Social Welfare Analysis Research Articles

Carbon Tax Policy, Stranded Assets and "Double Pillar" Regulation

The risk of a transition from climate policy has drawn widespread attention from central banks. By constructing a new Keynes dynamic stochastic general equilibrium model (NK-DSGE) including climate policy, asset quality and "two-pillar" policy, this paper studies the possible transition risk caused by carbon tax policy and analyzes the transition risk from the perspective of stranded assets. On this basis, the effect of the "dual-pillar" policy to deal with the transformation risk is further evaluated and the optimal policy combination is found through the comparative analysis of social welfare. Research shows that:(1)carbon tax policy has a significant emission reduction effect, but it may cause "stagflation" and lead to the "grounding" of carbon-intensive assets, causing a certain risk of transformation.(2)When the central bank deals with the risk of transformation, it should not only focus on the inflation target. At the same time, we should actively stimulate output, promote the development of the low-carbon sector, solve the mismatch between energy supply and demand, and address the root cause of inflation. When the central bank operates the price monetary policy, the central bank can reduce the risk of transformation and improve the operation efficiency through interest rate smoothing.(3)The macro-prudential policy of "brown punishment" can effectively alleviate the risk of transformation and improve social welfare. The macro-prudential policy of "green support" will not only promote the economic recovery, but also lead to the rising leverage ratio of banks in the short term, aggravating the financial risks faced by banks and causing the loss of social welfare.(4)An effective "two-pillar" policy mix is better to the single use of monetary policy tools in mitigating transition risks and improving social welfare.

Multi-airport system management strategies considering air-rail intermodality and social welfare

The resource allocation and utilization efficiency in multi-airport systems can be significantly enhanced through the implementation of effective management strategies, thereby enhancing transportation efficiency in these critical transportation hubs. This study proposes a decision-making model for governments, airports, and air carriers operating within multi-airport systems, incorporating network structures that encompass both air-rail intermodal connectivity and direct route options. A backward induction method is employed to conduct a comparative analysis of social welfare between group management and localized management strategies for multi-airport systems. The results demonstrate that the group management strategy represents the Nash equilibrium, as it ensures the maximization of social welfare while maintaining alignment with public welfare objectives. Further examination of high-speed rail unit operating costs reveals a potential Prisoner’s Dilemma that the management departments may encounter. When the high-speed rail unit operating costs fall below a critical threshold, total social welfare under the localized management strategy surpasses that of the group management strategy for multi-airport systems. Moreover, higher airline revenue proportions derived from air-rail intermodal services may mitigate the likelihood of encountering a Prisoner’s Dilemma, as the critical value of high-speed rail unit operating cost increases with the increase of airline revenue proportions. These findings provide valuable insights for policymakers and stakeholders in designing effective multi-airport system management strategies, integrating both operational efficiency and social welfare maximization.

The Global Burden of the COVID-19 Pandemic: Comparing Benefit–Cost Analysis and Social Welfare Analysis

The Global Burden of the COVID-19 Pandemic: Comparing Benefit–Cost Analysis and Social Welfare Analysis

Analyzing horizontal integration and market efficiency in platform enterprises: A case study of exchanges

AbstractAs a platform for the trading of bulk commodities, securities, and futures, exchanges, characterized by platform‐like attributes, provide inexhaustible power for the further development of commodity economy through horizontal integration. This paper examines the international integration landscape of the modern exchanges through the lens of platform economy theory, specifically examining the ramifications of their horizontal integration on market efficiency. Employing the net utility hypothesis within the Hotelling model, we construct a nuanced trader utility model. Through a comparative analysis of platform profit, trader utility, and social welfare, the research discerns the impact of exchanges' horizontal integration. We highlight the intrinsic incentives for such integration within exchanges and put forth pertinent policy recommendations, adding a dimension of practical relevance to the academic discourse. The paper concludes by highlighting the role of government in promoting the efficiency of platform enterprises.

COVID-19, bank risk, and capital regulation: The aggregate shock and social distancing

In this study, we introduce a novel spatial framework to examine the impact of the aggregate shock and social distancing policies stemming from the COVID-19 pandemic on banks' incentives to monitor entrepreneurs. Our findings reveal that banks raise their loan rates to compensate for losses caused by the aggregate shock, which, in turn, enhances their monitoring efforts. However, the default probability still rises. The government's expansionary monetary policy, implemented in response to the COVID-19 crisis, can help mitigate these effects. Additionally, social distancing measures have led to either increased customer service or higher preparation costs for entrepreneurs seeking loans, both of which ultimately benefit the banks' monitoring efforts. We further explore social welfare analysis, the role of capital regulation, and several other relevant extensions.

