Subsidy Structure Research Articles

Determinants of Financial Shortfalls in State-Owned Railway Systems: An Ardl Approach for Sri Lanka Railways

Sri Lanka Railways (SLR) has been experiencing a financial shortfall since the 1940s, characterised by operational expenditure exceeding total revenue. This study aimed to identify the critical determinants of the financial shortfall of Sri Lanka Railways (SLR) using an econometric approach. Employing a quantitative methodology, the study utilised secondary and manipulated data from 1977 to 2022 to examine the effects of four key variables: revenue shortfall from fare revisions (FRFR), subsidised season tickets (FRSS), freight transport volume (FTK), and total wage bill (WB), incorporating the general price level (CCPI) to account for inflation. The regression analysis, using the Auto Regressive Distributed Lag Model, identified a short-run relationship between the financial shortfall (LFS) and lagged variables, including the volume of rail freight transport (LFTK), total employee wage bill (LWB), and the general price level (LCCPI). A long-run relationship was found among revenue shortfall from fare revisions (LFRFR), LWB, LCCPI, and LFS. The findings highlight the significant impact of aligning railway fares with bus fares and managing employee expenses on SLR's financial shortfall. Additionally, the revenue shortfall from subsidised season tickets showed a significant relationship at a 10% significance level, both short-term and long-term. The study underscores the necessity of revising railway fares in line with bus fares to enhance revenue and ensure financial sustainability. Optimising employee-related costs through effective management and reviewing the subsidy structure for season tickets are also recommended. Furthermore, investment in capacity and facility development for freight transport is crucial for mitigating long-term financial shortfalls.

Electric vehicle subsidy structure considering network externality under carbon neutrality constraints

PurposePromoting electric vehicles (EVs) is an effective way to achieve carbon neutrality. If EVs are widely adopted, this will undoubtedly be good for the environment. The purpose of this study is to analyze the impact of network externalities and subsidy on the strategies of manufacturer under a carbon neutrality constraint.Design/methodology/approachIn this paper, the authors propose a game-theoretic framework in an EVs supply chain consisting of a government, a manufacturer and a group of consumers. The authors examine two subsidy options and explain the choice of optimal strategies for government and manufacturer.FindingsFirst, the authors find that the both network externalities of charging stations and government subsidy can promote the EV market. Second, under a relaxed carbon neutrality constraint, even if the government’s purchase subsidy investment is larger than the carbon emission reduction technology subsidy investment, the purchase subsidy policy is still optimal. Third, under a strict carbon neutrality constraint, when the cost coefficient of carbon emission reduction and the effectiveness of carbon emission reduction technology are larger, social welfare will instead decrease with the increase of the effectiveness of emission reduction technology and then, the manufacturer’s investment in carbon emission reduction technology is lower. In the extended model, the authors find the effectiveness of carbon emission reduction technology can also promote the EV market and social welfare (or consumer surplus) is the same whatever the subsidy strategy.Practical implicationsThe network externalities of charging stations and the subsidy effect of the government have a superimposition effect on the promotion of EVs. When the network effect of charging stations is relatively strong, government can withdraw from the subsidized market. When the network effect of charging stations is relatively weak, government can intervene appropriately.Originality/valueComparing previous studies, this study reveals the impact of government intervention, network effects and carbon neutrality constraints on the EV supply chain. From a sustainability perspective, these insights are compelling for both EV manufacturers and policymakers.

