Total Welfare Loss Research Articles

Do college students demand lower tuition for online learning? Empirical evidence from choice experiments during COVID-19

ABSTRACT To address student concerns about full tuition rates while taking online courses during COVID-19, we conducted choice experiments at a representative U.S. land-grant university to elicit students’ willingness-to-pay for alternative course delivery modes. Results show that students demanded 30% and 7% tuition discounts for fully online and hybrid learning, respectively. A welfare analysis further reveals that 63% of the total welfare loss during Fall 2020–Spring 2022 was compensated for by the Higher Education Emergency Relief Fund (HEERF) funding. Based on our findings, we suggest measures to facilitate students’ learning experiences and emphasize the importance of leveraging government appropriations.

Trade Wars: The Cases of USA, Mexico, China

This paper analyzes trade wars and their potential macroeconomic effects with a hypothetical approach through the cases of the US, China and Mexico. The three main scenarios and retaliatory behaviors used in this analysis are the unilateral launch of a trade war by the US, a bilateral trade war between the parties, and an optimal equilibrium in line with the Nash equilibrium. The main conclusions of the study are that it would not lead to any welfare gains, but rather to large welfare losses. Also, the optimum equilibrium provided by Nash equilibrium is the scenario that minimizes the total welfare loss.

Future climate change impacts on U.S. agricultural yields, production, and market.

This study provides estimates of climate change impacts on U.S. agricultural yields and the agricultural economy through the end of the 21st century, utilizing multiple climate scenarios. Results from a process-based crop model project future increases in wheat, grassland, and soybean yield due to climate change and atmospheric CO2 change; corn and sorghum show more muted responses. Results using yields from econometric models show less positive results. Both the econometric and process-based models tend to show more positive yields by the end of the century than several other similar studies. Using the process-based model to provide future yield estimates to an integrated agricultural sector model, the welfare gain is roughly $16B/year (2019 USD) for domestic producers and $6.2B/year for international trade, but domestic consumers lose $10.6B/year, resulting in a total welfare gain of $11.7B/year. When yield projections for major crops are drawn instead from econometric models, total welfare losses of more than $28B/year arise. Simulations using the process-based model as input to the agricultural sector model show large future production increases for soybean, wheat, and sorghum and large price reductions for corn and wheat. The most important factors are those about economic growth, flooding, international trade, and the type of yield model used. Somewhat less, but not insignificant factors include adaptation, livestock productivity, and damages from surface ozone, waterlogging, and pests and diseases.

Coordination and non-coordination risks of monetary and macroprudential authorities: A robust welfare analysis

This study compares a central bank’s leaning against the wind approach with a mix of monetary and macroprudential policies under parameter uncertainty in an estimated DSGE model with two financial frictions. We show that uncertainty of the economic environment is an essential constituent in properly designing macroprudential policy. Although coordination between monetary and macroprudential policies minimizes the policymakers’ Bayesian risk, coordination and non-coordination risks threaten the goals of both authorities. The former describes the situation where the authorities partly resign from implementing the monetary policy objectives to stabilize macroprudential risk. The latter is when conducting a non-coordinated macroprudential policy induces higher total Bayesian risk than when only the central bank minimizes the expected total welfare loss. The robust Bayesian macroeconomic rules show that when financial shocks shrink the banks’ or entrepreneurial net worth, a contractionary macroprudential policy should be combined with an expansionary monetary policy. However, if capital adequacy ratio or risk shocks strike the economy, such a conflict in macroeconomics policy instruments disappears, thus synchronizing both policies.

