Total Surplus Research Articles

Financial Impacts of Paying for Gene Therapy for Sickle Cell Disease Under Alternate Prices and Financing Mechanisms

To understand the role of alternative prices and financing mechanisms on a payer's budget impact and the manufacturers' risks and returns for gene therapies. This paper uses fundamental economic principles to interpret the implications of alternative pricing mechanisms in terms of the manufacturer's appropriation share of the value and how alternate financing mechanisms alter it. It demonstrates these concepts by studying the financial impacts for a payer and the manufacturer across alternative pricing and financing mechanisms that could be used by the US Centers for Medicare and Medicaid Services (CMS) to pay for gene therapy for sickle cell disease (SCD). Unlike value-based and manufacturer-set monopoly prices, an effective monopoly price can be derived to guarantee monopoly profits for manufacturers during their exclusivity period, thereby providing a high appropriation share and substantially lowering price and budget impact for a payer. For SCD gene therapy, the 10-year budget impact for CMS would range from $8.6 Billion-$12.8 Billion under a value-based price, $10.2 Billion-$15.2 Billion under a monopoly price, but reduce to $7.7 Billion under an effective monopoly price. The latter price would still fetch over 50% of the total surplus to the manufacturer while mitigating their risk of sales volume. I show that significant budget impacts for funding gene therapy are not mitigated across alternative financing mechanisms at any given price. The price determines most of the budget impact. The option of a patent buyout may help negotiate down prices to effective monopoly prices.

Disclosure and Dynamic Risk Sharing with a Large Shareholder

ABSTRACT We study the effects of disclosure in a dynamic market with imperfect competition. The supply of an asset is determined by a large shareholder with price impact, who trades slowly to diversify away from concentrated ownership. Small investors provide capital and thus risk-bearing capacity to the market. Although it is well known that disclosure impedes risk sharing by shifting risk before future trading opportunities, we show that disclosure, at the same time, can enhance risk sharing by promoting more trades. Resolving this tradeoff, an interior level of disclosure quality maximizes the small investors’ surplus as well as the total surplus, but minimizes the large shareholder’s surplus. Further, efficient disclosure policies feature increasing quality over time. JEL Classifications: D80; E21; G12; L13; M41.

The effect of common ownership among supply chain parties on decision-making and surplus with manufacturer encroachment

In the financial economics field, several studies assess the effect of common ownership on the economic consequence, decision-making of firms, and social performance. In this situation, based on recent supply chain practices and manufacturer encroachment, we examine the effect of common ownership on supply chain parties composed of a retailer and a manufacturer and social performance. From our model analysis, we demonstrate that manufacturer encroachment improves the retailer’s profit under specific economic environments, while generally, manufacturer encroachment harms the retailer’s profit because the manufacturer obtains market share through a direct channel. Additionally, we demonstrate that increasing common ownership improves total surplus in a specific case. Therefore, our analysis does not only propose the positive effects of common ownership among all vertical supply chain parties for supply chain coordination, as opposed to what is indicated by the real world, but also implies that society should accommodate common ownership among supply chain parties in specific economic environments from the perspective of total surplus.

An incentive regulation approach for balancing stakeholder interests in transmission merchant investment

The merchant-regulatory mechanism represents a promising tool that combines the benefits of merchant investment and regulated investment, thereby providing efficient incentives for merchant Transmission Companies (Transcos) subject to regulatory compliance. Taking the H-R-G-V mechanism as a foundational example of this approach, it permits Transcos to receive the total surplus increase from investments, and the profit-maximizing Transco will perform social welfare maximum investment under this mechanism. However, one drawback of this mechanism is that it allows the Transco to receive the whole benefit created by the Transco, while excluding consumers and generators from the resultant economic benefits. To address this issue, we propose an incentive tuning parameter, which is incorporated into the calculation of the incentive fee for the Transco. Accordingly, the regulatory framework can effectively manage the Transco’s profit and allow market participants to access economic benefits, thus ensuring a fair distribution of economic advantages among the stakeholders, while the impact on overall social welfare remains relatively modest. The results on the case study demonstrate that this careful balancing act maintains the essence of the H-R-G-V mechanism while addressing its critical gap—the equitable sharing of economic gains.