Decentralized multi-agent collaborative innovation platform for new energy vehicle core technology breakthrough with digital empowerment: From the perspective of prospect theory

Under the background of digital economy and energy crisis, based on the theory of digital empowerment and prospect theory, aiming at the problems of inefficient collaborative innovation mode, long principal-agent chain, imperfect collaborative innovation mechanism and insufficient digital collaborative innovation degree of the core technology of new energy vehicles, this study constructs a decentralized multi-agent collaborative tripartite evolutionary game model with the participation of government building platform, new energy enterprises and academic research institutions, analyzes the evolution law and key factors, and finally compares the examples of the United States, China and European countries. Results show that: (1) Government subsidies should meet the sum of the strategic income difference and the credibility income is greater than the subsidies to enterprises and research institutions; (2) The subsidy structure and innovation performance show an inverted U-shaped structure. The management mechanism of platform should be optimized; (3) Government should improve the threshold for innovators to enter the decentralized new energy vehicle core technology breakthrough platform, and the contract maintenance strength is conducive; (4) The innovation subject has a dynamic income cost distribution coefficient, and reasonable control of the income and cost sharing coefficient is important; (5) Digital empowerment can make the above four mechanisms achieve dynamic optimization iteration and achieve better equilibrium solutions. Finally, practical countermeasures for the government are put forward, which improves the theoretical research and practical exploration.

Green energy subsidy structure design under the impact of conventional energy price uncertainty

In the practice of green energy promotion, consumers opt for cheaper but dirtier conventional substitutes, the green supplier faces heavy investment and demand uncertainty will be reluctant to provide until the majority of consumers choose green energy. Then, the government needs to design a subsidy structure that targets both sides of demand and supply to promote green energy. This paper presents a game-theoretic model to investigate the design of two-sided (supply and demand) green subsidies for the government with a target adoption level under the impact of uncertain demand caused by the volatility of conventional energy price. We quantified the optimal reaction of the green supplier modeled as a price-setting newsvendor and provide an optimal solution for government subsidies. We found that a supply subsidy incentivizes production by reducing the effective price and increasing the service level, whereas a demand subsidy only decreases the effective price. When we studied two special cases (uniform and triangular), we found that a supplier subsidy does not affect by uncertainty and decreases with the target level. We applied our model to design a shore power subsidy structure and found that a shipping company (demand) subsidy plays a more important role at low levels of fuel price uncertainty, whereas a port (supply) subsidy becomes more important at high levels of uncertainty. The port subsidy is an effective risk-sharing tool for the government when compared with the two-sided context and subsidizes only the shipping company.

Network Externality and Subsidy Structure in Two-Sided Markets: Evidence from Electric Vehicle Incentives

This paper uses new, large-scale vehicle registry data from Norway and a two-sided market framework to show nonneutrality of different subsidies and estimate their impact on electric vehicle adoption when network externalities are present. Estimates suggest a strong positive connection between electric vehicle purchases and both consumer price and charging station subsidies. Counterfactual analyses suggest that between 2010 and 2015, every dollar spent on station subsidies resulted in more than twice as many additional electric vehicle purchases than the same amount spent on price subsidies. However, this relation inverts with increased spending, as station subsidies’ impact tapers off faster. (JEL D12, D62, D85, H25, L62, Q54)

The Social Housing Crisis and the Barriers to Developing Dementia-Friendly Communities in Chile.

Interaction with living place and neighbourhood is one of the cornerstones for creating dementia-friendly communities (DFC). Chile has one of the largest proportions of older adults in Latin America and is currently facing an increase in the number of people with dementia. In this context, the Chilean government has launched a national strategy that involves actions in the health and social care system, including the promotion of DFC. From a multisectoral approach, social and environmental aspects involving engagement with local communities and access to social connections and services are directly related to urban policies. This perspective article focuses on urban aspects of social housing policy, such as placement, networks, affordability and the relationship between subsidy structure and adequate housing provision in a country with a qualitative housing deficit of around 1,200,000 units and where a large proportion of people with dementia and their families live in poverty. We identified several barriers to delivering appropriate environments for people living with dementia in relation to a two-fold problem: (a) the social housing subsidy displaces caregivers and/or older adults to satellite towns where social connections and access to services and urban equipment are lost; and (b) people resisting displacement live in overcrowded neighbourhoods where dementia is a common problem. In both scenarios, a detrimental environment and social conditions directly affect the quality of life of elderly people living with dementia and their caregivers.

