Research | Tobin Center for Economic Policy

Abstract

Increasing use of biofuels increases the demand for agricultural land. Credible empirical evidence supports the common-sense judgment that this will lead to the conversion of forests and other habitats to generate more cropland, particularly in the tropics, where land conversion is cheapest. However, when analyzing the effects of biofuels on land use, governments frequently use a particular class of economic models, including the popular “GTAP” model, to justify a finding that biofuels will cause little additional land conversion. We argue that the GTAP model does not provide a credible scientific basis for this conclusion because it lacks an econometric basis for its economic parameters, generates physically impossible results by a wide margin, and incorporates several unsupported assumptions that guarantee little land use change, such as constraints on international trade and a failure to account for unmanaged forests.

Abstract

From 2002 to 2020, there were over 1,000 mergers of US hospitals. During this period, the FTC took enforcement actions against 13 transactions. However, using the FTC’s standard screening tools, we find that 20 percent of these mergers could have been predicted to meaningfully lessen competition. We show that, from 2010 to 2015, predictably anticompetitive mergers resulted in price increases over 5 percent. 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

We analyze the economic consequences of rising US health care prices. By increasing the cost of employer-sponsored health insurance, rising prices serve as a de facto payroll tax on labor. Using exposure to hospital mergers as an instrument, we estimate that a 1% increase in health care prices lowers payroll and employment at non-health-care employers by 0.4%. At the county level, a 1% increase in health care prices reduces labor income by 0.27%, increases flows into unemployment by 1%, and lowers federal income tax receipts by 0.4%. The disemployment effects of rising prices are concentrated among lower- and middle-income workers.

Abstract

Importance Work requirements are a controversial feature of US safety-net programs, with some policymakers seeking to expand their use. Little is known about the demographic, clinical, and socioeconomic characteristics of individuals most likely to be negatively impacted by work requirements.

Objective To examine the association between work requirements and safety-net program enrollment.

Design, Setting, and Participants This cohort study included Medicaid and Supplemental Nutrition Assistance Program (SNAP) enrollees in Connecticut. The impact of SNAP work requirements for able-bodied adults without dependents—the target population—was estimated using a triple-differences research design comparing outcomes before and after the policy (first difference) in affected and exempted towns (second difference) between the targeted population and untargeted parents and caregivers (third difference). SNAP and Medicaid enrollment trends were assessed for a 24-month period, and the characteristics of individuals most likely to lose coverage were examined. Data were collected from August 2015 to April 2018, and data were analyzed from August 2022 to September 2024.

Exposures The reintroduction of SNAP work requirements in 2016.

Main Outcomes and Measures Proportion of enrollees disenrolled from SNAP and Medicaid.

Results Of 81 888 Medicaid enrollees in Connecticut, 46 872 (57.2%) were female, and the mean (SD) age was 36.6 (7.0) years. Of these, 38 344 were able-bodied adults without dependents, of which 19 172 were exposed to SNAP work requirements, and 43 544 were parents or caregivers exempted from SNAP work requirements. SNAP coverage declined 5.9 percentage points (95% CI, 5.1-6.7), or 25%, following work requirements. There were no statistically significant changes in Medicaid coverage (0.2 percentage points; 95% CI, −1.4 to 1.0). Work requirements disproportionately affected individuals with more chronic illnesses, targeted beneficiaries who were older, and beneficiaries with lower incomes. Individuals with diabetes were 5 percentage points (95% CI, 0.8-9.3), or 91%, likelier to lose SNAP coverage than those with no chronic conditions; older SNAP beneficiaries (aged 40 to 49 years) with multiple comorbidities were 7.3 percentage points (95% CI, 4.3-11.3), or 553%, likelier to disenroll than younger beneficiaries (aged 25 to 29 years) without chronic conditions; and households with the lowest incomes were 18.6 percentage points (95% CI, 11.8-25.4), or 204%, likelier to lose coverage than the highest income SNAP beneficiaries.

Conclusions and Relevance In this cohort study, SNAP work requirements led to substantial reductions in SNAP coverage, especially for the most clinically and socioeconomically vulnerable. Work requirements had little effect on Medicaid coverage, suggesting they did not lead to sufficient increases in employment to transition beneficiaries off the broader safety net.

Abstract

This paper asks whether universal pre-kindergarten (UPK) raises parents' earnings and how much these earnings effects matter for evaluating the economic returns to UPK programs. Using a randomized lottery design, we estimate the effects of enrolling in a full-day UPK program in New Haven, Connecticut on parents' labor market outcomes as well as educational expenditures and children's academic performance. During children's pre-kindergarten years, UPK enrollment increases weekly childcare coverage by 11 hours. Enrollment has limited impacts on children's academic outcomes between kindergarten and 8th grade, likely due to a combination of rapid effect fadeout and substitution away from other programs of similar quality but with shorter days. In contrast, parents work more hours, and their earnings increase by 21.7%. Parents' earnings gains persist for at least six years after the end of pre-kindergarten. Excluding impacts on children, each dollar of net government expenditure yields $5.51 in after-tax benefits for families, almost entirely from parents' earnings gains. This return is large compared to other labor market policies. Conversely, excluding earnings gains for parents, each dollar of net government expenditure yields only $0.46 to $1.32 in benefits, lower than many other education and children's health interventions. We conclude that the economic returns to investing in UPK are high, largely because of full-day UPK's effectiveness as an active labor market policy.

Abstract

A monopolist platform uses data to match heterogeneous consumers with multiproduct sellers. The consumers can purchase the products on the platform or search off the platform. The platform sells targeted ads to sellers that recommend their products to consumers and reveals information to consumers about their match values. The revenue- optimal mechanism is a managed advertising campaign that matches products and preferences efficiently. In equilibrium, sellers offer higher qualities at lower unit prices on than off platform. The platform exploits its information advantage to increase its bargaining power vis-à-vis the sellers. Finally, privacy-respecting data-governance rules can lead to welfare gains for consumers.

Abstract

This paper presents a model of consumption behavior that explains the presence of “wealthy hand-to-mouth” consumers using a mechanism that differs from those analyzed previously. We show that a two-asset model with temptation preferences generates a demand for commitment and thus illiquidity, leading to hand-to-mouth behavior even when liquid assets deliver higher returns than illiquid assets. This preference for illiquidity has important implications for consumption behavior and for fiscal stimulus policies. Our model matches the recent empirical evidence that Marginal Propensity to Consume remain high even for large income shocks, suggesting a larger response to targeted fiscal stimulus than previously believed.

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.