Aiding airlines for the benefit of whom? An applied game-theoretic approach

In the face of a significant exogenous shock, government intervention may be required at the level of an industry in order to preserve the market. By employing a game engineering approach, we develop a model to test the potential impact of varying types of bailout schemes on network oriented industries facing such a shock. Investigating the European aviation market, served by both legacy and low-cost carriers, we assess whether the forms of aid offered during the Covid-19 pandemic may lead to changes in market equilibrium outcomes over the coming years. Airlines choose the size of their fleet, schedule and airfares across the network and compete for market share. The social welfare analysis suggests that the European Commission has likely distorted competition in the aviation markets by allowing Member States to provide different types of rescue packages. In addition, we show that the most efficient solution would have been to coordinate state aid, preferably in the form of time-limited loans. Furthermore, the approach could be applied as a screening tool by governments when considering bailout requests. Its application ex-ante allows policymakers to assess the likelihood of taxpayers receiving a return on their investment.

Welfare economics: Promoting equality through general policies

Welfare economics: Promoting equality through general policies Yew-Kwang Ng, Emeritus Professor at the Department of Economics, Monash University, continues a discussion about welfare economics, focusing on efficiency supremacy in specific areas, arguing that equality should be promoted through general policies. In the April issue, I published a piece on ‘An Economic Analysis of Social Welfare’ and in an Open Access Government eBook, a piece on ‘The Welfare Foundation of Public Policies and Its Implications’. Here, and in subsequent pieces in October 2023, January and April 2024, I will discuss some important messages of welfare economics for public policies.

Optimal investment in driving automation: Individual vs. cooperative sensing

Connected automated vehicles (CAVs) use sensors to scan their surrounding environment in order to make safe and efficient motion decisions. The richness of a CAV’s vision depends on the configuration of on-board sensors and the ability of CAVs to share data with nearby vehicles. High-end sensors provide quality data, allowing CAVs to rely on their own sensors through individual sensing, and to become independent of other vehicles. In contrast, sensor data sharing enhances the collective vision of CAVs through cooperative sensing. This study investigates the trade-offs in the values and costs of individual versus cooperative sensing, and it proposes optimal investment strategies for short- and long-term planning. Exploiting the setting of a CAV-exclusive corridor, we propose two nonlinear programs to determine optimal investment in corridor capacity in the long-term, and to maximize social welfare in the short-term through road pricing. Capacity analysis shows disjointed investments in individual and cooperative sensing, first in the former until sensors reach a desired resolution, and then in the latter. Social welfare analysis shows travelers are granted a reward in certain settings, encouraging flows that achieve cooperative sensing. Such rewards are not observed in human-driven vehicle settings that cannot benefit from cooperative sensing.

An economic analysis of social welfare

An economic analysis of social welfare Welfare economics may be defined as the branch of study which formu lates propositions by which we can say that the social welfare in one economic situation is higher or lower than in another (Ng 2004, 2015(1)). Briefly, it is the economic analysis of social welfare. As a society consists of individuals in that society, social welfare is just the welfare of individuals in that society. Here, welfare is defined as the happiness of the individual. Though some authors since Aristotle require some ethical/eudemonic elements in the definition of welfare in addition to happiness, I argue (Ng 2022, Ch.1) that it is most simple to separate the subjective/hedonic element from the eudemonic element; the latter element being regarded as an issue in morality, not in the concept of welfare or happiness

On the Curvature Properties of “Long” Social Welfare Functions

This study characterizes the concavity properties of the Jorgenson and Slesnick’s social welfare function that is likely the most empirically relevant function among the family of “long” welfare functions. We bridge this knowledge gap using the definition of generalized concavity to show the conditions necessary for the long social welfare function of interest to be decreasing and quasi-convex with respect to prices. Thanks to this result, “long” social welfare functions with regular curvature can be suitable for applied social welfare analysis and policy evaluations.

Economic Debate On Financing Model of The National Health System

The topic of health-care financing is becoming increasingly important, particularly in light of the Covid-19 pandemic. In this study, we examine the pattern of funding for the national health system from the standpoint of economic thought, as well as the role of government in the context of macroeconomic analysis of social welfare. Conceptual Analysis is the method employed. The data used is based on related theory. This study discovered that health issues are social welfare issues as one of the macroeconomic goals. The macroeconomic debate employs an interdisciplinary framework in which the determinants include external shocks and policy levers, while the pure or theoretical ones are descriptive and applied, resulting in outputs such as prices, growth, output, and international balances. In theory, government involvement in the economy can be divided into two extremes: the classical view and the Keynesian view. The problem of wage and price flexibility, self-adjustment, and government intervention is the result of these two views, though there is a middle view; Schumpeter. The health system can be funded in three ways: entirely by the government, partially by the government, and entirely by the private sector or the public. Furthermore, the cost of health insurance is influenced by the economy, competition, rules, company goals, market structure, government intervention, and a variety of other factors. In the future, studies must be conducted using big data

