Social Planner's Perspective Research Articles

Optimal pathways for the decarbonisation of the transport sector: Trade-offs between battery and hydrogen technologies using a whole energy system perspective

Several countries have revised their targets in recent years to reach net-zero CO2 emissions across all sectors by 2050, and the transport sector is responsible for a significant share of these emissions. This study compares possible pathways to decarbonise the transport sector including passenger cars, light commercial vehicles and heavy commercial vehicles. To do so, we explore 125 scenarios by varying the share of battery and hydrogen-based fuel cell electric vehicles in each of the three categories above independently. We further model the decarbonisation of the industrial hydrogen demand using electrolysers with hydrogen storage. To explore the potential role of electric and hydrogen transport, as well as their trade-offs, we use GRIMSEL, an open-source sector coupling energy system model of Switzerland which includes the residential, commercial, industrial and transport sectors with four energy carriers, namely electricity, heat, hot water and hydrogen. The total costs are minimised from a social planner perspective. We find that the decarbonisation of the transport sector could lead, on average, to a 12% increase in costs by 2050 and 1.3 MtCO2/year which represents a 90% CO2 emissions reduction for the whole sector, compared to fossil-based transport. Second, the transport energy self-sufficiency (i.e. the share of domestic electricity generation in final transport demand) may reach up to 50% for the scenarios with the largest share of battery electric vehicles, mainly due to a smaller energy demand than with hydrogen vehicles. Third, more than three quarters of the industrial hydrogen production is met by local photovoltaic electricity coupled with battery at minimum costs, i.e. green hydrogen. Finally, the use of hydrogen as an energy carrier to store electricity over a long period is not cost-optimal.

Preferences for investment in and allocation of additional healthcare capacity

Policy makers need to make decisions regarding the allocation of scarce healthcare resources. We study preferences for investment in additional healthcare capacity and allocation between two regions, focusing on reducing waiting time for elective surgery for a physical health problem. We elicit preferences from a societal and an individual perspective, with unequal initial waiting times between the two regions. In an online survey, 1039 respondents were randomly assigned to one of three versions of the experiment: (1) a social planner perspective, placing respondents in the role of a policy maker; (2) an individual perspective where the respondent's own region was better off regarding initial waiting times; (3) an individual perspective where the individual's own region was worse off regarding initial waiting times. Respondents were asked to rank the status quo and five scenarios where the investment in additional capacity led to different distributions of shorter waiting times between regions. For all allocations we presented both the reduction in waiting time and the resulting final waiting time for both regions. We find that in version 1 of the experiment, preferences were in line with inequality aversion and Rawlsian preferences regarding final waiting time. In version 3, similar preferences were found, although here they also align with individualistic preferences. In version 2, preferences were more heterogeneous, with both individualistic and egalitarian preferences present. Concluding, individualistic and egalitarian preferences mostly concerned final waiting time. We therefore recommend policy makers to focus on the effect on final waiting time instead of the reduction of waiting time.

What adds more flexibility? An energy system analysis of storage, demand-side response, heating electrification, and distribution reinforcement

This paper compares various flexibility options to support renewable energy integration across the energy transition using energy system modelling. We analyse new flexibility assets such as electricity storage, heat pumps, demand-side response with existing wet appliances, electric boilers for domestic hot water and distribution grid expansion, along with energy efficiency measures in electrical appliances and building retrofitting. We propose an open-source sector coupling model (GRIMSEL-FLEX) to minimise, from a social planner perspective, the total cost of the energy system for electricity and residential heating supply in Switzerland, including various types of consumers and urban settings. We find relevant feedback mechanisms among various flexibility options. Firstly, electric boilers have a larger flexibility potential than demand-side response with wet appliances since they reduce storage investments by more than 26% by 2050 (only 12% for demand-side response). Secondly, 34% more electricity storage is needed if heat pumps replace all fossil-based heating and 80% to replace all heating systems entirely. Thirdly, we find a shift in the operation of heat pumps, electric boilers and wet appliances from night to midday, resulting in larger photovoltaic deployment (22%–66% for the residential sector). Finally, electricity storage capacity induced by heat pump deployment is highly dependent on the retrofitting rate. With 1% per annum, 86% of storage investments can be avoided and it can be counterbalanced with a high retrofitting rate of 2% per annum.