Wildfire, smoke, and outdoor recreation in the western United States

Wildfire activity is increasing in the western United States at a time when outdoor recreation is growing in popularity. Because peak outdoor recreation and wildfire seasons overlap, fires can disrupt recreation and expose people to poor air quality. We link daily data on campground use at 1069 public campgrounds across the western United States over a ten-year period to daily satellite data on wildfire and smoke. We use this data set to (1) tabulate the number of campers affected by wildfire and smoke at campgrounds across the western US, and (2) provide estimates of how campground use responds to wildfire and smoke impacts, including the first causal estimates of the impacts of wildfire smoke on recreation behavior. We find that, on average, more than 120,000 campground visitor-days per year are close to an actively burning fire and nearly 400,000 are impacted by adverse smoke conditions. In some regions more than 10% of camper-days occur when air quality is poor due to wildfire smoke. Combining the results with monthly national park visitation data at the 30 parks in our sample, we estimate that fire and smoke affect 400,000 and 1 million visitor-days per year, respectively. Using fixed effects panel regressions at the campground level, we estimate declines in campground use in response to fire and smoke. The magnitude of the smoke effect is small, however, suggesting that smoke fails to deter most visitors to public lands. Back-of-the envelope calculations based on our findings and estimates from the literature suggest that most of the total welfare losses accruing to campers due to smoke occurs via health impacts from trips taken in spite of smoky conditions, rather than due to cancelled trips.

Herders' aversion to wildlife population increases in grassland ecosystem conservation: Evidence from a choice experiment study

The neglect of wildlife in grassland ecosystem conservation may lead to severe ecological consequences. Humans use more than 99% of the natural grassland in China, but local herders' attitude and willingness to pay for wildlife conservation in grassland ecological restoration have not been studied. This study evaluated local herders' preferences and willingness to pay for increasing the wildlife population in grassland ecosystem conservation through a choice experiment in Siziwang Banner and Damao Banner of Inner Mongolia, China. The results show that herders have a positive preference for improving vegetation coverage, grassland landscape, and groundwater level, but they are averse to the growth of the wildlife population, and their preferences toward the issue are heterogeneous. The sources of heterogeneity include the gender of the respondents, whether they are village cadres, whether their families raise sheep, whether they are preparing for migration and family size. Sheep farmers, female respondents, non-village cadres, smaller families, and those preparing for migration are more opposed to the increase in wildlife population than the other groups. An increase in wildlife will cause welfare loss among herders. Specifically, the average marginal willingness to pay for the rise in the frequency of wildlife sightings is −21.57 CNY (1 USD = 6.7744 CNY) per year, and the total welfare loss of herder households in the study area is 1.22 million CNY per year due to each unit increase in the frequency of wildlife sightings. We suggest that herders' support for wildlife conservation should be gained through education and ecological compensation to avoid unexpected grassland ecological consequences. Our results are applicable globally because most natural grasslands are under human use, and the conflict between wildlife and humans has been observed globally.

Processing trade and costs of incomplete liberalization: The case of China

A major objective of policies promoting processing trade in developing countries is integration with global markets. A central feature of processing regimes is that firms do not have to pay tariffs on imported inputs as long as they are used exclusively in the production of goods for export. These firms are typically restricted from selling output using imported inputs on the domestic market. These restrictions can be viewed as a form of incomplete liberalization due to protectionist motives. Using data from China for 2000–2007 for 109 industries, we study the welfare effects of these measures. Counterfactual experiments imply total welfare losses of 2.2% for China due to the restriction on selling processing output domestically, and even larger loses of 5.7% for labor. Gains from only the tariff exemption for processing firms however are negligible.

Vulnerability to Food Insecurity: A Decomposition Exercise for Rural India using the Expected Utility Approach

