A Praxeological Theory of Interest Rates

This paper starts with the observation that the pure time preference theory leads to conflicting views concerning the effect of changes in productivity on the rate of interest. Subsequently, it reviews parts of the interest literature and concludes that the pure time preference theory does not qualify as a praxeological theory. Then, the paper combines Hülsmann’s theory of interest with the subjectivist capital theory of Lachmann and Kirzner and provides a praxeological theory that explains the rate of interest. The key to that theory is that cost reduction through the use of fixed capital must always be understood as relative to the costs of labor which the capital replaces. Since labor is non-specific and the price of labor therefore also constitutes the production costs of fixed-capital goods to a certain extent, the use of fixed capital necessarily entails a business surplus somewhere in the economic system. Since this surplus cannot dis-appear it qualifies as interest income. The size of this income is such that the interest rate corresponds to the marginal rate of substitution between labor and fixed capital as embodied in entrepreneurial actions.

Preferences regarding emerging HIV prevention technologies among Toronto men who have sex with men: a discrete choice experiment

New forms of HIV pre-exposure prophylaxis (PrEP) include long-acting injectables and topical microbicides, each with unique attributes that may appeal to distinct users. We used a discrete choice experiment to characterize preferences for new PrEP formulations among Toronto men who have sex with men. MSM undergoing anonymous HIV testing completed a discrete choice experiment with 12 choice sets by selecting their preferred option within each set. Each set included “usual methods to prevent HIV” (excluding PrEP) as one alternative and two hypothetical PrEP alternatives, which differed according formulation/dosing, side effects (none/mild), risk of drug resistance (none/low/moderate), and HIV prevention efficacy (50%, 65%, 80% or 99% risk reduction). We used mixed logistic regression to infer preferences for PrEP attributes and calculate the marginal rate of substitution between efficacy and other PrEP attributes. 306 men with median (interquartile range) age = 29 (25, 36) years participated, and reported 6 (3, 10) partners and 0 (0, 2) condomless receptive anal sex acts in the preceding six months. An on-demand pill was the most preferred formulation, followed by a monthly injection, daily pill, and on-demand rectal gel. Drug resistance was an important determinant of preferences if the risk was moderate, but not if it was low. The minimum efficacy required for an on-demand pill to be preferred over no PrEP was 32.6% (95%CI = 21.2–43.9%); for a daily pill, injections, and rectal gel, minimum efficacy was 57.9% (95%CI = 44.1–71.7%), 40.1% (27.0–53.2%), and 71.3% (60.5–82.1%), respectively. Attitudes towards PrEP formulations vary among men who have sex with men, with on-demand pills and monthly injections having the highest average preference scores. Understanding these preferences may help to predict uptake.

How Does Biased Technological Progress Affect Haze Pollution? Evidence from APEC Economies

Biased technological progress is the act of energy conservation and emission reduction by changing the marginal rate of substitution. In this study, we introduced renewable energy into a production function, and proposed a method of identifying biased characteristics of technological progress, based on marginal productivity theory. A panel dataset for the Asia-Pacific Economic Cooperation (APEC) economies from 2000-2017 was analyzed to explore the effect of biased technological progress in reducing particulate matter (PM2.5). We found that input biased technological progress tended to use more non-renewable energy. Input biased technological progress aggravated haze pollution; however, this effect decreased as the PM2.5 concentration increased. Output biased technological progress significantly reduced haze pollution in high-income economies, but increased it in low-income economies. The effect of neutral technological progress on haze pollution was the opposite of the effect from output biased technological progress. We also found that increasing renewable energy consumption and reducing energy intensity were separate effective paths for input and output biased technological progress, respectively, to mitigate haze pollution. For neutral technological progress, improving total factor productivity was an important way to mitigate haze pollution. Finally, several policy recommendations are proposed to mitigate haze pollution in APEC economies.

A guide to extending and implementing generalized risk-adjusted cost-effectiveness (GRACE)

The generalized risk-adjusted cost-effectiveness (GRACE) model generalizes conventional cost-effectiveness analysis (CEA) by introducing diminishing returns to Health-Related Quality of Life (QoL). This changes CEA practice in three ways: (1) Willingness to pay (WTP) increases exponentially with untreated illness severity or pre-existing permanent disability, and WTP ends up lower for mild diseases but higher for severe diseases compared with conventional CEA; (2) Average treatment effectiveness should be adjusted for uncertainty in outcomes; and (3) The marginal rate of substitution between life expectancy and QoL varies with health state. Implementing GRACE requires new parameters describing risk preferences over QoL, the marginal rate of substitution between life expectancy (LE) and QoL, and the variance and skewness of treatment outcomes distributions. In this paper, we provide: (1) a generalized WTP threshold incorporating the possibility of permanent disability; (2) a simpler method to estimate the tradeoff rate between QoL and LE, eliminating the need to carry out treatment-by-treatment estimates; (3) a more-general method to adjust WTP for illness severity that permits non-constant relative risk-aversion in QoL; (4) a new approach to estimating risk-preferences over QoL, leveraging established empirical methods from “happiness” economics; and (5) a step-by-step guide for practitioners wishing to implement multi-period GRACE analyses.

