Volume 17, Issue 3 -

Many developing countries around the world apply progressive water tariffs, often structured in the form of discretely increasing block tariffs (IBTs). These tariffs have been criticized in the welfare economic literature due to their perceived inefficiency: many of the prices charged under IBTs do not correspond to marginal costs and thus violate the principle of allocative efficiency. In this paper we explore an alternative interpretation of the widespread use of IBTs, in terms of social preferences and fairness considerations. For this, we rely on an extension of the Fehr, E., and K. Schmidt (1999. “A Theory of Fairness, Competition, and Cooperation.” Quarterly Journal of Economics 114: 817–868.) utility function, including inequality aversion, to which we add another parameter representing a reference for redistribution which reflects a societal preference to correct for income difference perceived as unfair. Additionally, the model includes a variable on household size, finding that, as poor households are on average larger, a simple IBT tariff disregarding household size may not be “fair”.

Social inclusion is a priority item of international policy agendas. However, little is known about households’ preferences for policies aiming at social inclusion. We implement a household survey in both northern and southern Italy to investigate preferences for financing rehabilitation programs for juvenile offenders, a particularly vulnerable group exposed to social exclusion. We find that although societies can be equally socially inclusive, families’ propensity towards “leaving no child behind” varies depending on the presence of children in the family, and household income. We also show that differences in preferences do not depend only on socio-demographic characteristics but also on the subjective concern about crime risk, the immigration rate as well as on altruistic motives. Our results guide the implementation of policies promoting social inclusion across regions.

This paper estimates the causal relationship between job satisfaction and worker productivity. Using personnel records from a retail bank in South Korea, we show that branch productivity is positively associated to average job satisfaction, but negatively to its standard deviation. We address endogeneity concerns using IV strategies and find that while higher job satisfaction may increase short term productivity through sales to existing customers, excessive sales to existing customers may hurt customer satisfaction and willingness to recommend in the long run. Our findings suggest that average job satisfaction and its dispersion are equally important to understand worker productivity.

This paper presents a small theoretical model to compare school systems that segregate students by ability (“tracking”) with comprehensive ones, which allow for mixing of differently skilled students into same classes. The outcomes of interest are the achievement levels of weaker and better students, and the average achievement of all students. In the model, the instructional pace is tailored to the skill distribution of a class, and higher-achieving peers are an additional source of learning. The results show that differences in both the share of high-achievers and degree of interaction between student types can explain the mixed (quasi-)experimental evidence on the effect of de-tracking on student achievement. As changes in peer quality affect good and weak students’ achievement in very different ways, the term “peer effect” should be used with caution.

The relationship between economic growth and environmental degradation has been central to the debate over sustainable growth. This paper uses utility growth as an index of sustainable growth, which is positively related to economic growth and negatively related to environmental degradation. Skilled and unskilled labor are used in this economy and the population is growing over time generating growth without scale effects. The pollution growth rate is higher in a decentralized economy, whereas the sustainable growth rate is higher in an economy with a social planner. An increased rate of population growth is associated with a higher sustainable growth rate in both economies. A higher share of skilled labor is associated with a higher sustainable growth rate in a decentralized economy, while the effect of a higher share of skilled labor is ambiguous in an economy with a social planner.

Does vertical integration of an input innovator with a downstream firm entail innovation foreclosure? We study the licensing incentives of an independent input producer owning a patented product innovation which allows the downstream firms to improve the quality of their final goods. We consider two-part tariff contracts for both outside and incumbent innovators. We find that the incumbent innovator has always the incentive to license its innovation to the rival firm so that under vertical integration complete technology diffusion takes place. In contrast, the external patent holder may prefer exclusive licensing depending on the innovation size as well as on the set of allowed contracts. As a result vertical integration does not entail innovation foreclosure, rather it facilitates innovation diffusion with respect to vertical separation. As for the profitability, the vertical integration with either downstream firm is always privately profitable and it is welfare improving for large innovations: this implies that not all profitable mergers should be rejected.

This paper investigates the role of lifestyles (smoking, drinking and obesity) and working conditions (physical hazards, no support from colleagues, job worries and repetitive work) on health. Three alternative systems of simultaneous multivariate probit equations are estimated, one for each health measure: an indicator of self-assessed health, an indicator of physical health, and an indicator of work-related mental health problems, using Danish data for 2000 and 2005. We find that while lifestyles are significant determinants of self-assessed health, they play a minor role for our indicators of physical health and mental health. The effect of lifestyles seems to be dominated by the effect of adverse working conditions, which significantly worsen health. This result is robust for all health dimensions considered.

This paper investigates the relationship between health insurance coverage and risky health behaviors among young adults using the National Longitudinal Survey of Youth, 1997 Cohort (NLSY97). Before the Affordable Care Act required all employers in the United States to provide health insurance to employees’ children until the age of 26 (before September 2010), many health insurance contracts covered dependents up until age 19. Using a regression discontinuity design framework, I find that approximately 6 percent of young adults lose their health insurance coverage once they turn 19. I also find that although losing health insurance coverage at age 19 does not have any significant impact on smoking, marijuana use, and risky sexual behaviors among young adults, it decreases the probability of consuming 5 or more drinks a day by approximately 2 percentage points. These results are robust under several different parametric and non-parametric models and not sensitive to the selection of samples based on gender.

From a policy standpoint, the legalization of marijuana may affect other drug markets. The Almost Ideal Demand Model is used to estimate drug substitution between the most common illegal street drugs in the US including cocaine, heroin, marijuana, and methamphetamines. We control for past marijuana consumption. Results indicate that past marijuana consumption does not contribute to increased current consumption of other drugs. Further, marijuana is a weak complement to methamphetamines but marijuana price changes do not affect heroin or cocaine consumption.