Devising multi-pronged strategies for those highly prone to food insecurity in the future remains a challenge for food policymakers. This set of food-insecure households faces different kinds of shocks (economic, political, environmental, pandemic, personal, etc.), which render them vulnerable to food insecurity. This study identifies those who are vulnerable to food insecurity, and will be useful for policymakers to resolve food insecurity related challenges in crisis or no crisis periods on an ex-ante basis. This paper decomposes the total welfare loss resulting from vulnerability to food insecurity into components due to ‘food poverty’ (expected consumption of the current food secure falling below the food poverty line), and risk (variability of food consumption over time). The last term can be further decomposed into the aggregate (region or community-specific), and idiosyncratic (household or individual-specific) risks. The paper identifies the key determinants of the different components of vulnerability to food insecurity based on household consumption expenditure surveys conducted in rural India in 2004–05, 2009–10, and 2011–12. Expected utility-based measures, and pseudo-panel regression techniques were used to identify risk-prone households. The key findings are: idiosyncratic risk is the largest driver (a loss in the utility of almost 51%) as compared to the poverty and covariate shocks; states with poor Public Distribution System (PDS) performance are more susceptible, a rise in the price of staple food items increases the chances of food insecurity, gendered disparity persists over time, forward social and religious groups are more vulnerable, and finally a higher level of urbanization increases the exposure and sensitivity to shocks (like the spread of contagious diseases), disrupts the supply of food commodities from rural markets, loss in income, and increase in rural vulnerability to food insecurity. Our key policy suggestion is a mix of cash versus in-kind transfers to resolve rural food insecurity related issues, tend towards resiliency, and simultaneously tackle the triple burden of malnutrition and SDG-2 related goals.

Foreign multinationals in service sectors: A general equilibrium analysis of Brexit

AbstractWe examine the role of foreign multinationals in service sectors in the context of Brexit, which is assumed to induce an increase in different types of barriers: (a) FDI barriers to multinationals in services; (b) non‐tariff barriers to trade; and (c) import tariffs between the UK and the rest of the EU. We use a state‐of‐the‐art Melitz approach in manufactures with multinationals operating in imperfectly competitive service sectors in a multiregional general equilibrium framework. We find that the increased FDI barriers in services explain about one third of the total welfare loss of Brexit. Furthermore, our decomposition analysis (by introducing each type of barriers separately) shows that the barriers against the EU service multinationals in the UK are harmful to British manufacturing sectors because they face a reduced (and more expensive) supply of intermediate services.

The impact of the Ebola crisis on mortality and welfare in Liberia.

This study assesses the impact of Ebola virus disease (EVD) outbreak on individual and total welfare in Liberia during 2014/15. By combining mortality and household consumption data, it estimates how much individuals would be hypothetically willing to pay to avoid the EVD-induced increase in age- and sex-specific mortality rates. The results suggest that the total welfare loss associated with EVD-related mortality ranges from $90 to $190 million, which is comparable to estimates based on the economic costs of EVD alone. In addition, the estimates lie between those derived from the cost-of-illness and value of statistical life approaches applied in previous works. This suggests that incorporating additional information on age- and sex-specific mortality, as well as individual consumption levels, provides a more accurate estimation of the welfare loss due to EVD-related mortality.

Environmental Pollution & the Political Economy of Public Debt

This paper analyzes the political economy of government debt when elected politicians decide about the distribution of public funds be- tween a clean and a polluting public good. When provision of the polluting good creates a stock of climate externalities, strategic incentives for the incumbent government arise from both a budget and emission interaction. In this framework, reelection uncertainty leads to inefficiently low public savings (or even debt) which are attenuated by the emission interaction, while first period pollution decreases regardless of the future government’s identity. If the incumbent government competes for office against an environmentalists’ party, the total welfare loss from emissions also decreases as a direct result of reelection uncertainty.

Family Welfare and the Great Recession

The analysis in this paper provides estimates of family welfare losses generated by wage and nonlabor income declines experienced across the Great Recession and by labor market constraints existing postrecession. Welfare losses are greater as families (both married and single) move up the income distribution. Total static welfare losses are estimated to amount to roughly $190 billion, comparing family welfare between 2007 and 2011.