Respecting the subject in wellbeing public policy: beyond the social planner perspective

ABSTRACT We compare and evaluate two competing paradigms in the ‘wellbeing public policy’ (WPP) space with the intention of promoting interdisciplinary dialogue. We argue that most WPP proposals adopt the same ‘social planner perspective’ (SPP) that undergirds conventional economic policy analysis. The SPP is broadly technocratic, emphasising scientific standards for what constitutes good policy and empowering ‘dispassionate’ experts. We argue that WPP could lend itself to a more transformative agenda, one that embraces the value-laden nature of ‘wellbeing’ as a concept. We call this the ‘citizen’s perspective’ (CP). It would see WPP relinquish the SPP’s stance of detached analysis by technical experts and instead give a greater role to participatory and deliberative modes of policymaking to define, analyse, and measure wellbeing and ultimately make policy decisions. We present a preliminary framework for analysing when the SPP or CP is more suitable to a particular area of WPP.

Airline emissions charges and airline networks

Emissions charges are an effective tool to control aviation carbon dioxide emissions. This paper investigates how airline emissions charges affect a monopoly airline's network choice. By considering simultaneously fully-connected, hub-spoke and mixed networks, we find that the impact of emissions charges on airline network configuration depends crucially on some relevant parameters, for example, the marginal benefit of the reduction of schedule delays and the disutility of additional travel time of connecting flights. Welfare analysis shows a discontinuity in the network configuration from the social planner's perspective and an inefficiency related to the airline's choice on mixed network.

Decarbonising heat with optimal PV and storage investments: A detailed sector coupling modelling framework with flexible heat pump operation

This paper analyses optimal electricity investments (PV and battery storage) to decarbonise heat supply in residential buildings under different heat pump and energy retrofitting scenarios in a detailed representation of the Swiss power and heating system. The sensitivity of PV and storage deployment, including lithium-ion (LiB) and vanadium redox flow batteries (VRFB), with respect to distribution network capacity is also investigated. We propose an open-source dispatch sector coupling model (GRIMSEL-AH) to minimise energy system costs (social planner perspective) for heating and electricity supply in Switzerland with hourly and daily time resolution for electricity and heating respectively. Moreover, our representation of the Swiss energy system includes various types of consumers and urban settings which are represented with monitored electricity demand data for each sector and simulated heat demand data at the building level for the residential sector. We find that under a “business as usual” heat pump deployment and retrofitting rate, the optimal electricity investments correspond to 27.8 GWp of PV combined with 16.9 GW (33.8 GWh) for LiB and 1.9 GW (7.6 GWh) for VRFB. For this case, 57% (13.3 TWth/year) of the residential heat demand is covered by heat pumps with a total installed capacity of 19.7 GWth by 2050 (capacity exogenously set with its operation optimised). With increasing heat pump deployment, retrofitting rates are found to have a large impact on the investment in storage and a 100% heat pump scenario for the residential sector appears to be feasible. Our results show that heat pumps do not only decarbonise heat but also provide extra flexibility to the power system, since they increase local PV self-consumption, resulting in higher PV deployment. The model and the methodology presented in this study can be applied to other countries.

Supply chain investment and contracting for carbon emissions reduction: A social planner's perspective

We consider a supply chain consisting of a supplier and a buyer whose efforts jointly influence carbon emissions per unit of the product. The product demand is affected by the effort levels. The carbon footprint is allocated to the supply chain members by a social planner, and they pay carbon penalties for their allocated emissions. We first examine the social first-best solution and then analyze a no-collaboration scenario, where the supply chain members simultaneously make their own effort decisions under an allocation rule, and two supply chain contracting scenarios: credible buyer and double moral hazard, where the buyer designs and offers a contract to the supplier that specifies an order quantity and a payment scheme contingent on the realized carbon footprint. We find that the social planner may need to over- or under-allocate the emissions to the firms to induce the social first-best effort levels in the no-collaboration scenario. However, the social first-best effort levels can be attained with a simple allocation rule without over- or under-allocation in the credible buyer scenario. For the double moral hazard scenario, where the buyer is not credible to the supplier, the social first-best may not be attainable and there may be a significant loss in the social value of the supply chain.

