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This paper constructs a general equilibrium model in a world with two‐symmetric countries. It explains welfare gains from international trade and horizontal Foreign Direct Investment (FDI) in the economy with firm heterogeneity and variable markups stemming from oligopolistic competition. My model shows that the pro‐competitive effects of trade and horizontal FDI happen because trade openness induces an increase in product market competition that reduces markups and toughens selection, increasing aggregate productivity. The most significant contribution of the paper is that multinational firms, via horizontal FDI, produce the most significant welfare gains through the toughest selection and lowest markups. [ABSTRACT FROM AUTHOR]

Copyright of Estudios Económicos is the property of El Colegio de Mexico AC and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

We analyze the role of reference prices on competition and welfare in a circular city model where paying prices above a reference negatively affects consumers' utility. Agents interact in a three-stage game. First, a policymaker chooses a reference price; second, firms make their entry decision; finally, firms compete in prices while consumers make their consumption decisions. We find that the market price and the optimal reference price always coincide in equilibrium, reducing consumer prices and implying a net welfare gain.

Sectoral heterogeneity has been shown to affect country-level welfare gains from trade (measured by costs of autarky) that can be calculated by sector-specific trade elasticities and home expenditure shares. However, empirical analyses of multi-sector models are restricted to a limited number of countries and sectors, mostly due to the lack of data on sector-specific home expenditure shares. This paper first proposes a solution to this limitation by changing the way that foreign products are aggregated at the destination country, where 'unbiased' multi-sector welfare gains can be captured by using country-specific trade elasticity measures. Second, the restrictive assumption of unitary importer-income elasticity is relaxed, and it is shown that the trade elasticity in the calculation of welfare gains is replaced by the newly-introduced welfare elasticity, a function of trade and income elasticities. Empirical evidence suggests that equal percentage changes in home expenditure shares result in unequal gains across countries depending on their elasticity measures. [ABSTRACT FROM AUTHOR]

This paper highlights the impact of variable demand on the evaluation of welfare gains from import variety. We use a nested demand structure and construct a model to estimate the gains from import variety, which allows us to relax the assumption of time-invariant demand in previous studies. Our modified approach shows that welfare gains from import variety depends on the demand shifts, in which the gains could be either positive or negative. In particular, China' s gains from imported varieties between 1995 and 2010 are underestimated 0.94% of 2010 GDP when assuming constant demand. The sources of variety gains also change significantly under the framework of variable demand. [ABSTRACT FROM AUTHOR]

This data article describes a new dataset on product-level trade elasticity, here defined as the degree of substitutability between varieties, i.e. between products exported by different countries into a given destination. The dataset contains trade elasticities for a list of more than 5000 products of the HS 6-digit classification. Trade elasticities computed using alternative sector classifications are provided as well (TIVA, GTAP, WIOD classification), by pooling the product-level observations within each sector. Starting from the prior that the coefficient associated with tariffs – a variable trade cost – corresponds to the import-demand elasticity in a standard CES structural gravity model of bilateral trade, elasticities are recovered from country-pair specific information on applied tariffs and trade. For each HS 6-digit product category we observe the universe of bilateral trade flows between countries, in value, in a given year, and the tariff (preferential or not) applied to each exporter by each importer on the specific product for 2001, 2004, 2007, 2010, 2013 and 2016. The tariff elasticity is (minus) the elasticity of substitution across products coming from different origins. Product-specific trade elasticity estimations are crucial for the evaluation of the welfare consequences of trade policies, and for the comparison of the welfare gains from trade for countries at different level of development.