Returns from herding as a function of the social network of agents: a simulation study

PurposeThis study combines different perspectives on herding, viewing it as a social network heuristic in comparison to other heuristics. The purpose is to use the heuristic view of herding as found in early literature and test it on grounds of efficiency and payoff, in essence, combining the heuristic and rational agent view of herding. The simulated double auction setting includes agents embedded in a social network, allowing for an examination of herding alongside rational behaviour and imperfect signals.Design/methodology/approachIn each round of the simulation, levels of homophily, density and fractions of types of agents is set and agents are allowed to follow their respective heuristics under those conditions. Characteristics of the social network, such as the size, levels of different homophilies, density and fractions of different types of agents are varied randomly to gauge their effect on the performance of herders vis-à-vis others and the overall market efficiency through simulation based approach. The data used for the study has been developed in Python and linear models are estimated using R.FindingsHerding decreases total surplus in private value double auctions, but herders are not worse off than other agents and perform equally in common value auctions. Further, herders and random offerers reduce payoffs of other agents as well, and herding effects the surplus per transaction and not the quantum.Research limitations/implicationsThis study explores herding as a strategic behaviour coexisting with rationality and other strategies in specific circumstances. It presents intriguing findings on the impact of herding on individual outcomes and market efficiency, raising new avenues for future research. Implication to research includes a dent on the “sieve” argument of markets rooting out irrationality and from it, a policy implication that follows is the need for corrective measures as markets cannot self-correct this, given herders do not perform worse than others.Originality/valueThe study links the phenomenon of herding to the dynamics of social networks and heuristic-based learning mechanisms that sets apart this research from the majority of existing literature, which predominantly conceptualizes herding as an outcome derived from a perfect Bayesian Equilibrium and a rational learning process.

Battery electricity storage as both a complement and substitute for cross-border interconnection

Cross-border interconnectors play a critical role in fulfilling the growing demand for cleaner and more affordable electricity. They are integral to completing the single energy market in Europe, so the European Union has set ambitious targets for the coming decade. Many challenges affect and delay the development of transmission infrastructure, and the deployment of non-wires alternatives such as battery energy storage systems may threaten the financial viability of these investments. We evaluate the potential impact of storage deployment on the profitability of cross-border interconnectors using the European electricity market model “EuroMod”. We find that higher battery penetration than projected in ENTSOE's TYNDP in 2030 significantly reduces transmission surplus (by €267 m to €506 m) under different battery uptake scenarios. To maintain the expected total surplus as projected by TYNDP in 2030, the continent-wide transmission capacity must decrease by 4.1–7.0%, potentially superseding 19–33% of planned transmission capacity expansions to 2030. Although cross-border interconnectors are of strategic importance for energy security and flexibility, the results highlight the pressing need for regulators, policymakers, and private investors to account for the rapid uptake of storage and integrate both storage and interconnectors in system planning.

On the transformation of values into prices of production apropos of Moseley’s Money and Totality

Mosely’s book provides a vantage point for a critical analysis of the ‘transformation problem’, as it questions the dominant conceptions that reduce the methodological debate to a matter of constructing systems of equations; at the same time, it shares with them the reduction of the methodological question to a matter of interpreting Marx’s texts. Moseley interprets ‘Capital’ as a logical representation composed of a macro theory and a micro theory. The article starts by showing how this approach mutilates the organic unity between social capital and individual capitals. Consequently, focus is placed on Moseley’s presupposition of values as if they were given in prices of production to explain the determination of these same prices, as well as on his exclusion of gold’s exchangeability as a product of capital from the transformation process. The article extends the methodological analysis to the above-mentioned prevailing conceptions and their ideological basis. Next, it shows how they coincide with Moseley’s in the logical inconsistency of assuming that the value of total variable capital and total surplus value appear unchanged in prices of production, although the organic compositions of the spheres that produce their material content differ from the social average. At this point, the real issue is brought forward: it is not about interpreting Marx’s texts in search of a ‘given’ or an ‘invariance postulate’ to construct a model that satisfies them; the point is to follow Marx’s methodological proposal to reproduce by way of thought the concrete determinations that make values take the complete form of prices of production of a certain magnitude. Finally, the article follows this path to demonstrate how, even if the value contents of total variable capital and total surplus value remain quantitatively unchanged, the prices of production in which they necessarily take form will quantitatively differ from those value contents.