Efficiency improvement of decentralized incentive-based demand response: Social welfare analysis and market mechanism design

Coupon Incentive-based Demand Response (CIDR) is a novel type of demand response mechanism targeting at small residential end-consumers, and has advantages over traditional Demand Response (DR) programs in its adaptability to most electricity retail plans, voluntary and without penalty. CIDR’s three-layer mechanism was modeled with Stackelberg Game in the authors’ previous studies, and its Nash Equilibrium is usually obtained by iterative solution. However, there is limited study on the efficiency and social welfare of the traditional CIDR mechanism. This paper provides the following contributions: (1) Introducing the response function of consumers and Load Serving Entities (LSEs) considering bounded rationality, and modeling the demand response resources as Virtual Power Plants (VPPs) to find the analytical solution; (2) By comparing the response function with centralized dispatch, this paper reveals the social welfare loss under the Nash Equilibrium of current CIDR mechanism; (3) An Extra Incentive Term (EIT) awarded to the LSE was designed to maximize the social welfare, and its form and parameters are determined under different conditions such as multiple DRs and LSEs, as well as congested power system. The case study shows that EIT has successfully helped to improve the social welfare as well as increased the retail saving and suppressed Locational Marginal Prices in most scenarios.

The effects of information publicity and government subsidy on port climate change adaptation: Strategy and social welfare analysis

This paper develops an integrated economic model to examine two competing ports’ investment in adaptation to climate-change disasters. The ports have asymmetric information on the actual disaster damage. In deciding on adaptation investment, the “leader” port is a better-informed first mover and the “follower” port is a less-informed follower. The government is able to acquire and verify port adaptation information and chooses whether to publicize it (publicity policy) or keep it confidential (confidentiality policy). If the information is publicized, the leader port initiates a signaling game in which it makes a decision first, and the follower acts after observing the leader's decision. Under the confidentiality policy, both ports make their decisions simultaneously. Our analysis shows the following. 1) Under the publicity policy, the leader port does not adopt a pooling strategy; rather, it determines its adaptation and output based on true information on disaster damage (i.e., it implements a separating equilibrium). 2) The publicity policy has two effects: it increases the leader's throughput while decreasing the follower's throughput (i.e., the throughput effect), and it helps rationalize the follower's adaptation investment by making more up-to-date disaster information available (i.e., the adaptation investment effect). 3) When the degree of inter-port competition is high, the publicity policy improves social welfare by increasing the total throughput of the two ports (i.e., an overall positive throughput effect) and rationalizes the follower's adaptation investment (i.e., a positive adaptation investment effect). Otherwise, it reduces the total throughput of the ports (i.e., an overall negative throughput effect). This negative throughput effect may outweigh the positive adaptation investment effect, thereby reducing social welfare. These analytical results suggest that the government needs to promote inter-port competition if it decides to publicize port adaptation information. Finally, we find that the joint implementation of publicity and subsidy policies could result in excessive adaptation investment, leading to social welfare loss. Our study illustrates the important effects of information asymmetry on adaptation investment and has policy implications in the presence of port competition and government subsidy.

Community Energy Markets with Battery Energy Storage Systems: A General Modeling with Applications

Traditional models of power systems are undergoing a restructuring process, stimulated by the growing deployment of renewable energy sources, making them more decentralized and progressively increasing the focus on the consumer. New arrangements are being explored, allowing consumers to play a more active role in energy systems, highlighting the concept of consumer-centric markets. This work presents an optimization model that considers the insertion of the battery energy storage system (BESS) in the concept of community energy markets. This model aims to increase the community income and includes the degradation of BESS, also evaluating different arrangements of BESS in the community markets. In the investigated scenarios, discussions about the feasibility of inserting BESS through the analysis of social welfare (SW) and fairness indicators were carried out. With the results, it was possible to observe that there are structures that are more advantageous from the perspective of the communities and others from the perspective of the members of the communities, bringing some insights into the different impacts of a BESS in an energy community.

Endogenous Land Supply Policy, Economic Fluctuations and Social Welfare Analysis in China

Motivated by the observation that land supplied by the Chinese government is highly counter-cyclical with GDP fluctuations, this paper constructs a DSGE model to study the relationship between China’s land supply policy and economic fluctuations, and further evaluate the welfare effects. By way of counterfactual exercises, this paper finds that endogenous land supply policy has “direct effect (production input channel)” and “indirect effect (intermediate goods channel)” on GDP fluctuations, and both tend to dampen economic fluctuations in China’s macroeconomy. Specifically, GDP fluctuations increase by 63.35% without the “indirect effect”, increase by 66.75% without the “direct effect”, and increase by 66.79% without both effects. In addition, endogenous land supply policy can increase social welfare by about 1.38%. Verifying by the stylized facts in China, this paper argues that endogenous land supply is an efficient macro-control policy to smooth the economy and increase social welfare.

