What do economic simulations tell us? Recent mergers in the iron ore industry

This paper investigates the European Commission's decision to allow a merger between two Brazilian iron ore mining companies, CVRD and Caemi, using data on the Direct Reduced Iron pellet market. By using a simulation model, we can directly simulate the total welfare effects from the merger and hence evaluate the merger from a new perspective. The results from our simulations suggest that the welfare effects are negative from the merger between CVRD and Caemi, which supports the conclusion drawn by the European Commission decision. By performing different simulations between hypothetical merger candidates, our results show that only mergers between small candidates have the potential to be welfare enhancing.     

Reprint of: Linking conservation and welfare: A theoretical model with application to Nepal

Theoretical articles linking conservation and welfare find a negative relationship between these two variables while empirical studies show that land protection may be positively related to welfare. Several authors attribute this empirical result to the development of ecotourism in protected areas. We thus argue that the gap between the theory and existing empirical results is partly explained by the fact that most theoretical models do not account for a productive activity on protected land. Therefore, we develop a theoretical model in which conservation allows developing an alternative sector and show that the relationship between conservation and welfare is U-shaped. We test this theoretical prediction using Nepalese data and find that conservation combined with ecotourism is indeed positively related to local welfare.     

A new baseline model for estimating willingness to pay from discrete choice models

We show a substantive problem exists with the widely-used ratio of coefficients approach to calculating willingness to pay (WTP) from discrete choice models. The correctly calculated standard error for WTP using this approach is shown to be undefined. This occurs because the cost parameter's standard error implies some possibility the true parameter value is arbitrarily close to zero. We propose a simple yet elegant way to overcome this problem by reparameterizing the (negative) cost variable's coefficient using an exponential transformation to enforce the theoretically correct positive coefficient. With it the confidence interval for WTP is now finite and well behaved.     

Prioritizing ecological and human welfare risks from environmental stresses

The ecological systems of Earth are subjected to a wide array of environmental stresses resulting from human activities. The development of appropriate environmental protection and management policies and the appropriate allocation of resources across environmental stresses require a systematic evaluation of relative risks. The data and methodologies for comprehensive ecological risk assessment do not exist, yet we do have considerable understanding of econological stress-response relationships. A methodology is presented to utilize present knowledge for assignment of relative risks to ecological systems and human welfare from anthropogenic stresses. The resultant priorities, developed for the US Environmental Protection Agency's (EPA) relative risk reduction project, highlight global climate change, habitat alteration, stratospheric ozone depletion, and species depletion as the highest environmental risks, significantly diverging from the present emphasis by EPA and the public on toxic chemical issues. Enhanced attention to ecological issues by EPA and development of ecological risk assessment methodologies that value ecological and economic issues equitably are key recommendations.     

Welfare policy: A review

This paper reviews the literature on disaster welfare policy. Analysis of the Australian disaster welfare response shows the different functions of government and voluntary welfare agencies.     

Linking conservation and welfare: A theoretical model with application to Nepal

Theoretical articles linking conservation and welfare find a negative relationship between these two variables while empirical studies show that land protection may be positively related to welfare. Several authors attribute this empirical result to the development of ecotourism in protected areas. We thus argue that the gap between the theory and existing empirical results is partly explained by the fact that most theoretical models do not account for a productive activity on protected land. Therefore, we develop a theoretical model in which conservation allows developing an alternative sector and show that the relationship between conservation and welfare is U-shaped. We test this theoretical prediction using Nepalese data and find that conservation combined with ecotourism is indeed positively related to local welfare.     

Estimating preferences for outdoor recreation:: a comparison of continuous and count data demand system frameworks

Continuous and count data demand system models have emerged as attractive alternatives to the discrete choice random utility maximization models (RUMs) that currently dominate the seasonal, multi-site recreation demand literature. This paper compares the frameworks conceptually and investigates their empirical performance with a common data set. Although the two modeling approaches employ substantially different behavioral and econometric assumptions, results from a recreation application based on the 1997 Iowa Wetlands Survey suggest that qualitatively similar policy inferences arise from the competing structures.     

A free lunch in the commons

We derive conditions under which raising costs through a regulatory constraint or a fully expropriated tax can increase the profits arising from a common-pool resource. The basic model assumes a fixed number of identical agents with linear costs selling in a single period at an exogenous price. A necessary and sufficient condition for a cost increase to be profitable is that aggregate output from the resource be locally convex in aggregate effort. We also show that cost increases can be profitable even if price is endogenous, agents are heterogeneous, entry is costless, or agents are playing a Markov-perfect equilibrium of a dynamic game. We also discuss more general welfare implications of the result along with its relation to existing results for a Cournot oligopoly.     

Welfare environmentality and REDD+ incentives in Indonesia

This paper applies the concept of welfare environmentality to analyse Indonesia’s emerging national and project-based incentive frameworks, a key component to the climate programme reducing emissions from deforestation and forest degradation (REDD+). The paper adapts governmentality theory to explore the rationale and design of various incentive instruments, including government institutions to disburse financial payments and co-benefits to multiple recipients, as well as a local demonstration project in Central Kalimantan Province. These REDD+ incentives are often conflated with the neoliberalisation of the climate agenda, focused on the adoption of market instruments and the commodification of forest carbon. However, REDD+ incentives in Indonesia include diverse policy mechanisms and encompass multiple objectives – such as the delivery of social services and employment schemes aimed at improving community livelihoods. These incentives employ a welfare environmentality, where government agencies and their partners deliver certain rights and socio-economic security for communities in return for adopting practices that improve carbon and forest management. The application of welfare environmentality shows how incentive frameworks operate as a state intervention designed to restructure relations between people and environmental resources.     

How wrong can you be? Implications of incorrect utility function specification for welfare measurement in choice experiments

Despite the vital role of the utility function in welfare measurement, the implications of working with incorrect utility specifications have been largely neglected in the choice experiments literature. This paper addresses the importance of specification with a special emphasis on the effects of mistaken assumptions about the marginal utility of income. Monte Carlo experiments were conducted using different functional forms of utility to generate simulated choices. Multi-Nomial Logit and Mixed Logit models were then estimated on these choices under correct and incorrect assumptions about the true, underlying utility function. Estimated willingness to pay measures from these choice modeling results are then compared with the equivalent measures directly calculated from the true utility specifications. Results show that for the parameter values and functional forms considered, a continuous-quadratic or a discrete-linear attribute specification is a good option regardless of the true effects the attribute has on utility. We also find that mistaken assumptions about preferences over costs magnify attribute mis-specification effects.