When allocating their aid budget, development agencies need to decide whether to give outright grants or use concessional loans that blend a grant and credit element. Theory suggests that the degree of concessionality should be negatively correlated with debt sustainability. Several donors use the World Bank/IMF Debt Sustainability Framework to guide their aid decisions. They give loans to low-risk countries, a blend of loans and grants to medium-risk countries, and only grants to high-risk countries. The paper shows that there are problems with this approach and proposes an alternative allocation mechanism based on GDP-indexed concessional loans.
We model merger control procedures as a process of sequential acquisition of information and compare US and EU procedures. In the US, the authorities do not have to justify their decision to require further information (issue a second request),whereas in the EU, the authorities face a different (enforceable) standard of proof in phase I relative to phase II. We found that in the absence of remedies, the US procedure is always superior in terms of expected consumer welfare. When we allow for remedies, we found that, compared to the US, merging parties in the EU have more scope to propose remedies in phase I that will preempt the authorities from uncovering unfavorable information in phase II, and this might reduce expected consumer welfare. However, the higher standard of proof in phase I can also in some circumstances act as a commitment not to accept remedies below some threshold and yield a higher expected consumer welfare in the EU. Our model also shows that for global mergers that have the same effect in the two jurisdictions, a decision to trigger a Phase II in the EU yields the same expected consumer welfare as a clearance in Phase I with remedies in the US. However, the converse is not true.
We study how substitutability between clean and dirty alternatives affects the effectiveness of environmental regulation in a field experiment that controls for the choice set of respondents. We consider four product categories with clean and dirty alternatives: (i) cola products in plastic bottles vs. in aluminum cans; (ii) skimmed vs. whole milk; (iii) chicken meat vs. beef meat; and (iv) margarine vs. butter. We employ two neutrally framed treatments to quantify the willingness to substitute between clean and dirty alternatives in each product market, namely a change in relative prices and the removal of the dirty alternative, leaving respondents the option of buying one of the remaining clean alternatives or nothing. We then compare the impact of a carbon footprint label and a Pigovian subsidy to the clean alternatives. While both instruments increase the market share of the clean products, their impact is higher when clean and dirty alternatives are close substitutes. We also find evidence that motivation crowding is present and increases with substitutability. Our results highlight the importance of product markets in the design of consumer-orientated policies.
We examine the case of payback killings and similar retributive sanctions in the context of a transplant regime such as that existing in Papua New Guinea. This is a post-colonial regime with multiple overlaid legal systems, with significant negative interaction existing between the different regimes. We explain how multiple regimes can co-exist in the context of negative externalities. To explain such an outcome, we provide a simple model for considering the interaction between legal regimes within a single jurisdiction. We demonstrate that, even when the fundamental relationship between such regimes is to behave as substitutes for one another, the existence of negative externalities between the enforcement technologies can result in the withdrawal of enforcement efforts. We term this phenomenon legal dissonance – the situation in which legal regimes interact negatively in their production technologies. This model is then applied to the post-colonial state of Papua New Guinea where we use survey data to identify significant negative production externalities in the enforcement of informal law. We suggest that disorder may be the outcome of too much law.
Modern agriculture relies on a small number of highly productive crops and the continued expansion of agricultural land area has led to a significant loss of biodiversity. In this paper we consider the macroeconomic consequences of a continued expansion of modern agriculture from the perspective of agricultural productivity and food production: as the genetic material supporting agriculture declines, pests and pathogens become more likely to adapt to crops and proliferate, increasing crop losses due to biological hazards. To evaluate the macroeconomic consequences of a reduction in agricultural productivity associated with the expansion of agriculture, we employ a quantitative, structurally estimated model of the global economy in which economic growth, population and food demand, agricultural innovations, and the process of land conversion are jointly determined. We show that even a small impact of global biodiversity on agricultural productivity calls for both a halt in agricultural land conversion and increased agricultural R&D in order to maintain food production associated with population and income growth.
This paper examines with a case study of Beijing, China, the health benefits that could be reaped from urban air quality improvements. The study implements a household survey to collect information about the yearly medical expenditures and lost days of work, to estimates the total costs of illness (COI) borne by a typical individual due to airborne diseases. The results of this survey provide a lower bound for the health costs borne by the urban population of Beijing due to air pollution. We find that the average individual COI in our sample is more than 3000 yuan per year, corresponding to almost one month of the average wage (slightly more than 500 US$ per year). This is quite sizeable, considering that it represents just the minimum benchmark for the damages caused by pollution to health. This result indicates that Beijing could benefit quite substantially from reducing air pollution in terms of health costs: if it could completely eliminate pollution, the savings in terms of COI would range in an order of magnitude of 21 million yuan per year only from hospitalized cases.
This paper applies a novel empirical approach to characterising the horizontalness and verticalness of affiliates based on Yeaple’s complex FDI concept. In its simplest form, horizontalness is measured as affiliates' local sales share while their verticalness is measures as their share of non-local sourcing of intermediates. Japanese affiliates in most sectors and nations are partly vertical and partly horizontal but those in North American are far more ‘horizontal’ than those in the EU and Asia. Affiliates became more vertical between 1996 and 2005. A four-way sales and sourcing split (host, home, regional and RoW) suggests that affiliates act as nodes in regional production networks – especially in Asia. We posit several hypotheses that could be tested with our empirical approach.