The development of input-monitoring system on biofuel economics and social welfare analysis.

Biofuel production relies on stable supply of biomass which would be significantly influenced by climate-induced impacts. Since the actual agricultural outputs are relatively unpredictable in the face of uncertain environmental conditions and can only be realized in the harvest season, providing useful information regarding the stability of biomass supply to the downstream biofuel industry is crucial. This study firstly illustrates a theoretical framework to explore the resultant market equilibrium and optimal conditions of agricultural and bioenergy production in the face of highly uncertain environmental risks and then employs a two-stage stochastic programming model to investigate the optimal biofuel development and associated economic and environmental effects. The results show that total welfare may not always increase because the loss of other agricultural commodities induced by climate impacts may be greater than the gains received by biofuel production and emission reduction. This study provides insights into the area where artificial intelligence monitoring system can be implemented to analyze the input data associated with agricultural activities and help the biofuel industry to improve its production possibilities.

Level of Inequality and Welfare Change Across Vulnerable Groups in Emerging Regional States of Ethiopia: The Atkinson-Gini Social Welfare Analysis

Economic growth in Ethiopia, particularly in developing regions, would follow fair income distributions and lower inequality that cannot affect social welfare. In line with the adopted pro-poor fiscal policies since 1995-96, the study looked at how price, tax reforms, and income growth affected social welfare. The study used survey data from the Ethiopian Central Statistical Agency by applying the Atkinson-Gini Index to estimate the level of inequality and social welfare of vulnerable groups. From the analysis, Ethiopia's economic growth was inflationary growth dominate. Price rises increased inequality and reduced consumption than tax reform. The findings invalidated the aim of income growth to mitigate the inflationary impact on welfare increase. Finally, the study found that providing social welfare support to these groups did not increase their ability to withstand the risks of declining welfare. Thus, the study recommended that income redistribution measures aided by pro-poor policies be implemented with caution.

Social Welfare Analysis of Policy-based Finance with Support for Corporate Loan Interest

Social Welfare Analysis of Policy-based Finance with Support for Corporate Loan Interest

Social Welfare Analysis under Different Levels of Consumers’ Privacy Regulation

With the rapid development of information technology, digital platforms can collect, utilize, and share large amounts of specific information of consumers. However, these behaviors may endanger information security, thus causing privacy concerns among consumers. Considering the information sharing among firms, this paper constructs a two-period duopoly price competition Hotelling model, and gives insight into the impact of three different levels of privacy regulations on industry profit, consumer surplus, and social welfare. The results show that strong privacy protection does not necessarily make consumers better off, and weak privacy protection does not necessarily hurt consumers. Information sharing among firms will lead to strong competitive effects, which will prompt firms to lower the price for new customers, thus damaging the profits of firms, and making consumers’ surplus higher. The level of social welfare under different privacy regulations depends on consumers’ product-privacy preference, and the cost of information coordination among firms. With the cost of information coordination among firms increasing, it is only in areas where consumers have greater privacy preferences that social welfare may be optimal under the weak regulation.

Research on the Pollutant Emission Reduction Strategy and Simulation of Paper-Making Enterprises under the Reward and Punishment Mechanism

Environmental pollution has become an important obstacle on the path of ecological civilization construction, and it is urgent to control environmental pollution. By establishing an evolutionary game model, this thesis focuses on analyzing how paper-making enterprises choose their own emission reduction strategies under the reward and punishment mechanism. It further analyzes how social welfare changes under the reward and punishment mechanism, and finally through simulation research, this thesis analyzes the evolutionary paths of paper-making enterprises’ pollution emission strategies under the reward and punishment mechanism. The results of the reward and punishment mechanism are as follows: under the static reward and punishment mechanism, the game system will repeatedly oscillate around a point. There is no stable equilibrium point at this time. However, under the dynamic reward and punishment mechanism, the game system will tend to a stable equilibrium point. The results of social welfare analysis show that high-intensity rewards will reduce the amount of pollution discharged by paper-making enterprises, thereby maximizing social welfare. On the contrary, when paper-making enterprises discharge a large amount of pollution, they will be subject to high-intensity penalties. When facing high-intensity punishments, paper-making enterprises will tend to not to discharge. So social welfare is also maximized. The simulation research results show that reasonable punishment strategies are more effective than reward ones. Based on this, the author proposes countermeasures, such as establishing a reasonable reward and punishment mechanism, reasonably determining the reward and punishment intensity for polluting enterprises. The emission reduction strategies of paper-making enterprises will be affected by the government’s reward and punishment mechanism. A deep study of its internal mechanism is not only of great significance for pollution control but also of great significance for the development of a green economy.