the cost of autonomous search is low and little social structure emerges. In complex environments, the relative costs of communication are high, leading to persistent social structure. Our presumption is that the characteristics of the emergent, or informal, social structure are a major determinant of successful collective action. We investigate the hypothesis through a comparison of three fisheries in which the costs of acquiring useful knowledge are different. Because of these differences, fishers' acquisition of useful knowledge leads to different social structure and different preconditions for successful collective action in each fishery. The lobster fishery is characterized by strong collective action and appears sustainable; the urchin and groundfisheries, worked by the same communities, are not even though almost all their participants are familiar with and often participate in the lobster fishery.

The Economic Impact of Childhood Food Allergy in the United States

Describing the economic impact of childhood food allergy in the United States is important to guide public health policies. To determine the economic impact of childhood food allergy in the United States and caregivers' willingness to pay for food allergy treatment. A cross-sectional survey was conducted from November 28, 2011, through January 26, 2012. A representative sample of 1643 US caregivers of a child with a current food allergy were recruited for participation. Caregivers of children with food allergies were asked to quantify the direct medical, out-of-pocket, lost labor productivity, and related opportunity costs. As an alternative valuation approach, caregivers were asked their willingness to pay for an effective food allergy treatment. The overall economic cost of food allergy was estimated at $24.8 (95% CI, $20.6-$29.4) billion annually ($4184 per year per child). Direct medical costs were $4.3 (95% CI, $2.8-$6.3) billion annually, including clinician visits, emergency department visits, and hospitalizations. Costs borne by the family totaled $20.5 billion annually, including lost labor productivity, out-of-pocket, and opportunity costs. Lost labor productivity costs totaled $0.77 (95% CI, $0.53-$1.0) billion annually, accounting for caregiver time off work for medical visits. Out-of-pocket costs were $5.5 (95% CI, $4.7-$6.4) billion annually, with 31% stemming from the cost of special foods. Opportunity costs totaled $14.2 (95% CI, $10.5-$18.4) billion annually, relating to a caregiver needing to leave or change jobs. Caregivers reported a willingness to pay of $20.8 billion annually ($3504 per year per child) for food allergy treatment. Childhood food allergy results in significant direct medical costs for the US health care system and even larger costs for families with a food-allergic child.

Democratic Costs in Member‐Controlled Organizations

ABSTRACTIn this study, we examine the costs of democratic control, an important factor affecting the competitiveness of traditional agricultural cooperatives. Although there has been some theoretical discussion about this issue, no empirical research has been done on these costs; the present study aims to bridge this gap. Following the literature, the main source of democratic costs in agricultural cooperatives is the level of member participation in cooperative governance. We have developed more specific theoretical insights about this special kind of decision‐making cost by showing the effect of differences in the level of member participation on democratic costs, differences in terms of democratic and influence costs and in terms of agency costs, and differences between both direct and opportunity democratic costs. Members should take both the relative direct and opportunity costs within total democratic costs into account when determining the optimal size and composition of their board. [EconLit citations: Q130, D790, D230].

Fibre volume losses of eight softwood clearfell harvesting systems in South Africa

A study of both fibre volume loss and related opportunity cost was performed across the South African softwood sawtimber industry to gain information on the actual utilisation of useful fibre and potential loss or gain of opportunity in terms of potential revenue from both field practices and policy. The study quantified volume losses from high stumps, felling and crosscut saw kerf, log allowances, excessive removal of merchantable wood, incorrect log trimming allocation, and utilisable wood left in-field. Eight treatments were examined: four terminated with merchandising at roadside landing and four at merchandising yards. Within the treatments, felling was either motor-manual or mechanised and compartments were classed by average compartment tree size (less than or greater than 1 m3). Total wood utilisation was found to be 92.07%. Stumps were found to be 7 cm higher than necessary and volume losses because of high stumps were 0.79% and 0.07% for mechanical and motor-manual felling, respectively. For felling saw kerf losses, mechanical felling showed 0.92% loss, whereas motor-manual felling resulted in only 0.15% loss. Incorrect log trimming allowance provided for 0.60% loss. Excessive trimming of logs resulted in 2.02% loss. Volume lost because of crosscutting saw kerf was low at 0.20%, but tops not being extracted resulted in 2.57% loss. Using SIMSAW 6 simulations, these volume losses translated into an additional annual harvested volume of 421 722 m3 or additional 1 278 ha harvested area, R166 million log value and R393 million net lumber value loss. Total loss was lowest (6.49%) in the average tree size class less than 1 m3, which was mechanically felled regardless of merchandising location. For the majority of volume loss categories, motor-manual felling caused greater loss when compared to mechanical felling methods. Log trimming allowance consumed 80 604 m3 annually. The results indicate that the human element may have a greater impact on fibre and value losses than the system choice. Further research is recommended to quantify the effect of the human element.

Comparative costs and conservation of wild species in situ, e.g. orangutans

The extent to which conservation is feasible is constrained by budgets and the financial sacrifice stakeholders are willing to bear. Therefore a possible objective for conserving a species is to minimise the cost of achieving that stated aim. For example, if a minimum viable population (MVP) of a species is to be conserved, the size and type of habitats reserved for this could be selected to minimise cost. This requires consideration of the comparative (relative) opportunity costs of reserving different land types for conservation. A general model is developed to demonstrate this and is applied to the case of the orangutan. In the ecological literature, recommendations for reserving different types of land for conservation have been based on comparisons of either the absolute economic returns they generate if converted to commercial use or on differences in the density of a species they support. These approaches are shown to be deficient because they ignore relative trade-offs between species population and economic conversion gains at alternative sites. The proposed model is illustrated for orangutan conservation.