A collective incentive strategy to manage ridership rebound and consumer surplus in mass transit systems

This paper models and analyzes a collective incentive strategy with passenger departure time equilibrium to maximize the total passenger surplus, which could further enhance the sustainability of transit systems in the post-pandemic era. In the proposed collective incentive strategy, passengers with transit passes have dynamic discounts where the discount value depends on the total number of passengers enrolled in the incentive program. A bi-level optimization model is established by considering passengers' demand elasticity and responses to the strategy, which eventually determines the starting time and duration of the collective incentive strategy during the time of the day. We further analyze the properties of the proposed collective incentive model to identify the analytical solutions and performance. Analytical results indicate that there exists a threshold demand elasticity below which the total surplus of commuters with and without transit passes can be improved simultaneously. Properties also show that there could exist multiple local optimal solutions of incentive strategy duration for a given starting time. A case study is conducted with the metro system in Toronto: the results show that the proposed collective incentive strategy could improve both the fare revenues and ridership by 33.31 % and 83.56 %, respectively.

Due Diligence

ABSTRACTWe propose a model of due diligence and analyze its effect on prices, payoffs, and deal completion. In our model, if the seller accepts an offer, the winning bidder (or “acquirer”) can gather information and chooses when to complete the transaction. In equilibrium, the acquirer engages in “too much” due diligence. Our quantitative results suggest that the magnitude of the distortion is economically significant. Nevertheless, allowing for due diligence can improve both total surplus and the seller's payoff compared to a setting without due diligence. We use our framework to explore the timing of due diligence, bidder heterogeneity, and breakup fees.

An Ex-post Impact Assessment of Seed-to-Seed Mechanization in Maize in Telangana State, India

In Telangana, India, maize is cultivated in large areas next to rice and cotton. Considering the importance of the crop, Professor Jayashankar Telangana state Agricultural University (PJTSAU) is focusing on the development of new maize hybrids and agro-technologies that increase yield and income for farmers and reduce input and management costs. In order to evaluate the impacts of seed-to-seed mechanization technology, the Economic Surplus (ES) approach was applied in the present study that quantifies aggregate social benefits which includes producer and consumer surplus. Results revealed a total surplus of Rs. 19.61 lakhs, mainly benefiting producers (72.09 per cent) and consumers (27.91 per cent). The investment in seed-to-seed mechanization demonstrated a promising 23 per cent internal rate of return (IRR), a net present value (NPV) of Rs. 3.2 lakhs, and a favorable BC ratio of 1.67:1. The results of study found that the adoption of novel technology increased farm income and reduced the labour cost.

Indian interstate trade exacerbates nutrient pollution in food production hubs

Intensive agricultural practices have powered green revolutions, helping nations attain self-sufficiency. However, these fertilizer-intensive methods and exploitative trade systems have created unsustainable agricultural systems. To probe the environmental consequences on production hubs, we map the fate of Nitrogen and Phosphorus in India’s interstate staple crop trade over the recent decade. The nation’s food bowls, while meeting national food demand, are becoming pollution-rich, sustaining around 50% of the total surplus from trade transfer, accounting for 710 gigagrams of nitrogen per year and 200 gigagrams of phosphorus per year. In combination with water balance analysis, surplus nutrient conversion to a graywater footprint further highlights an aggravated situation in major producer regions facing long-term water deficits. Given India’s role in global food security, identifying the nation’s environmental vulnerability can help in designing appropriate policy interventions for sustainable development.

Soil conservation ecosystem service supply-demand and multi scenario simulation in the Loess Plateau, China

Ecosystem services are an essential foundation for sustainable human development. In view of the severe soil erosion on the Loess Plateau (LP), it is important to explore the spatial and temporal characteristics of the supply-demand balance of soil conservation services (SCSs). In this study, the soil conservation ecosystem service supply-demand ratio was innovatively proposed to quantitatively assess the supply and demand balance of soil conservation. First, the InVEST model was used to spatially quantify the supply (soil retention) and demand (soil erosion) of soil conservation services (SCS) in the LP from 2005 to 2020. Meanwhile, the spatial variation characteristics of supply-demand matching were analyzed. Second, to predict the soil conservation ecosystem service supply-demand in the future, the InVEST-PLUS model was used to simulate the supply-demand balance under multiple scenarios in 2030. The natural development (NDS), ecological protection (EPS) and economic development scenarios (EDS) were coupled with shared socioeconomic pathways (SSPs) and representative concentration pathways (RCPs). The results showed that: (1) from 2005 to 2020, the annual average soil erosion modulus of LP increased by 60.58 (t/(hm²·a)); soil retention per unit area increased by 12.89 t/hm2; both increased from northwest to southeast, and the spatial matching pattern of supply-demand was mainly low-low and shifted to low-high each year; and (2) based on the LULC of LP simulated by the PLUS model, the kappa coefficient and overall accuracy were 86.29% and 91.14%, respectively. A total of 19.8% and 22.97% of the built-up land was expanded under the NDS and EDS scenarios, respectively, and a total of 17,515.65 km2 of forestland and grassland was expanded under the EPS scenario; (3) 2030. NDS-SSP245, 2030. EPS-SSP126 and 2030. EDS-SSP585 scenarios, moderate and high surpluses accounted for 11.40%, 14.34% and 10.80% of the total surplus area, respectively; compared to 2020, the high deficit increased by 49.67%, 43.29% and 56.65% respectively. The study provided innovations for the coupling degree of future ecosystem services simulated by the InVEST-PLUS model.