In this paper, we analyze the collaboration between an environmental group (EG) and polluting firms when they are asymmetric in their abatement costs. We find that, as firms become more asymmetric, the EG collaborates more with the firm suffering from an abatement cost disadvantage, but this additional collaboration does not overcome firms' cost asymmetry, producing an overall decrease in total abatement and an increase in total emissions. We also evaluate the welfare effects of introducing an EG and/or a regulator, finding that the latter generally yields larger welfare gains than the former when neither are present. Unlike previous studies, we show that the welfare benefit from a second agent is, under most settings, largest when firms are more asymmetric in their abatement costs. [ABSTRACT FROM AUTHOR]

The cost of treatment for rare diseases is notoriously high imposing threats to the global healthcare system. Existing market-based tools for orphan drugs are not designed to reduce drug prices and could be hampered by adverse selection. We propose an alternative insurance mechanism, Massive Group Insurance (MGI), which aims at reducing the prices of orphan drugs through offering separate Intellectual Property Right (IPR) Fees to the drug company from an MGI Agency, which will collect insurance premiums from each country on each orphan drug that the country wants all its citizens to enjoy access to. The premiums will be calculated so as to ensure that the drug company will collect a profit no smaller than what it enjoys under the traditional model. The plan uses the group insurance concept and will generate a significant increase in drug use. Blockchain technology is used to facilitate authentication and effective IPR payments and ensure data security and low administrative cost. This model can potentially be extended to other categories of expensive drugs and vaccines.

This paper examines green alliances between environmental groups (EGs) and polluting firms, which have become more common in the last decades, and analyzes how they affect policy design. We first show that the activities of regulators and EGs are strategic substitutes, giving rise to free-riding incentives on both agents. Nonetheless, the presence of the EG yields smaller welfare benefits when firms are subject to regulation than when they are not. In addition, the introduction of environmental policy yields large welfare gains when the EG is absent but small benefits when the EG is already present. [ABSTRACT FROM AUTHOR]

This paper presents a small open economy, dynamic general equilibrium model with cash-in advance constraint and a currency attack to explain the dynamic effects of changes in trade barriers in the short and long run. The model is calibrated using data on macroeconomic variables in Iran's economy from 1990 to 2013 to identify and analyze the effects of barriers imposed on trade. We analyze the effects of counterfactual fiscal, monetary and exchange rate policies in response to trade barriers and show how the economy would respond in different time horizons. We also evaluate the effects of eliminating each of the factors causing this stagflation. Our findings show that the short-term drop in non-oil production is mostly due to the decline in total productivity and not trade barriers. On the other hand, barriers imposed on the trade of oil and non-oil goods had a considerable impact on the decline in non-oil production in the medium and long run, as well as the fall in total income. Finally, we show that the news of trade barrier imposition has a considerable impact on the impulse to speculate, giving rise to a likely currency crisis and devaluation that have a substantial effect on inflation and real output. [ABSTRACT FROM AUTHOR]

This paper studies how trade integration of both final output and intermediate input markets affected aggregate efficiency and welfare in the European Union (EU) during the period 2004–2012. The results suggest that aggregate efficiency gains from trade mainly occur through input switching effects within firms and output reallocation effects across firms. Moreover, welfare gains from trade are relatively smaller than aggregate efficiency gains, due to a decrease in domestic final varieties. [ABSTRACT FROM AUTHOR]

This paper aims to provide a framework for a complete assessment of the overall welfare gains resulting from social assistance programs. We make use of a social welfare function that satisfies several properties that must be considered when measuring the protection provided by these programs. We propose measuring the welfare gains that a society derives from these programs by summing up them in a way that is consistent with the standard value judgements in the income inequality literature. We also propose analytical tools that accumulate the welfare gains that, apart from having the advantage of being easy to interpret, allow the ranking of different scenarios and have an associated dominance criterion. To illustrate our approach, we measure the welfare gains caused by social assistance schemes in European countries. [ABSTRACT FROM AUTHOR]

Using varieties of a rich model that considers sectoral heterogeneity and input-output linkages, this paper shows that the overall welfare gains of a region within a country can be decomposed into domestic versus international welfare gains from trade. Empirical results based on sector- and state-level data from the US suggest that about 94 percent of the overall welfare gains of a state is due to domestic trade with other states. The ocean states gain from international trade about two times the Great Lake states and about three times the landlocked states. [ABSTRACT FROM AUTHOR]

