On the Welfare Consequences of Political Activity

When economic actors are also allowed to become politically active, perhaps to influence a government price policy, they face decision problems with essentially simultaneous political and economic features. If, in addition, two groups struggle to pull the administered price level in opposite directions, an important strategic component is introduced. On two levels, then, such situations depart from the competitive economy framework of Arrow and Debreu. The model of this paper is designed to reconcile the general equilibrium model with politically active interest groups. This model is then used to assess the welfare consequences of such lobbying activity. We find that very often a lobbying program with price distortions is not the best means for regulating these economies. However, there may be cases in which no alternative policy could achieve the outcome resulting from the lobbying program. Keywords: Political economy, lobbying behavior, rent-seeking, distortionary policy.Political economy, lobbying behavior, rent-seeking, distortionary policy., Political Economy,

Value of Information and Averting Behavior: The Case of Toxic Water Contamination

Little theoretical work has been done previously on the welfare valuation of changes in price and quality when consumers are imperfectly informed. The presence of imperfect information is particularly important in the analysis of averting behaviors. We develop a theoretical welfare measure, called quasi-compensating variation, as a natural extension of compensating variation (CV). We show that this welfare measure offers not only a money metric of the "value of information", but also a means to appropriately evaluate the welfare effects of various policies when consumers are imperfectly informed of water contamination. With a numerical example and our decomposition results (Propositions 2 and 3), we demonstrate that (i) the value of information could potentially account for a large portion of the total welfare gains when regulators simultaneously disseminate accurate information and improve drinking water quality, (ii) the willingness to pay to avoid toxic contamination is strictly larger for imperfectly informed than perfectly informed consumers, and (iii) the distribution of imperfect information among consumers affects the relative performance of the two compelling policy alternatives, "self-protection" and "pollution control".Consumer/Household Economics,

INTEGRATED ENVIRONMENTAL-ECONOMIC ACCOUNTING OF GDP

Conventional measures of gross domestic product (GDP) fail to account for the effect of economic activity on the environment. Integrated environmental-economic (or 'green') GDP is calculated using a data-envelopment-analysis (DEA) framework. For this purpose a dynamic cross-country technology is specified and estimated. Deriving Green GDP involves subtracting the inner product of the vectors of shadow prices and environmental degradation variables from conventional GDP.Community/Rural/Urban Development, Environmental Economics and Policy,

UNION DENSITY EFFECTS IN THE SUPERMARKET INDUSTRY

Higher union density (the percentage of employees in an area who belong to unions) is known to raise the wages of union members. We find that in the supermarket industry, higher density locally also leads to higher wages for non-union members. Despite this, workers who are not in unions lose ground relative to union members. For a 10% increase in local union densities in the supermarket industry it is estimated that the wages of union employees in that labor market will increase by 5.3% and by 1.2% for nonunion. Hence, the union wage premium will increase in regions with higher union densities. At the time of the last national examination of the retail industry in 1977, union influence in the retail food industry was near its peak. Subsequently union membership and influence have declined. In 1993 a reported 25.7% of supermarket employees listed themselves as union members, a decline from 29.4% in 1984 (NBER, 1995). After conducting an extensive review of wage estimation literature, we focus on the structure of wages in the supermarket industry between 1984 and 1993. The effect of union penetration in local markets on nonunion wages or the "spill-over" effect, is an important focus of this study. While it is widely accepted that the higher the union percentage in local labor markets the higher the wages for those in the union, the corresponding effect has not been closely examined for the nonunion sector. To investigate this phenomenon we first replicate as closely as possible the results of a previous supermarket wage study (Belman and Voos, 1993). Following a baseline comparison of this initial estimation, we enlarge the data set to include individuals in rural areas and from additional years. By using a more sophisticated estimation technique we find that increasing union densities positively affect union and nonunion wages. The significant results for the nonunion sector is of particular importance, as this is the first confirmation of this effect to the best of our knowledge.Agribusiness, Labor and Human Capital, Marketing,

TRADABLE PERMITS FOR CONTROLLING NITRATES IN GROUNDWATER AT THE FARM LEVEL: A CONCEPTUAL MODEL

Nitrate contamination of municipal and domestic well water supplies is becoming an increasing problem in many rural and urban areas, raising the cost of providing safe drinking water. The objective of this paper is to describe a marketable permit scheme that can effectively manage nitrate pollution of groundwater supplies for communities in rural areas without hindering agricultural production in watersheds. They key to implementing this scheme is being able to link nitrate leaching from nitrogen fertilizer applied to crops at a farm to nitrate levels measured at a drinking water well.agriculture, groundwater pollution, leaching, nitrates, pollution trading, Environmental Economics and Policy,

WAS FAIR FAIR TO U.S. CORN GROWERS? AN ANALYSIS OF THE PAYMENTS OFFERED TO CORN GROWERS UNDER THE 1996 FEDERAL AGRICULTURAL IMPROVEMENT AND REFORM ACT

The 1996 Farm Bill (FAIR) dramatically changed agricultural policy for producers of many commodities. A series of 7 annual decoupled payments replaced the deficiency-payment program. Option-pricing techniques are used to determine whether program benefits to corn producers are smaller or larger under the new program than the old.Agricultural and Food Policy,

Risk, Insurance, and the Provision of Public Goods Under Uncertainty

Risk and Uncertainty,

Global estimates of mortality associated with long-term exposure to outdoor fine particulate matter.

Exposure to ambient fine particulate matter (PM2.5) is a major global health concern. Quantitative estimates of attributable mortality are based on disease-specific hazard ratio models that incorporate risk information from multiple PM2.5 sources (outdoor and indoor air pollution from use of solid fuels and secondhand and active smoking), requiring assumptions about equivalent exposure and toxicity. We relax these contentious assumptions by constructing a PM2.5-mortality hazard ratio function based only on cohort studies of outdoor air pollution that covers the global exposure range. We modeled the shape of the association between PM2.5 and nonaccidental mortality using data from 41 cohorts from 16 countries-the Global Exposure Mortality Model (GEMM). We then constructed GEMMs for five specific causes of death examined by the global burden of disease (GBD). The GEMM predicts 8.9 million [95% confidence interval (CI): 7.5-10.3] deaths in 2015, a figure 30% larger than that predicted by the sum of deaths among the five specific causes (6.9; 95% CI: 4.9-8.5) and 120% larger than the risk function used in the GBD (4.0; 95% CI: 3.3-4.8). Differences between the GEMM and GBD risk functions are larger for a 20% reduction in concentrations, with the GEMM predicting 220% higher excess deaths. These results suggest that PM2.5 exposure may be related to additional causes of death than the five considered by the GBD and that incorporation of risk information from other, nonoutdoor, particle sources leads to underestimation of disease burden, especially at higher concentrations

Minnesota Applied Economist 724, Summer 2014

In This Issue: From the Department Head; Economic Inequality in America; Minnesota Council on Economic Education; Ruttan Lecture on Science and Development Policy; Undergraduate Student Spotlight; Graduate Student Spotlight; Applied Economics Master’s Program; Donor Spotlight; President Kaler Visits Departmen