Competition between the transportation network company and the government with subsidies to public transit riders

The substitution and complement of ride-sourcing services and public transit services greatly affect the mobility and accessibility of a multi-modal transportation system. Since the transportation network company (TNC) (operator of ride-sourcing) concerns the profit and the government (operator of public transit) promotes social welfare, the two policy-makers will both cooperate and compete with each other to enhance their benefits. In this paper, we develop a bi-level game-theoretic approach to model the cooperative and competitive relationship between the TNC and the government. In the upper level, the two policy-makers design a cooperative plan such that the government provides subsidies to public transit riders who use ride-sourcing to solve first- or last-mile problems. In the lower level, they attempt to optimize operational strategies to compete with each other for achieving their objectives. The outcome of the bi-level game depends on passengers’ choices among alternative travel modes, which is characterized by an aggregate multi-modal market. Based on the proposed game-theoretic approach, we analytically and numerically examine the impact of the competition with passenger-side subsidies on the multi-modal system, and the existence of optimal strategies that lead to a win–win situation for both the policy-makers. We find that a socially-optimal subsidy level may exist. In areas with high public transit accessibility, a good-intentioned subsidy that boosts first- or last-mile ride-sourcing services can reduce the TNC’s profit. Our research highlights the value of a carefully designed subsidy structure that benefits both the TNC (profit) and the society (social welfare), especially in areas with low public transit accessibilities.

Why the “One-Size-Fits-All” Subsidy Structure of Tabung Haji No Longer Works and How to Move Forward

The original, novel idea behind Tabung Haji’s establishment is to help Malaysian-Muslims to save for hajj. However, over the years, the subsidy amount for hajj pilgrims is ever-increasing. A case in point, for the 2020 hajj season, a first-time hajj pilgrim needs only to pay RM9980 out of RM22,900 of the original costs. Stated differently, Tabung Haji subsidizes almost half (43.58%) of the total costs. As with any subsidy, the main question is, where do we find the money? Ironically, Tabung Haji is a business entity that needs to generate profit. Consequently, this paper aims to examine the sustainability or lack thereof of the existing subsidy structure and suggest the way forward. Due to its politically sensitive nature, instead of eliminating subsidy, the authors used the Household and Basic Amenities Survey 2019 data to simulate a regressive subsidy structure for first-time hajj pilgrims mathematically.

Investigating the role of ranking household expenditures to reform the subsidies payment system as an economic policy for Iran

AbstractGiven the problems created by the high volume of subsidies and their significant share in government budgets, as well as, the failure to achieve the governmental goals in the field of subsidies, reform of the subsidies payment system has constantly been a concern of various governments. The welfare of society, especially the low‐income groups, has always been the focus of governments. To this end, subsidies are paid, particularly for basic goods, with the aim of decreasing prices and increasing purchasing power. However, since such payments are not targeted, a major part of subsidies will be granted to the upper classes and high‐income deciles. Therefore, targeting subsidies and paying attention to prioritizing costs in the household basket regarding subsidies payment will be an undeniable necessity. Currently, Iran faces fundamental problems in equitable management and distribution of subsidies, and the distribution of subsidies is extremely unfair. Given the importance of this issue and in order to provide a solution to reform the subsidy structure of Iran, present paper tries to examine the share of consuming expenditures in Iranian households using econometric methods and thus establish as a basis for ranking the costs. Accordingly, as a policy on targeting subsidies, we also aim to provide policymakers with better ways to implement policies. In general, the results indicate that targeting the subsidies in the household sector is different due to the different share of costs in the household budget and implementing the same approach to policy of targeting the subsidies is not appropriate for all households.