This paper aims at clarifying the analytical conditions under which financial globalization originates welfare gains in a simple endogenous growth setting. We focus on an open-economy AK model in which the capital-deepening effect of financial globalization boosts growth in a in permanent but entails an entry cost in order to access international credit markets. We show that constrained borrowing triggers substantial welfare gains, even at small levels of international financial integration, provided that the autarkic growth rate is larger than the world interest rate. Such conditional welfare benefits boosted by stronger growth—long-run gain—arise in our preferred model without investment commitment and they range, relative to autarky, from about 2% in middle-income countries to about 13% in OECD-type countries under international financial integration. Sizeable benefits emerge despite the fact that consumption initially falls—short-run pain—which is, however, shown not to dwarf positive growth changes. [ABSTRACT FROM AUTHOR]

This article critically examines the pertinent issues inex anteandex postmoral hazard in healthcare markets, with the U.S. Affordable Care Act (ACA) as its focal point of inquiry. First, it compares the various types of information asymmetries resulting from the production, allocation, and utilization of health insurance. Second, it reviews the literature on adverse selection, moral hazard, and risk mitigation against which salient ACA reforms are analyzed. In contrasting conventional moral hazard from an alternative theory of welfare maximization, it suggests that healthcare (over)utilization cannot necessarily be considered wasteful, even if it ends up costing insurers more on a short-term basis. Costs and savings attributable to healthcare spending under the ACA will vary between the consumer, insurer, and regulator-subsidizer. Despite the ambiguities surrounding definitions of “health,” the challenge of containing inefficient moral hazard, and encouraging its desirable counterpart, lies in the tradeoffs that arise between consumer access to affordable and quality healthcare and the market competitiveness of health insurers. The new Trump administration will have to address these tradeoffs in repealing and replacing the ACA, particularly in light of escalating insurance premiums and deductibles, narrower provider networks, and technical implementation issues. [ABSTRACT FROM PUBLISHER]

The goal of this study was to measure the gains in Brazil due to the increase in the number of imported varieties during the period 1995-2011. Also, it was calculated the contribution of major trading partners and industry sectors. The methodology was based on price indices that considered and did not consider the effects of different varieties of products on the welfare of consumers. The results showed a significant increase in varieties of imported goods, with a welfare gain of around 0,3% of GDP. The sectors of machinery and electronics, fertilizers, iron and steel, and organic chemicals contributed most to this gain

Copyright of Brazilian Journal of Applied Economics / Economía Aplicada is the property of FEA-RP, Universidade de Sao Paulo and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Purpose – The purpose of this paper is to investigate the welfare gains from risk sharing among African countries and regional groupings in Africa that are planning to establish monetary unions either in the short or longrun. Design/methodology/approach – The paper empirically tested two hypothesis; potential welfare gains and unexploited welfare gains. It uses a utility-based measure to quantify the gains that would accrue from joining a risk sharing arrangement such as a monetary union. The regional groupings considered include the African Union (AU), the Economic Community of West Africa (ECOWAS), the Southern African Development Community (SADC) and the East African Community (EAC). Findings – The results provide support for both hypotheses. Overall, the average potential welfare for AU, EAC, ECOWAS and SADC groups under full risk sharing are found to be 1.9, 2, 3.4 and 1.6 percent, respectively, each higher than the 1 percent estimated for the OECD countries and 0.6 percent for the 14-EU countries. The average unexploited gains are, however, even bigger for AU at 3.5 percent, ECOWAS at 8.6 percent and for SADC at 2.6 percent. Practical implications – The finding of enormous potential welfare gains could partly reinforce the desire of the African countries to establish monetary unions. On the other hand, the paper provides insights to policy makers in designing policies to promote risk sharing given the finding that the unexploited welfare gains are on average still too low – implying that many African countries or groups still have very low risk sharing. Originality/value – Previous studies on welfare gains and risk sharing have basically left out the African regional groupings and never related the issue of gains to the monetary union projects. Besides, previous studies focus on unexploited welfare gains at the expense of total potential welfare gains. Considering the two types, however, presents a more complete picture of total gains from joining any risk sharing arrangement such as a monetary union. [ABSTRACT FROM AUTHOR]

