Research | Tobin Center for Economic Policy

Abstract

To reduce global carbon emissions, should people harvest and use more wood or less? This question underlies the merits of policies that encourage power plants and heating facilities to burn more wood pellets and builders to construct more tall wood buildings. As one illustration of the question’s importance, the U.S. government has recently requested input on whether a lucrative tax credit for carbon-neutral electricity should apply to burning wood.

In the Carbon Costs of Global Wood Harvests, published in Nature in 2023, WRI researchers using a biophysical model estimated that annual wood harvests over the next few decades will emit 3.5-4.2 billion tons of carbon dioxide (CO2) per year. That is more than 3 times the world’s current annual average aviation emissions. These wood-harvest emissions occur because the great majority of carbon stored in trees is released to the atmosphere after harvest when roots and slash decompose; as most wood is burned directly for heat or electricity or for energy at sawmills or paper mills; and when discarded paper products, furniture and other wood products decompose or burn. Another recent paper in Nature found that the word’s remaining forests have lost even more carbon, primarily due to harvesting wood, than was lost historically by converting forests to agriculture (other studies have found similar results1). Based on these analyses, a natural climate solution would involve harvesting less wood and letting more forests regrow. This would store more carbon as well as enhance forest biodiversity.

Carbon Costs focused on the pure physical emissions from wood harvest and timber management relative to leaving forests alone. This is consistent with the approach used for decades by the IPCC and numerous other papers to estimate the emissions from new wood harvests.2 However, it differs from some papers that claim the carbon emitted to the atmosphere by harvesting and using wood should generally be ignored. These papers assume that wood is carbon neutral, just like solar or wind energy, so long as other forest tracts in a large area (often a whole country) are growing enough to keep the total amount of carbon stored in forests stable — which is true of forests in most countries. By itself, this argument makes little sense: If some parts of a country’s forests are not harvested, forests in that country overall will grow more and absorb more carbon, which reduces global warming. This rationale for carbon neutrality is roughly equivalent to claiming that a money-losing company does not lose money if a country’s companies are profitable overall.

Yet, some researchers, such as the developers of the Global Timber Model (GTM), also have a more refined argument for why harvesting wood causes low, no, or even negative emissions. In a blog and a critique submitted to Nature, their core claim is that the effect of forestry on carbon is an economic question that requires analysis using an economic model rather than a biophysical one. According to the GTM, increased wood demand for any one product leads to a range of results that can lower carbon costs; these include causing people to plant more forests, to reduce their consumption of other wood products, and to intensify forest management. The first idea, that increased wood demand leads to more forests, is related to a broader idea: that forests exist because of the demand for wood. This underlies the views of many others who see wood as carbon neutral.

The GTM is by far the most cited economic model for analyzing the carbon consequences of global wood use, so its findings could have serious policy implications. Importantly, the model has been used to claim the climate advantages of harvesting more wood for bioenergy, particularly to burn in power plants. One GTM paper estimates that substantially increasing demand for wood for bioenergy could lead to roughly 1.1 billion hectares of agricultural land being converted to forests around the world. That is an area almost four times the size of India and equal to more than 70% of current global croplands — which raises the question of where the world’s food would come from.

This dialogue, to which WRI has responded in an exchange under review at Nature, provides a useful basis for exploring the effects of wood consumption on climate change and what they mean for policy. The U.S. government has specifically asked for comments about the role of economic models in treating wood as carbon neutral or negative. Here, we take a closer look at both economic and biophysical models and what each does or doesn’t tell us about the climate consequences of using wood.

Abstract

This article concerns itself with fees that Apple and Google might charge to business users in their respective mobile ecosystems. We lay out the economic analysis behind the goals of the DMA—contestability and fairness—as they apply to third-party app store access fees. We focus on the access fees for alternatives to the Apple App Store, as this has become contentious in the early enforcement of the DMA. Much of our analysis, however, also applies also to Google and/or any other designated gatekeeper.

This paper makes several foundational points. First, the DMA permits Apple to charge a fixed fee to review the security of third-party app stores or apps distributed through and operated on Apple’s operating system ('Review Fee'). The level of such a fee should be related to the cost of the review function for the reasons we describe below. Generally, because the cost of conducting a review is independent of the revenue an app generates, so too should be the Review Fee collected to cover that cost.

Second, there are many fees that apply to different elements of the Apple ecosystem (e.g., the cost of a handset, advertising in the app store, etc.) that are unaffected by the DMA. However, we show that one element of this complex fee structure—the fees Apple places on third-party app stores for the right to reside on iOS ('Access Fee')—is constrained to zero under the DMA given current knowledge and institutions. We explain why believe that setting this one fee to zero is required for compliance with the DMA and why this restriction is proportionate. In brief, because third-party app stores are potential competitors to Apple’s ecosystem, non-zero Access Fees would block contestability, making them very harmful unless very particular conditions hold. Meanwhile, any financial harm to the gatekeeper that might result from setting this fee at zero is limited because of the freedom the gatekeeper has to monetise its ecosystem in other ways that are compliant with European law, including by selling devices, advertising, and other services.