Techno-economic analysis and policy implications for promoting residential rooftop solar photovoltaics in Abu Dhabi, UAE

Although centralized solar systems have developed rapidly, decentralized solar systems are still unattractive to householders in Abu Dhabi due to technical and economic circumstances. This paper addresses this issue through a real-world case study examining the energy potential and economic performance of a rooftop solar system in two residential areas of Abu Dhabi. Then, following an analysis of the energy subsidy structure of Abu Dhabi, a new policy idea is discussed to mitigate the barriers to rooftop solar propagation. For a typical residence, a rooftop photovoltaic system would cover 11–20% of the annual electricity demand, indicating that the current net metering policy would be unattractive or useless to residents. The levelized cost of electricity of the considered system is around 0.05 USD per kWh, which is economically infeasible at the subsidized tariff for UAE nationals. However, at the higher tariff for expatriate residents, its internal rate of return ranges from 9.2 to 12.0%, implying a good possibility of success. This study proposes a new policy for government-led promotion of distributed solar systems through the redistribution of a portion of energy subsidies. This policy would expedite the proliferation of rooftop solar energy and reduce the expenditure for the government subsidy.

How would government subsidize the port on shore side electricity usage improvement?

Shore Side Electricity (SSE) is an effective means of energy that helps to reduce at-berth emissions of greenhouse gas (GHG) and atmospheric pollutants. However, due to the enormous initial investment and poor financial performance during daily operations, the usage of SSE faces certain dilemma. This paper focuses on the problem of government subsidy structure to ports. The aim of this research is to propose a framework of optimizing government subsidy structure to achieve the maximized subsidy efficiency of at-berth emission reduction per monetary unit. The problem is formulated as a mathematical model that 2 types of government subsidy to the port have been taken into consideration, that are the subsidy on SSE construction and subsidy on SSE operations. The port of Shanghai is selected for case study. Results show that the optimized government subsidy structure emerges when port’s SSE supply capacity and ships’ SSE demand meet an equilibrium, then the subsidy efficiency (g/USD) also could achieve the utmost level. It also indicates that in the beginning of SSE promotion, the government should subsidize more to the port on facility construction, then subsidize more on the SSE operations in later years for better usage of SSE and emission reduction.

Chinese policy on fishery insurance: Evolution, characteristics and challenges

Fishery insurance has been recognized as a common tool of fisheries management in loss compensation and poverty alleviation for fishery. This article tracked the historical account of China's fishery insurance since 1982. Generally, the China's fishery insurance program has evolved through three stages: commercial fishery insurance (before 1994), fishery mutual insurance (1994–2008) and policy fishery insurance (2008-present). For decades, the focuses of the policies have been found to shift from expanding market quota and supplying traditional items to realizing sustainable development of fishery resources and offering better services. Several deficiencies have been observed in the regulation system and insurance subsidy policies, so many challenges remain for its formulation and implementation in the future. This paper suggests the following improvement strategies: reforming the fishery insurance legal system, refining the subsidy structure, expanding financing channels, designing innovative products, building a professional talent team and improving insurance publicity.

Comparing Alternative Policies for Modification of Energy Subsidies: The Case of Groundwater Pumping for Irrigation

The present paper studies the effects of alternative modifications of a subsidy for electricity used to pump groundwater on the behavior of profit maximizing groundwater users. It proposes a stylized model for groundwater extraction, and then numerically derives general results by simulation. The model is applied to aquifers in Leon, Guanajuato, Mexico and Kern County, California. The performance of two traditional policy intervention measures—subsidy elimination and reduction—are compared to a new, innovative modification policy, namely, decoupling the subsidy from the electricity bill; this policy is arguably more politically acceptable. The results of extensive simulations suggest that the rate of aquifer water extraction, and the consequent level of water in the aquifer, can be improved significantly by changing the subsidy structure.