Application of Games Theory in Modelling of Nigerian Electricity Market

The Nigerian deregulated power system is fabled to be one of the boldest privatization initiatives in the global power sector in the last decade, with transaction cost of about 1500 billion Naira ($3.0billion). Though both in theory and practice Electricity market practice is like every other market, where trading between two or more participants mutual contract based on demand and economic strength. Nigerian electricity market model is a unique whole sale power market based on Multi-Year Tariff Order (MYTO) that provided arbitrary percentage power allocation scheme, instead of bilateral contract approach as obtainable in similar market models globally. The consequence of this policy is power rejection by the DISCOS, which led into congestion, energy poverty, serious damage to equipment’s of the Transmission Company of Nigeria; as well as poor marketing performance across all segment of the Nigerian Electricity Supply Industry. In this paper, games theory has been used in modelling of the Nigerian Electricity Supply Industry market, by applied a cooperative competitive zonal market incorporating intraday to the model, the outcome results of game analysis showed that the market value ratio at best response stand at 575.5:202.2, the consumer’s surplus value was N151, 234.6, the total surplus N195, 343.6, the wholesale price is N 4.625/kWh, while that of the retail is N 8/kWh; the equilibrium quantity stands at 16,000 kWh.

An analysis of a rural hospital's investment decision under different payment systems.

From an economic perspective, large investments in medical equipment are justifiable only when many patients benefit. Although rural hospitals play a crucial role locally, the treatments they can offer are limited. In this study, I characterize investment level that maximizes the total surplus, encompassing patients' welfare and producer surplus, and subtracting treatment costs. Specifically, I account for economic externalities generated by the investment in the rural hospital and for different utility losses that patients suffer when they cannot be treated locally. I demonstrate that the optimal investment level can be implemented if the Health Authority has the power to set specific prices for each disease. Additionally, I explore a decentralized situation wherein the investment decision lies with the rural hospital manager, and the Health Authority can only make a discrete decision between two payment systems: Fee-for-service, which covers all treatment costs, or Diagnosis-Related-Groups, which reimburses a price per patient based on the overall average cost. I find that the Diagnosis-Related-Groups system outperforms the Fee-for-service in terms of total surplus when the treatment cost at the rural hospital is lower. However, when the rural hospital has higher costs and the Health Authority seeks to incentivize investment, the Fee-for-service system is superior.

Crop Residue as Sustainable Energy Option: Case of Amritsar District, Punjab, India

Historically, biomass energy is the oldest form of energy, for domestic purposes. Amongst biomass, crop-residue resources are abundant, especially in agriculture-dominated areas. Worldwide, of the total renewable energy potential, one-fourth of total renewable energy is being produced by biomass and waste. Within biomass, co-generation plants using process-based agricultural wastes are used for power generation. However, a major proportion of crop residues, that is, non-processed residues, are burnt in the open fields themselves, resulting in air pollution, greenhouse gases and climate change, deterioration of soil health due to loss of nutrients, moisture, etc. The present article assesses crop-residue generation, utilisation, and surplus-availability for energy generation in Amritsar district. Amritsar district is the second most populated among 22 districts of Punjab state. Agriculture is the main economic activity in the district, covering 82.2% of its geographical area. It has been estimated that a total of 2.5 million tonnes of crop residues are being generated annually within the Amritsar district. Out of the total residues, almost two-thirds of residues remain unutilised. The residues are being burnt, resulting in deteriorating air-quality, which could be used as a sustainable renewable energy source. The total surplus residue has the potential for 721 MW of power generation.

The Evolution of Market Power in the U.S. Automobile Industry

Abstract We construct measures of industry performance and welfare in the U.S. automobile market from 1980 to 2018. We estimate a demand model using product-level data on market shares, prices, and attributes, and consumer-level data on demographics, purchases, and stated second choices. We estimate marginal costs assuming Nash-Bertrand pricing. We relate trends in consumer welfare and markups to trends in market structure and the composition of products. Although real prices rose, we find that markups decreased substantially, and the fraction of total surplus accruing to consumers increased. Consumer welfare increased over time due to improved product quality and improved production technology.