Third, fees imposed on one category of business users may have implications in respect of fairness and contestability for a wholly separate category of business users. The regulator must remain alert for these ‘adjacent’ anticompetitive effects. Of particular relevance here, a fee Apple imposes on app developers only if those developers distribute through a rival app store imposes a direct cost on those developers to be sure, but it also undermines fairness and contestability in the app store market. By punishing app developers for using an alternative distribution channel, the fee suppresses app developers’ use of those new channels, depriving the new channels both of revenue from the app developers (which is unfair) and the benefits that would accrue from network effects that would make them more attractive to end users (which also undermines contestability).

On 25 March 2024, the Commission opened an investigation against Apple in regard to its compliance with Article 5(4) DMA, the requirement to allow effective use of third-party app stores, and on 24 June 2024 the Commission opened another investigation against Apple in regards to its compliance with Article 6(4)’s obligation to provide effective use of its operative system. Our final point is that if the Commission finds non-compliance under Article 29, it can proceed to specify what Apple should do by using the procedure in Article 8(2). In particular, we recommend that the Commission use Article 8(2) to specify an Access Fee of zero to rival distribution channels, including third-party app stores, allow a positive Review Fee, and combine these with unconstrained pricing for other elements of the ecosystem such as advertising and the price of the handset (consistent with the law). Opening the app store market without delay is necessary in order to obtain the innovation and entry by business users that is the purpose of the DMA. This solution is simple and proportionate and can be supported with the materials and evidence gathered thus far.

It is theoretically possible that our proposal is the unique compliant fee structure; in other words, it is possible that there are no Access Fees Apple could impose on third-party app stores that are unrelated to its market power and increase social welfare. Any other lawful fee charged by Apple would need to advance contestability and fairness; fees for advertising or reviewing apps may fall in this category. It is beyond the scope of the current paper to prove our recommendation is the only possible solution, but we discuss the reasons why we think this is likely below.

We demonstrate how to use economic principles to inform the Commission’s determination of whether a gatekeeper’s fee structures applicable to the app and app store ecosystems comply with the DMA’s requirements. Based on analogs to the telecommunications industry, the policy community may believe a compliant Access Fee should be based on the wellknown efficient component pricing rule. We explain why this is unlikely to be a helpful pathway in the case of digital platforms, and that economic analysis supports a zero Access Fee in the case of third-party app stores.

Abstract

We analyze the economic consequences of rising health care prices in the US. Using exposure to price increases caused by horizontal hospital mergers as an instrument, we show that rising prices raise the cost of labor by increasing employer-sponsored health insurance premiums. A 1% increase in health care prices lowers both payroll and employment at firms outside the health sector by approximately 0.4%. At the county level, a 1% increase in health care prices reduces per capita labor income by 0.27%, increases flows into unemployment by approximately 0.1 percentage points (1%), lowers federal income tax receipts by 0.4%, and increases unemployment insurance payments by 2.5%. The increases in unemployment we observe are concentrated among workers earning between $20,000 and $100,000 annually. Finally, we estimate that a 1% increase in health care prices leads to a 1 per 100,000 population (2.7%) increase in deaths from suicides and overdoses. This implies that approximately 1 in 140 of the individuals who become fully separated from the labor market after health care prices increase die from a suicide or drug overdose.

Abstract

From 2002 to 2020, there were over 1,000 mergers of US hospitals. During this period, the Federal Trade Commission (FTC) took enforcement actions against 13 transactions. However, using the FTC’s standard screening tools, we find that 20% of these mergers could have been predicted to meaningfully lessen competition. We then show that, from 2010 to 2015, predictably anticompetitive mergers resulted in price increases over 5%. We estimate that approximately half of predictably anticompetitive mergers had to be reported to the FTC per the Hart-Scott-Rodino Act. We conclude that there appears to be underenforcement of antitrust laws in the hospital sector.

Abstract

The failure of Silicon Valley Bank on March 10, 2023 brought attention to significant weaknesses across the banking system, leading to a panic that spread to other vulnerable banks. With subsequent failures of Signature Bank and First Republic Bank, the United States had three of the four largest bank failures in its history occur over a two-month period. Several features of the Silicon Valley Bank failure make it an ideal teaching case for explaining the underlying economics of banking (in general) and banking crises (specifically). This paper tries to do that.

Abstract

More than two million U.S. households have an eviction case filed against them each year. Policymakers at the federal, state, and local levels are increasingly pursuing policies to reduce the number of evictions, citing harm to tenants and high public expenditures related to homelessness. We study the consequences of eviction for tenants using newly linked administrative data from two major urban areas: Cook County (which includes Chicago) and New York City. We document that prior to housing court, tenants experience declines in earnings and employment and increases in financial distress and hospital visits. These pre-trends pose a challenge for disentangling correlation and causation. To address this problem, we use an instrumental variables approach based on cases randomly assigned to judges of varying leniency. We find that an eviction order increases homelessness and hospital visits and reduces earnings, durable goods consumption, and access to credit in the first two years. Effects on housing and labor market outcomes are driven by impacts for female and Black tenants. In the longer run, eviction increases indebtedness and reduces credit scores.