Total Welfare Loss Research Articles

The effects of changing food prices on welfare and poverty in Guatemala

This study analyses the welfare and poverty effects of the 2007–08 food-price crisis on households in Guatemala. Estimates reveal that the price increases negatively affected 96.4 per cent of households and resulted in a 1.1 per cent increase in the national poverty rate. On average, households lose 2.3 per cent of their expenditure capacity, and high food prices have a regressive negative effect. The total welfare loss for all households in the country is estimated to be nearly 2 per cent of national aggregate expenditure, but the cost of compensating the poorest households would be only 0.5 per cent of national aggregate expenditure.

A latent class approach to investigating demand for genetically modified banana in Uganda

This study explores consumer acceptance and valuation of a genetically modified (GM) staple food crop in a developing country prior to its commercialization. We focus on the hypothetical introduction of a disease-resistant GM banana variety in Uganda, where bananas are among the most important staple crops. A choice experiment is used to investigate consumer preferences for various attributes related to the banana (such as bunch size, technology, producer benefit, and price) and examine their opinions on GM foodstuff. Choice data come from 421 banana-consuming households randomly selected from three regions of Uganda. A latent class model is used to investigate the heterogeneity in consumers’ preferences for selected attributes related to the banana and to profile consumers who are more or less likely to accept GM bananas. Our results reveal that there is significant heterogeneity in consumer preferences across our sample. GM bananas are valued the most by poorer households located in the rural areas of the Eastern region. These food-insecure households would experience the highest benefits (i.e., welfare gains) from the commercial release of GM bananas. In contrast, urban consumers are less accepting of GM bananas, and they would experience significant welfare losses if GM banana is released. According to our welfare estimates, both the total welfare benefits acquired by the gainers and the total welfare losses borne by the losers of this technology are significant and large. These results suggest the need for further investigation of the overall welfare effects of the introduction of GM bananas on the Ugandan society as a whole.

Measuring welfare loss caused by air pollution in Europe: A CGE analysis

To evaluate the socio-economic impacts of air pollution, we develop an integrated approach based on computable general equilibrium (CGE). Applying our approach to 18 western European countries shows that even there, where air quality is relatively high compared with other parts of the world, health-related damages caused by air pollution may be substantial. We estimate that as of 2005, Europe experienced an annual loss in consumption of about 220 billion Euro in year 2000 prices (about 3% of total consumption) with a range based on 95% high and low epidemiological response functions of 107–335 billion Euro and a total welfare loss of about 370 billion Euro (range of 209–550) including both consumption and broader welfare losses (around 2% of welfare level) due to the accumulated effects of three decades of air pollution in Europe. In addition, we estimate that a set of air quality improvement policy scenarios as proposed in the 2005 CAFE program would bring 18 European countries as a whole a welfare gain of 37–49 billion Euro (year 2000 prices) in year 2020 alone.

The welfare costs of HIV/AIDS in Eastern Europe: an empirical assessment using the economic value-of-life approach

Based on the aggregation of individual willingness-to-pay for a statistical life, we calibrate an inter-temporal optimisation model to determine the aggregate welfare loss from HIV/AIDS in 25 Eastern European countries. Assuming a discount rate of 3%, we find a total welfare loss for the whole region that exceeds US $800 billion, approximately 10% of the region's annual GDP between 1995 and 2001. Although prevalence and incidence rates diverge sharply between countries-with central Europe far less affected than major countries in the Commonwealth of Independent States and the Baltics-the epidemic is likely to spread to all countries unless a coherent strategy of prevention and treatment is backed up by substantial increases in healthcare investments. The sheer size of this task and the international nature of the epidemic render this one of the most important current challenges for all of Europe.

Market Power and Network Constraint in a Deregulated Electricity Market

This paper investigates the market power and the welfare performance of the deregulated wholesale electricity market of California between 1998 and 2000 by incorporating the structure of the transmission network. While Wolfram (1999), Borenstein, Bushnell, and Wolak (2002) and Joskow and Kahn (2002) treat the difference between the market price and the marginal production cost of the marginal generator as the indicator for market power, we decompose the difference into the market power and the inefficiency arising from the network constraint. Based on public data for the market from 1998 to 2000, we demonstrate that the welfare loss due to the finite transmission capacity accounts for 29-38% of the total annual welfare loss, while the remaining portion can be explained by the market power exercised by the generators.