Stable licensing schemes in technology transfer

AbstractBy considering combinations of a lump‐sum fee and a per‐unit royalty as licensing schemes in the transfer of new technology through licensing from a technology holder to oligopolistic firms, we investigate stable licensing schemes that are realized as bargaining outcomes. The licensing schemes agreeable to both the technology holder and licensees are necessarily rejection‐proof; that is, no subgroup of licensees has an incentive to reject the licensing schemes. We newly define the rejection‐proof core for each group of licensees as the set of rejection‐proof licensing schemes for its group that are not dominated by any other rejection‐proof licensing schemes for any licensees' group. Our principal findings are as follows: For the group of licensees that maximizes the sum of the technology holder's (gross) profit and licensees' total surplus, the rejection‐proof core is always nonempty. Furthermore, from the perspective of profit maximization, the nonempty rejection‐proof cores suggest that the technology holder should license the new technology to such a group.

When less is more: Information and the financing of innovation

This paper examines the impact of informational frictions when the entrepreneur anticipates having little or no bargaining power in negotiating with the financier and can select ex ante the innovation/venture he wants to develop. In this environment the entrepreneur faces a tradeoff between selecting an innovation that creates high value but one which only allows him to capture little or none of that value; or selecting a “pet-project” innovation that creates lower value but yields private benefits to him. In the baseline scenario, without contractual frictions, the financier is able to elicit first-best entrepreneurial effort, but cannot commit not to extract all innovation rents from the entrepreneur, leading the entrepreneur to select his favored but inefficient innovation. The key insight of the model is that the introduction of informational frictions like non-verifiability of effort or talent information asymmetry, while leading to reductions in effort (for a given innovation choice), may lead to more efficient (i.e. higher value) innovation choices ex ante, and indeed could generate a superior payoff to the financier and a greater total surplus from innovation. This yields several empirical implications, not least of which the potential motivation for financiers to commit to “opacity of information” when the resulting improvements in innovation selection dominate the impact of effort reduction.

Allocating the surplus induced by cooperation in distribution chains with multiple suppliers and retailers

The coordination of actions and the allocation of profit in supply chains under decentralized control plays an important role in improving the profits of retailers and suppliers in the supply chain. We focus on supply chains under decentralized control in which noncompeting retailers can order from multiple suppliers to replenish their stocks. The goal of the firms in the chain is to maximize their individual profits. As the outcome under decentralized control is inefficient, coordination of actions between cooperating agents can improve individual profits. Cooperative game theory is used to analyze cooperation between agents. We introduce multi-retailer-supplier games and show that agents can always achieve an optimal profit by cooperating and forming the grand coalition. Moreover, we show that there will always be stable allocations of total profit among the firms which cannot be improved by any coalition. In addition, we propose and characterize a stable allocation of the total surplus induced by cooperation.

Robin Hood to the Rescue: Sustainable Revenue‐Allocation Schemes for Data Cooperatives

The promise of consumer data along with advances in information technology has spurred innovation not only in the way firms conduct their business operations but also in the manner in which data are collected. A prominent institutional structure that has recently emerged is a data cooperative—an organization that collects data from its members, and processes and monetizes the pooled data. A characteristic of consumer data is the externality it generates: Data shared by an individual reveal information about other similar individuals; thus, the marginal value of pooled data increases in both the quantity and quality of the data. A key challenge faced by a data cooperative is the design of a revenue‐allocation scheme for sharing revenue with its members. An effective scheme generates a beneficial cycle: It incentivizes members to share high‐quality data, which in turn results in high‐quality pooled data—this increases the attractiveness of the data for buyers and hence the cooperative's revenue, ultimately resulting in improved compensation for the members. While the cooperative naturally wishes to maximize its total surplus, two other important desirable properties of an allocation scheme are individual rationality and coalitional stability. We first examine a natural proportional allocation scheme—which pays members based on their individual contribution—and show that it simultaneously achieves individual rationality, the first‐best outcome, and coalitional stability, when members' privacy costs are homogeneous. Under heterogeneity in privacy costs, we analyze a novel hybrid allocation scheme and show that it achieves both individual rationality and the first‐best outcome, but may not satisfy coalitional stability. Finally, our RobinHood allocation scheme—which uses a fraction of the revenue to ensure coalitional stability and allocates the remaining based on the hybrid scheme—achieves all the desirable properties.