This article is a first attempt to provide a quantitative evaluation of the welfare gains resulting from the introduction of flat income taxation in Bulgaria in 2008. Using a calibrated microfounded endogenous growth model with physical and human capital accumulation and Bulgarian data, a computational experiment is performed to quantify the dynamic welfare effect of progressive income taxation vis-à-vis flat income taxation. The model demonstrates that significant welfare gains, measured in terms of per-period consumption, can be realized with the introduction of flat income taxation. In addition, these welfare gains increase proportionally with the length of the time horizon considered. Finally, sensitivity analysis was performed to demonstrate that the results obtained are robust. [ABSTRACT FROM PUBLISHER]

This paper provides a quantitative evaluation of the welfare effect of the introduction of proportional taxation in Bulgaria in 2008, an effect that operates through the grey economy channel. Using a general-equilibrium model, augmented with informal sector, a computational experiment is performed to evaluate the welfare gain from the adoption of proportional taxation. The lower effective tax burden in the new tax regime produces a relocation of people into the official sector, stimulates investment, and increases output and consumption. Finally, under the flat tax regime, the size of the informal sector is smaller, and quantitatively consistent with OECD (Is informal normal? Towards more and better jobs in developing countries. OECD, Paris, ) and European Commission (Tax reforms in EU member states, Official Publications of the European Communities, Luxembourg, p 2012, ) figures. [ABSTRACT FROM AUTHOR]

Understanding the dynamics of import prices is an important but challenging issue that affects our assessment of welfare. We propose an exact import price index by extending the analysis of Broda and Weinstein (Q J Econ 121(2):541-585, ), who include growth in product variety in their calculations of import prices. While still relying on Armington's (Int Monet Fund Staff Pap 16(1):159-178, ) definition of variety, we relax two assumptions, allowing the set of products and unobserved taste and quality parameter to vary. Our modified import price index shows that gains from variety in European G7 countries, although positive, are small compared with gains from taste and quality. Using food and tobacco products as a benchmark with unchanged taste and quality, we find significant gains from shifts in consumer preferences and improving quality for Germany, France, Italy and the UK between 1995 and 2012. By comparing results based on different benchmark groups we further flag the importance of consumer taste in international trade. [ABSTRACT FROM AUTHOR]

Using a two-sector endogenous growth model, the speed of convergence is determined primarily by the gap in rates of return between physical and human capital. In closed economies, for a typical situation of having relatively less physical capital than in a steady state, the return on physical capital will be significantly high, whereas the return on human capital will be relatively low. This gap in rates of return is quite large when the economy is not at its steady state. In open economies, where human capital is nontradable, the gap in rates of return is small, as is the gap between the international interest rate (which is less than the closed economies return on physical capital) and the return on human capital. Convergence in open economies will be relatively slow, and convergence in closed economies will be relatively fast, and therefore there is little gain from financial liberalization. [ABSTRACT FROM PUBLISHER]

Abstract: We compare a uniform voucher regime against the status quo mix of public and private education, focusing on the distribution of welfare gains and losses across households by income. We argue that the topping-up option available under uniform vouchers is not sufficiently valuable for the poorer households, so the voucher regime is defeated at the polls. Our result is robust to partial voter turnout and efficiency differences between public and private schools, but depends critically on the opting-out feature in the current system. [Copyright &y& Elsevier]