The Welfare Costs of HIV/AIDS in Eastern Europe: An Empirical Assessment Using the Value-of-Life Approach

Rationale: International priority setting in the fight against global epidemics calls for new approaches to quantify the effects of diseases on entire economies and groups of countries. Objective: We aim to estimate the full social costs of HIV/AIDS in Eastern Europe, using the willingness-to-pay approach. Methodology: Based on the aggregation of individual willingness-to-pay for a statistical life without HIV/AIDS, we calibrate an intertemporal optimization model to determine the welfare losses from HIV/AIDS in 25 Eastern European countries. The calculations are based on the average per-capita income in each country, which explains why even in countries with a relatively low HIV-prevalence, the welfare losses from HIV/AIDS are already too big to be ignored. Results: Assuming a discount rate of three percent, we find a total welfare loss for the whole region of 1.2 trillion US-$ which amounts to approximately 16 percent of the region's annual GDP between 1995 and 2001. This probably underestimates the true welfare costs of HIV/AIDS, because the calculation does not include the suffering of HIV-positive individuals prior to death. Taking into account the high level of education in large parts of the population of Eastern European countries, we also calibrate a human-capital-scenario in which an individual's income is distributed unevenly across the lifecycle and assumed to peak at around 35 years. In this case, the welfare losses turn out to be even higher. Overall, prevalence and incidence rates diverge sharply between countries with Central Europe still far less affected than the major countries in the Commonwealth of Independent States and the Baltics. Conclusions: Prevalence rates of HIV/AIDS in Eastern Europe have been rising rapidly since 1994 and the epidemic is likely to spread to less affected countries unless a coherent strategy of prevention and treatment is backed up by substantial increases in health care investments. The sheer size of this task and the international nature of the epidemic render this one of the most important current challenges for all of Europe. Our estimates provide some evidence to inform policy makers about the likely social payoff from reductions in prevalence and infection rates that specific measures might achieve.

Looking at the Cost Side of “Monopoly”

Welfare loss under oligopoly is defined as that part of consumer surplus which is lost and not regained by higher profits. In a model with asymmetric firms, this implies that the total welfare loss consists of the deadweight loss triangle plus a cost side inefficiency effect, due to the fact that in imperfect markets not all firms utilize the lowest cost technique. Using a flexible CV‐model we calculate these effects empirically for two relatively homogeneous industries (pulp/paper and cement). The deadweight loss triangles are shown to be smaller than the cost difference effect (“the staircase”) for these industries.

A supergame strategy of trade

Abstract Utilizing a multi-period cooperative game model, we propose an optimal strategy of trade between the market economy of South Korea and the centrally-planned economy of North Korea. In the unique context of the Korean situation, i.e. two Koreas' announced goal of eventual reunification, we define a total welfare loss function and find an optimal strategy for inter-Korea trade that should minimize total welfare losses for the Korean peninsula as a whole.

Some simple geometry of the welfare loss from competitive monopolies

In the standard neoclassical approach to analyzing monopoly, monopolies are merely assumed to exist. This assumption has never set well with many economists, who argue that there should be competition for monopolies just as there is competition within an industry. The issue has been considered recently within what has come to be known as 'rent-seeking' literature.1 While the rent-seeking literature has many dimensions, one of its central arguments is that the competition for monopolies increases the welfare loss resulting from them.2 The rent-seeking model argues that the welfare loss from monopoly is not only the 'Harberger' triangle; it also includes an amount related to the monopolist's profit and in the special case of 'competitive rent-seeking' the welfare loss from rent-seeking equals the entire monopoly profits. Thus, in the special case of competitive rent-seeking the total welfare loss from monopoly is given by the shaded trapezoid in Figure 1.

The social loss from private monopoly and optimal antitrust enforcement

In this paper we argue that the welfare loss from monopoly equals deadweight loss plus expenditures by monopolists to defend and antitrust enforcers to attack their monopolies. A model of a profit-maximizing monopolist and a social loss-minimizing antitrust enforcer is developed. We find ambiguous effects of deadweight loss and the price of resources used by either party (in maintaining or attacking the monopoly) on the total welfare loss from monopoly. Monopoly profit has a positive but diminishing impact on monopoly welfare loss.

Welfare Implications of Oligopoly in U.S. Food Manufacturing

AbstractA statistical procedure is used to show that increased concentration in U.S. food‐manufacturing industries is associated with increased total input productivity. A price leadership model is employed in order to estimate total welfare loss. If an elasticity of −1 is assumed, deadweight loss to society is estimated at 0.5% of food value. If an elasticity of −0.5 is assumed, total loss to consumers amounts to 6.11% of food value, which is $‐10 billion in 1975. The increase in total factor productivity which is linked to concentration is roughly sufficient to offset the entire loss to consumers.