The Effect of Local Subsidy Competition on Excess Capacity in China: Empirical Study Based on Propensity Score Matching-DID

Local governments subsidize enterprises directly or indirectly by various means, which may lead to the over-investment behaviors of enterprises and then induce serious overcapacity problem. How do local government behaviors affect the production and capacity decisions of the enterprises? Previous studies primarily focus on the impacts of institutional factors on overcapacity but ignore the problem of information asymmetry in the market. Moreover, only a few researchers have done the empirical studies on this topic. This paper combines Chinese unique institutional background and asymmetric information environment to build a two-period dynamic game model with incomplete information, so as to explore a new mechanism of the impact of local subsidy competition on overcapacity in China. We find that the excess capacity ratio induced by local subsidy competition is larger than the normal excess capacity ratio when the market information is asymmetric. And the more subsidies an enterprise receives, the more likely the industry has overcapacity. Based on the micro-data of enterprises from 2001 to 2007 in China, this paper uses the propensity score matching difference-in-difference method to do the empirical test. The results show that: for those enterprises who have received the subsidies, the overcapacity rate after the subsidies rises by about 1% to 3%. And compared with those non-subsidized enterprises, the overcapacity rate of subsidized enterprises rises by about 2% to 12%, which indicates that local subsidies could significantly inhibit the capacity utilization rate of enterprises and exacerbate the overcapacity. This paper provides not only empirical evidence for the impact of local subsidies on overcapacity, but also some policy implications for the governments to deal with overcapacity. Firstly, the interest distribution mechanism between central and local governments should be rationalized, such as improving Chinese financial management system, which could be an institutional method used to regulate the behavior of local governments. Secondly, it is necessary to strictly formulate and implement the local subsidy rules and the local administrative accountability system, so as to strictly inhibit the local irregular and excessive subsidies. Thirdly, an effective adjustment mechanism for the local subsidies ought to be established to adjust the local subsidy structure actively and exert the overall benefits of local subsidies. The marginal contributions of this paper are as follows: firstly, on the basis of Lin Yifu’s wave phenomenon”, this paper pays attention to the subsidy competition of local investments. We construct a dynamic game model with incomplete information to explore the new mechanism of how local subsidy competition affects the overcapacity. Moreover, we take the lead in using the propensity score matching difference-in-difference method to empirically test the impact of local subsidy competition on overcapacity, and focus on the changes in capacity utilization of enterprises before and after local subsidies. It not only can effectively alleviate the endogenous problem, but also provides some empirical and technical reference for follow-up research.

Coupling effects of demand-side improvements ensemble on energy performance to monetary implications for UAE economy

An apparent transformation of energy trade in developing countries such as the UAE directly impacts and influences the global energy dynamics. UAE is the largest global exporter of fossil fuel for energy generation and it is therefore a necessity to analyze the regional in-house energy market as a first from the demand-side improvement perspective. Due to the arid climatic nature of the country, we performed simulations on air-conditioning unit performance, for the largest emirate of Abu Dhabi, using a convoluted parametric effect of coefficient-of-performance and set-point temperature to understand the long-term impact on energy operation and its monetary implications to the UAE economy. The targeted sectors included commercial and residential as leading energy hungry consumers. An assessment of the present situation to optimally determined using DesignBuilder and EnergyPlus, indicated clear change in energy generation, consumption and greenhouse gas emission reduction. The effects were forecasted using long-range energy alternatives planning simulation tool to predict the national wealth savings and to assist in governmental policy making until 2030 as per the Abu Dhabi Vision. The savings amounted to millions of dirhams per sector based on the unique upfront tariff & subsidy structure of the UAE and an emission reduction of approximately 2500 thousand metric tons of CO2 equivalent per sector by 2030 as per the Abu Dhabi Vision 2030.

Groundwater and electricity consumption under alternative subsidies: Evidence from laboratory experiments

Pervasive energy subsidies for groundwater pumping pose a challenge to policy makers around the world, who have to cope with lower water tables due to increased reliance on groundwater resources for irrigation. The present paper outlines a laboratory experiment aimed to study the groundwater extraction decisions of stakeholders under alternative subsidy structures. We propose a model and a methodology for testing the implications of the model and the modifications of energy subsidies for irrigation. We analyze the performance of two traditional policy interventions—elimination and reduction of subsidy—and then analyze a novel policy: decoupling the subsidy from the electricity rate by replacing it with a lump sum transfer. Our results suggest that the rate of water extraction and the level of water in the aquifer may significantly be improved by altering the subsidy structure. An important finding for policy makers is that the decoupling leads to outcomes similar to those of eliminating the subsidy, however, with fewer political economy conflicts.