Less is more: Consumer education in a closed-loop supply chain with remanufacturing

Different stakeholders are educating consumers about the benefits of remanufacturing. By increasing the number of consumers who are willing to purchase remanufactured products, consumer education has been expected to facilitate the advancement of the remanufacturing sector. We formally validate the condition under which consumer education is indeed beneficial from a social planner's perspective. We develop a game-theoretical model to examine the implications of consumer education upon a closed-loop supply chain consisting of one manufacturer and one supplier. The manufacturer can perform remanufacturing at the component level. The direct effect of consumer education is that more consumers are willing to pay for the remanufactured product. Although the optimal remanufactured product quantity, in general, increases in the presence of consumer education, surprisingly, our analysis identifies a consumer education paradox, that is, as more consumers are willing to pay for the remanufactured product, the manufacturer switches the choice from remanufacturing to no remanufacturing. Moreover, consumer education could be detrimental to the supply chain, consumers, and the environment because of the paradox. Fortunately, temperate consumer education might be all-around desirable if and only if ex-ante few consumers are willing to purchase remanufactured products; that is, from the social planner's perspective, temperate consumer education should be conducted to foster the remanufacturing sector in its infancy.

Investment perspectives on costs for air pollution control affect the optimal use of emission control measures

Cost-effective air pollution emission control has been in focus for decades in international air pollution regulations. Despite large observed emission reductions for many air pollutants, environmental and human health problems persist and more efforts are needed. However, some stakeholders are concerned that the costs for remaining emission control measures are prohibitively high. There are several reasons for concern, and one can be the difference in investment perspectives—i.e. costs of borrowing and time constraints—held by stakeholders. By using the integrated assessment model GAINS, we study whether differences in investment perspectives of Nordic stakeholders influence measures selected for cost-effective emission control and can motivate concerns for high costs of emission control. We distinguish the control cost calculations between a social planner perspective and a corporate perspective and apply these to the GAINS model database on emission control measures. A cost-minimized selection of measures in 2030 is then calculated for increasing environmental and health ambitions for both perspectives. The results show an irregular pattern, but for a range of ambition levels the corporate perspective affects the selection of measures and implies surplus costs for the Nordic social planner of up to 120 million € per year. This is 36% more expensive than the costs of the social planners’ selection. Conversely, from a corporate perspective the social planners’ selection can imply cost increases of up to 180 million €. We therefore suggest that control of investment perspective effects should be standard in analysis of cost-effective air pollution measures.Graphical abstract

Single-Dimensional Versus Multi-Dimensional Product Ratings in Online Marketplaces

Product review platforms in online marketplaces differ with respect to the granularity of product quality information they provide. While some platforms provide a coarse single overall rating for product quality (also referred to as single-dimensional rating scheme), others provide a more granular rating - a separate rating for each individual quality attribute (also referred to as multi-dimensional rating scheme). A multi-dimensional rating scheme is superior to a single-dimensional rating scheme, ceteris paribus, in reducing consumers' uncertainty about product quality and value. However, we show that, when sellers respond to product ratings by adjusting their prices, compared to the single-dimensional rating scheme, the multi-dimensional rating scheme does not always benefit consumers, nor does it necessarily benefit the sellers or the society. The uncertainty associated with quality attribute rating and the extent of differentiation between competing products determine whether a fine-grained multi-dimensional rating scheme is superior to the coarse-grained single-dimensional rating scheme from the consumers', sellers' or a social planner's perspective. The main driver of the results is that the more (less) granular and less (more) uncertain information exposes (hides) underlying differentiation, or lack of it, between competing products, which, in turn, alters the upstream price competition in the presence of heterogeneous consumer preferences. The results demonstrate that focusing on the information transfer aspect of rating schemes provides only a partial understanding of the true impact of rating schemes.