The Welfare Loss of Subsidies in Global Electricity Markets

Subsidies induce a market inefficiency by creating a deadweight loss, since supply and demand are out of equilibrium. In 2016, electricity subsidies were the largest component of the total global energy subsides, with an estimated 128 billion USD out of 287 billion USD. Electricity generation is also directly responsible for a quarter of global greenhouse gas emissions. Under baseline assumptions about supply and demand elasticities and employing the latest available data, we first estimate the welfare loss of global electricity subsidies and then estimate the global environmental costs imposed by electricity consumption. We find that the total annual deadweight loss worldwide in 2016 was 12.7 billion USD. Incorporating external costs stemming from excessive consumption, which is a result of prices that are less than the private marginal cost, leads to a total annual welfare loss of 44.6 billion USD. This number accounts for 4.8% of total electricity market value in electricity-subsidizing countries. Furthermore, we find that the worldwide electricity consumption imposes environmental costs of at least 652.8 billion USD annually; thus, the total annual costs in the global electricity markets are nearly 700 billion USD.

The Dynamic Efficiency in Resource Allocation: Evidence from Vehicle License Lotteries in Beijing

The efficiency of resource allocation is often analyzed in static frameworks with a focus on the cross-sectional heterogeneity in the willingness to pay among users. When the resource is durable in nature, the temporal heterogeneity could be important in assessing the efficiency properties of different allocation mechanisms. This paper uses a dynamic model to empirically quantify the efficiency outcome of using lotteries to allocate scarce resources among forward-looking consumers. In the context of the lottery policy for vehicle licenses in Beijing, our analysis shows that lotteries significantly affect intertemporal decisions in that households participate in lotteries at least four years earlier on average than they would be in a counterfactual environment of no quantity constraint. The welfare loss due to temporal heterogeneity and resulting changes in participation decisions accounts for over half of the total welfare loss from the lottery policy. The analysis highlights the importance of taking dynamic efficiency into account in designing resource allocation mechanisms.

Economic Impacts of Business Continuity on an Outbreak of Highly Pathogenic Avian Influenza in Minnesota Egg Laying Operations

AbstractAnimal disease outbreaks can cause disruptions in domestic and international markets. Business continuity aims to provide a proactive approach to alleviate some of these negative effects on consumers, producers, and agribusinesses. Using a partial equilibrium model of the U.S. egg industry, the economic impacts of business continuity during an epidemiological simulated disease event are modeled. Results show total welfare losses can be reduced by allowing permitted movement during an outbreak given a specified level of biosecurity. Understanding the potential market responses business continuity can have on the market may lead to reductions in the negative implications of a disease event.

Optimization of the Pricing Strategies between Container Terminals under Deregulation

According to the dual-track system implemented on port tariffs in past years, the vast majority of state-owned container terminals adopt the standard rates specified by China’s Ministry of Transport, while the container terminals of joint ventures are permitted to charge their stevedoring rate with a 20% float ratio up and down. The latest port reform was to improve the port tariff formation mechanism by speeding up the implementation of detailed list and public notice on port pricing. This paper analyses the optimization of the pricing strategies between container terminals under deregulation. Based on a two-stage noncooperative game theoretical model, the Nash equilibria of pricing strategy profiles between container terminals of one port under deregulation are derived. Although the price-matching strategy may be employed by the foreign-owned container terminal, which usually resulting in a total social welfare loss, the price-matching pricing strategy not being adopted by the state-owned container terminal will avert tacit collusion. Numerical simulation is applied to the case of Shenzhen Port.