Nearly-efficient tuitions and subsidies in American public higher education

A two-stage setting for determining subsidies and tuitions in a public university context is developed where fixed costs introduce an efficiency-enhancing role for taxpayer-financed appropriations. The optimal subsidy per enrollment is shown to be proportional to students’ maximum net willingness to pay. This result extends a well-known result associated with Ramsey pricing to include endogenous appropriations to public higher education. Realistic restrictions are imposed on the subsidy structure, and scenarios for determining tuitions are addressed and illustrated numerically, using budget data for the University of Iowa and the University of Michigan.

Evaluation of Solar Photovoltaic Programmes under Jawaharlal Nehru Solar Mission in India

The Jawaharlal Nehru National Solar Mission (JNNSM) is an initiative taken by the Government of India and state governments through Ministry of New and Renewable Energy and state nodal agencies to promote environment-friendly sustainable growth to address India's energy security challenge and meet the needs of approximately 1.30 billion populations. The main objective of JNNSM is to generate resources for installation of renewable energy devices and create favourable environment for the diffusion of solar energy at both grid and off-grid levels. The success of the mission depends on the subsidy structure, role of implementing institutions, functioning of the standardised systems and society's awareness and knowledge level. The research paper has evaluated the performance of JNNSM in India regarding dissemination of photovoltaic applications. The paper presents data and develops quantitative metrics to analyse its implementation throughout India.

Why do individuals behave differently in commons dilemmas? The case of alpine farmers using common property pastures in Grindelwald, Switzerland

The sustainable use of common-pool resources depends on users’ behaviour with regards to appropriation and provision. Most knowledge about behaviour in such situations comes from experimental research. As experiments take place in confined environments, motivational drivers and actions in the field might differ. This paper analyses farmers’ use of common property pastures in Grindelwald, Switzerland. Binary logistic regression is applied to survey data to explore the effect of farmers’ attributes on livestock endowment, appropriation and provision behaviour. Furthermore, Q methodology is used to assess the impact of broader contextual variables on the sustainability of common property pastures. It is shown that the strongest associations exist between (a) socio-economic attributes and change in livestock endowment; (b) norms and appropriation behaviour; and (c) area and pay-off and provision behaviour. Relevant contextual variables are the economic value of the resource units, off-farm income opportunities, and the subsidy structure. We conclude that with increasing farm size farmers reduce the use and maintenance of common property. Additionally, we postulate that readiness to maintain a resource increases with appropriation activities and the net returns generated from appropriation.

Decomposition of China's CO2 emissions from agriculture utilizing an improved Kaya identity.

In recent decades, China's agriculture has been experiencing flourishing growth accompanied by rising pesticide consumption, fertilizer consumption, energy consumption, etc. and increasing CO2 emissions. Analyzing the driving forces of agricultural CO2 emissions is key requirements for low-carbon agricultural policy formulation and decomposition analysis is widely used for this purpose. This study estimates the agricultural CO2 emissions in China from 1994 to 2011 and applies the Logarithmic Mean Divisia Index (LMDI) as the decomposition technique. Change in agricultural CO2 emissions is decomposed from 1994 to 2011 and includes a measure of the effect of agricultural subsidy. Results illustrate that economic development acts to increase CO2 emissions significantly. Agricultural subsidy acts to reduce CO2 emissions effectively and has increased in recent years. Policy is needed to significantly optimize agricultural subsidy structure and change agricultural development pathway, if China's low-carbon agriculture target is to be achieved. This requires not only decreasing pesticide consumption, fertilizer consumption, energy consumption, etc. but also transformation of China's agricultural development path for optimal outcomes.