On the optimal diversification of social networks in frictional labour markets with occupational mismatch

This paper incorporates social networks into a frictional labour market framework. There are two worker types and two occupations, which are subject to correlated fluctuations in output. The equilibrium is characterized by occupational mismatch which is associated with a wage penalty. Every worker has a fixed number of social contacts in the network. The fraction of contacts of the same occupational type defines homophily of the social network, so this paper investigates the optimal level of network homophily. Workers are risk-neutral and take aggregate variables as given, so their optimal individual choice is full homophily. This is different from the social planner's perspective. The planner internalizes external effects of workers' network choices on aggregate variables, so there exists a unique interior value of network homophily maximizing the present value of income. On the one hand, higher homophily is associated with lower occupational mismatch. But on the other hand, higher homophily separates the two groups of workers, prevents exchange of information about open vacancies, and leads to more unemployment, especially in recessions. So it is the trade-off between these two effects and not the desire to reduce income volatility, as in standard portfolio theory, which gives rise to network diversification. Comparative statics shows that optimal network homophily is lower and diversification is stronger with a lower wage penalty from mismatch, lower unemployment benefit and negative correlation in output fluctuations.

Demand Response in Electricity Markets: Voluntary and Automated Curtailment Contracts

Demand response firms that offer curtailment contracts provide incentives for consumers to reduce consumption during peak demand events. The foregone consumption is sold as virtual supply on the electricity market. We explore two curtailment contract types: automated and voluntary. The automated contract requires set curtailment from enrolled consumers, whereas the voluntary contract allows curtailment to vary with the consumer's opportunity cost. In this paper we study the optimal choice of contract type, first from the firm's point of view and then from a social planner's perspective. We show how either contract type can be optimal depending on market/customer conditions. More specifically, when the supply curve for the wholesale electricity market has a steep slope, the firm would prefer to rely on automated contracts. On the other hand, if the cost of curtailment for the customer is highly variable, the firm might prefer to offer a voluntary contract. While the firm's optimal choice is not always welfare maximizing, we find that it does maximize curtailment and so can be viewed as consistent with the environmentally optimal choice. We demonstrate our theoretical findings using a case study from a curtailment service provider, EnerNOC, and data from the PJM electricity market.

Impact of Paid Sick Leave Policy: A Social Planner's Perspective

AffiliationsAchla Marathe, Jiangzhuo Chen, and Stephen Eubank are with the Virginia Bioinformatics Institute, Virginia Tech, Blacksburg. Achla Marathe is also with the Department of Agricultural and Applied Economics and Stephen Eubank is also with the Department of Population Health Sciences, Virginia Tech. Shaojuan Liao is with Freddie Mac, Washington, DC. Yifei Ma is with Teradata.

Broadband Network Management and the Net Neutrality Debate

The debate of net neutrality and the potential regulation of net neutrality may fundamentally change the dynamics of data consumption and transmission through the Internet. The existing literature on economics of net neutrality focuses only on the supply side of the market, that is, a broadband service provider (BSP) may charge content providers for priority delivery of their content to consumers. In this article, we explore a complete spectrum of broadband network management options based on both the supply and demand sides of the market. We find that although the BSP always prefers the non‐neutral network management options, it does not always discriminate both sides of the market. From the social planner's perspective, we find that some network management options maximize the social welfare under certain market conditions while other options reduce the social welfare. Using the terminology from a recent Federal Communications Commission report and order, we categorize the social welfare maximizing options as “reasonable network management” and the social welfare reducing options as “unreasonable discrimination.” We also identify conditions under which the BSP's network management choices deviate from the social optimum. These conditions help establish the criteria under which the social planner might wish to regulate the BSP's actions.

Bounded Rationality in Service Systems

The traditional operations management and queueing literature typically assumes that customers are fully rational. In contrast, in this paper we study canonical service models with boundedly rational customers. We capture bounded rationality using a model in which customers are incapable of accurately estimating their expected waiting time. We investigate the impact of bounded rationality from both a profit-maximizing firm's perspective and a social planner's perspective. For visible queues with the optimal price, bounded rationality results in revenue and welfare loss; with a fixed price, bounded rationality can lead to strict social welfare improvement. For invisible queues, bounded rationality benefits the firm when its level is sufficiently high. Ignoring bounded rationality, when present yet small, can result in significant revenue and welfare loss.