Optimal fiscal policy under private debt deleveraging

This paper investigates Ramsey-optimal fiscal policy in a closed economy with savers and borrowers in the presence of a private debt deleveraging shock where monetary policy is constrained by the zero lower bound (ZLB). It is shown that monetary policy being constraint by the ZLB implies huge welfare losses. Applying an optimal fiscal policy in this situation is found to be highly effective by eliminating roughly one quarter of the total welfare loss of being at the ZLB. Here, following the optimal fiscal policy imlies a prolonged stay at the ZLB. Moreover, while the relative effectiveness of consumption and wage taxes depends on the presence of government spending as well as on the specific monetary policy conducted, all Ramsey-policies aiming at maximizing economy-wide welfare imply reducing the welfare of savers. Furthermore, it is found that the welfare gains of having government spending as an additional instrument are small compared to the total welfare gains of applying a Ramsey-optimal instead of an exogenous policy. Finally, it is shown that if fiscal policy is set optimally, conducting an inflation-targeting policy instead of an optimal monetary policy need not necessarily imply welfare losses.

A Tale of Cyclones, Exports and Surplus Forgone in Australia's Protected Banana Industry

This paper examines the welfare loss caused by import restrictions on bananas in Australia, which we argue to be a classic rent‐seeking policy. We propose a new micro‐model of agricultural production under uncertainty and production delays and ask whether, due to cyclones and the timing of planting decisions, Australian banana import restrictions have turned into a form of export promotion. We exploit two cyclones as exogenous supply shocks, and use new data to estimate the price elasticity of demand for bananas in Australia to be around −0.5. We estimate the total welfare loss of Australia's banana import restrictions to be over A$150 million per year, implying a yearly subsidy of more than a quarter of a million dollars per banana grower.

The Economic Consequences Of Mortality Amenable To High-Quality Health Care In Low- And Middle-Income Countries.

We estimated deaths amenable to high-quality health care globally and then modeled the macroeconomic impact in low- and middle-income countries using two macroeconomic perspectives: a value-of-lost-output approach to project gross domestic product (GDP) losses annually for the period 2015-30, and a value-of-lost-welfare approach to estimate the present value of total economic welfare losses in 2015. We estimated that eight million amenable deaths occurred in 2015, 96percent of them in low- and middle-income countries. The value of lost output resulted in a projected cumulative loss of $11.2trillion in these countries during 2015-30, with a potential economic output loss of up to 2.6percent of GDP in low-income countries by 2030, compared to 0.9percent in upper-middle-income countries. The value-of-lost-welfare approach estimated welfare losses of $6.0trillion in 2015. Inadequate access to high-quality health care results in significant mortality and imposes a macroeconomic burden that is inequitably distributed, with the largest relative burden falling on low-income countries. Given that these deaths are unnecessary and the projected GDP losses are avoidable, there is a strong ethical and economic case for promoting high-quality health care as an essential component of universal health coverage.

The economic consequences of neurosurgical disease in low- and middle-income countries.

The objective of this study was to estimate the economic consequences of neurosurgical disease in low- and middle-income countries (LMICs). The authors estimated gross domestic product (GDP) losses and the broader welfare losses attributable to 5 neurosurgical disease categories in LMICs using two distinct economic models. The value of lost output (VLO) model projects annual GDP losses due to neurosurgical disease during 2015-2030, and is based on the WHO's "Projecting the Economic Cost of Ill-health" tool. The value of lost economic welfare (VLW) model estimates total welfare losses, which is based on the value of a statistical life and includes nonmarket losses such as the inherent value placed on good health, resulting from neurosurgical disease in 2015 alone. The VLO model estimates the selected neurosurgical diseases will result in $4.4 trillion (2013 US dollars, purchasing power parity) in GDP losses during 2015-2030 in the 90 included LMICs. Economic losses are projected to disproportionately affect low- and lower-middle-income countries, risking up to a 0.6% and 0.54% loss of GDP, respectively, in 2030. The VLW model evaluated 127 LMICs, and estimates that these countries experienced $3 trillion (2013 US dollars, purchasing power parity) in economic welfare losses in 2015. Regardless of the model used, the majority of the losses can be attributed to stroke and traumatic brain injury. The economic impact of neurosurgical diseases in LMICs is significant. The magnitude of economic losses due to neurosurgical diseases in LMICs provides further motivation beyond already compelling humanitarian reasons for action.