Abstract: This paper studies environmental taxation in a Mirrlees setting with two novel features. First, energy, a polluting good, is used both as a factor of production and a final consumption good; second, the wage is determined endogenously while labor of different individual types remain homogeneous. The model is calibrated for the French economy. We show that: (i) The optimal tax is less than the marginal social damage of emissions and turns into an outright subsidy when the inequality aversion index is high; (ii) the optimal tax on energy as an input is always equal to its marginal social damage; (iii) the social welfare gain due to lowering the current energy taxes to their optimal levels, with the general income tax being set optimally in both cases, is between 17 and 32 euro per household. This hurts the rich and benefits the poor. [Copyright &y& Elsevier]

Lawyers and philosophers have used the Scitovsky paradox to discredit cost-benefit analyses. His paradox is used as a criticism of the potential compensation criterion. But the occurrence of reversals is severely limited. The Compensation Principle, even with its potential nature, requires that compensation actually could be paid. Based on many empirical cost-benefit studies, the actual cost of compensation, which includes transaction costs, can be large. The attempt at actual compensation could turn a highly desirable project into a highly undesirable one, as the benefit-cost ratio could change from greater than one to less than one. The proper justification for using BCA is the Pareto principle considered across a portfolio of projects not the Compensation Principle. [ABSTRACT FROM AUTHOR]

Globalization makes it easier to relocate production and thus employment across countries. Therefore, it is often asserted that labour demand becomes more elastic, causing wage mark-ups to fall and thus erode the effective market power of trade unions. We explore this issue in a general equilibrium model where the elasticity of labour demand is endogenized and related to the facility by which production can be relocated across countries. Wages and employment increase unambiguously as a result of product market integration, but it is ambiguous whether wage mark-ups decrease or increase. A numerical illustration suggests that the elasticity effect – even when the wage mark-up falls – is of second order relative to the gains from trade. [ABSTRACT FROM AUTHOR]

This paper addresses the potential consequences of a political and economic integration of EU and Turkish agriculture and evaluates the resulting challenges. Simulation models reveal declining agricultural prices for Turkey in the case of market integration with the EU. This would lead to less production, more consumption and Turkey becoming a net importer of agricultural products. Resulting comparative static net welfare gains may amount €0.5 billion. More important, however, are the productivity effects which may be generated by the prospect of EU membership. A realistic range of outlays for implementing the CAP in Turkey is between €3.5 and 6.3 billion. The main challenge for Turkey in the years to come is to increase agricultural productivity. In order to channel EU funds into productivity-enhancing policies, the second pillar of the CAP is a more suitable instrument than direct payments which are based on area endowment and tend to capitalise into land prices. [ABSTRACT FROM AUTHOR]

We analyse in this article the welfare effect of trade and environmental technology transfer from a developed country to a developing country. We use a two-country, two-sector and two-factor Ricardian general equilibrium model. The two industries are manufacturing and agriculture, and the pollution emitted from the manufacturing industry decreases the natural environment useful to agricultural production. We consider two cases. In the first case pollution in each country is local. In filethe second case pollution in one of the two countries is global. We analyse each case separately and obtain the following results. In the first case the developed country may be worse off if technology is transferred to the developing country. In the second case such a paradox never occurs. [ABSTRACT FROM AUTHOR]

A fundamental issue when determining competition policy, especially in vertically integrated industries, is the formulation of interconnection charges. Recently an influential set of theories on network access price has been put forward under the broad heading of “direct-plus-opportunity cost regime” (DOCR). This paper deals with two distinct but related aspects of DOCR. The first part of the paper considers the policy implications of an access regime determined by DOCR. Its compatibility in attaining contestable outcomes in the final goods market and its effect on welfare gains, especially producer's surplus, are evaluated. Secondly, the paper empirically applies a version of DOCR to the UK contract gas market, and the simulated outcomes and possible scenarios are considered. [ABSTRACT FROM AUTHOR]