Tax Competition for Heterogeneous Firms with Endogenous Entry

This paper models tax competition for mobile firms that are differentiated by their productivities. Because taxes affect the distribution of firms, they affect wages, prices, and the number of firms. From the social planner's perspective, optimal taxes efficiently distribute income between private and public consumption and are harmonized, providing the optimal number of firms. This is not a Nash equilibrium. As is common in such models, equilibrium taxes are inefficiently low. Furthermore, there is no pure strategy equilibrium with equal taxes resulting in too many firms. This illustrates a new distortion from tax competition and a new benefit from harmonization. (JEL H21, H25, H87)

Tax Competition for Heterogeneous Firms with Endogenous Entry: The Case of Heterogeneous Fixed Costs

This paper models tax competition for mobile firms that are differentiated by the amount of labor needed to cover fixed costs. Because tax competition affects the distribution of firms, it affects both relative equilibrium wages across countries and equilibrium prices. These in turn influence the equilibrium number of firms. From the social planner's perspective, optimal tax rates are harmonized, providing the optimal number of firms, and set such that income is efficiently distributed between private and public consumption. As is common in tax competition models, in the Nash equilibrium tax rates are inefficiently low, yielding underprovision of public goods. Furthermore, there exist a variety of situations in which equilibrium tax rates differ. As a result, too many firms enter the market as governments compete to be the low-tax, high-wage country. This illustrates a new distortion from tax competition and provides an additional benefit from tax harmonization.

Tax Competition for Heterogeneous Firms with Endogenous Entry

This paper models tax competition for mobile firms that are differentiated by the amount of labor needed to cover fixed costs. Because tax competition affects the distribution of firms, it affects both relative equilibrium wages across countries and equilibrium prices. These in turn influence the equilibrium number of firms. From the social planner's perspective, optimal tax rates are harmonized, providing the optimal number of firms, and set such that income is efficiently distributed between private and public consumption. As is common in tax competition models, in the Nash equilibrium tax rates are inefficiently low, yielding underprovision of public goods. Furthermore, there exist a variety of situations in which equilibrium tax rates differ. As a result, too many firms enter the market as governments compete to be the low-tax, high-wage country. This illustrates a new distortion from tax competition and provides an additional benefit from tax harmonization.

Benefit–Cost in the California Treatment Outcome Project: Does Substance Abuse Treatment “Pay for Itself”?

To examine costs and monetary benefits associated with substance abuse treatment. Primary and administrative data on client outcomes and agency costs from 43 substance abuse treatment providers in 13 counties in California during 2000-2001. Using a social planner perspective, the estimated direct cost of treatment was compared with the associated monetary benefits, including the client's costs of medical care, mental health services, criminal activity, earnings, and (from the government's perspective) transfer program payments. The cost of the client's substance abuse treatment episode was estimated by multiplying the number of days that the client spent in each treatment modality by the estimated average per diem cost of that modality. Monetary benefits associated with treatment were estimated using a pre-posttreatment admission study design, i.e., each client served as his or her own control. Treatment cost data were collected from providers using the Drug Abuse Treatment Cost Analysis Program instrument. For the main sample of 2,567 clients, information on medical hospitalizations, emergency room visits, earnings, and transfer payments was obtained from baseline and 9-month follow-up interviews, and linked to information on inpatient and outpatient mental health services use and criminal activity from administrative databases. Sensitivity analyses examined administrative data outcomes for a larger cohort (N=6,545) and longer time period (1 year). On average, substance abuse treatment costs $1,583 and is associated with a monetary benefit to society of $11,487, representing a greater than 7:1 ratio of benefits to costs. These benefits were primarily because of reduced costs of crime and increased employment earnings. Even without considering the direct value to clients of improved health and quality of life, allocating taxpayer dollars to substance abuse treatment may be a wise investment.