Incentives, ability and disutility of effort

We generalize the disutility of effort function in the linear-Constant Absolute Risk Aversion (CARA) pure moral hazard model. We assume that agents are heterogeneous in ability. Each agent’s ability is observable and treated as a parameter that indexes the disutility of effort associated with the task performed. In opposition to the literature (the “traditional” scenario), we find a new, “novel” scenario, in which a high-ability agent may be offered a weaker incentive contract than a low-ability one, but works harder. We characterize the conditions for the existence of these two scenarios: formally, the “traditional” (“novel”) scenario occurs if and only if the marginal rate of substitution of the marginal disutility of effort function is increasing (decreasing) in effort when evaluated at the second-best effort. If, further, this condition holds for all parameter values and matching is endogenous, less (more) talented agents work for principals with riskier projects in equilibrium. This implies that the indirect and total effects of risk on incentives are negative under monotone assortative matching.

Households’ willingness to pay and preferences for improved cook stoves in Ethiopia

This paper examines households’ preferences, willingness to pay, and determinants of adopting improved cook stoves in rural Ethiopia. The study uses primary household data selected randomly from three districts in Ethiopia’s Oromia region. The data was collected using a mix of contingent and choice experiment methods of valuation. The former used a double-bounded value elicitation method, while the latter used a fractional factorial design to efficiently generate an attribute and level combination for the improved cook stoves. The study also used various discrete choice models for data analysis and also used models which account for scale and preference heterogeneity. The findings show that the sample households were aware of the effects of using traditional cook stoves and the benefits of using improved cook stoves. However, they were constrained by the availability of the new technology and discouraged by the low-quality of the products that they had used so far. The estimated mean willingness to pay ranged from about 150 Birr to 350 Birr which is lower than the market price of the improved cook stoves. Emission reduction, reducing fire risks, and the durability of the cook stove positively affected its adoption, while price discouraged its use. Higher levels of education, higher incomes, non-farm employment, and having more livestock increased the probability of adopting the new gas stoves. The study recommends that policymakers and product designers should use the mean willingness to pay and marginal rate of substitution for the different attributes as a benchmark for product design and pricing that fit households’ preferences and ability to pay. The lower mean willingness to pay means that a public subsidizing policy is needed for effectively disseminating improved cook stoves in rural Ethiopia.

Marginal rate of substitution of multidimensional well-being for affected residents of the dam, Pak Mun Dam.

The marginal rate of substitution shows that negatively affected residents of Pak Mun Dam are willing to trade three units of economic well-being to gain one more unit of social well-being. Marginal rate of substitution (MRS) provides important information to the government regarding such trade-offs. Given the limited budget and resources, the optimal point of the combination of these dimensions of well-being should be determined in order to provide better strategy and policy to improve the conditions for residents affected by the dam’s construction. Structural Equation Model (SEM) was used to find a standardized estimate of each dimension and used it for MRS calculation.

Valuing the impact of Self-rated Health and Social Support on life satisfaction among Hong Kong Chinese population

Background Research has highlighted that satisfaction in health and social support are key areas of life affecting individual’s wellbeing. Many social and public health initiatives use these two intervention mechanisms to improve individual’s wellbeing. For the purpose of cost-benefit assessment, there has been growing interest in expressing these intervention effects in economic terms. However, only a handful of studies have ever estimated these effects in economic terms, and none of which examined in a Chinese context. The aim of this study is to extend this line of valuation work to estimate the implicit willingness-to-pays on the effects of improving individuals’ self-rated health status (SRH) and social support (SS) on their life satisfaction in the Chinese population. Methods Using individual’s life satisfaction data from a two-wave representative panel survey in Hong Kong (n = 1,109), this study first conducted a cross-lagged analysis with structural equation modelling technique to examine the causal effects of SRH and SS on life satisfaction, while simultaneously adjusting their reverse causal influences. The use of this cross-lagged approach was the effort to minimising the endogeneity problem. Then, substituting the respective estimates to the formulae of compensating surplus, the marginal rate of substitution of SRH and SS with respect to individual’s equivalised monthly household were estimated and were then expressed as the willingness-to-pays on the effect of improving individuals’ SRH and SS on their life satisfaction. Results The cross-lagged analysis ascertained the casual effects of SRH (β = 0.078, 95%CI: 0.020, 0.151) and SS on individuals’ satisfaction with life. The sample’s marginal rate of substitution of SRH and SS were found to be 1.28 (95%CI: 0.43, 2.15) and 1.36 (95%CI: 0.23, 2.49) respectively. Translating into the concept of compensating surplus, the implicit monetary values of improving the sample’s SRH from “poor health” to “excellent health” and their SS from “little support” to “a lot of support” are equivalent to an increase in their equivalised monthly household income by HK$56,000 and HK$39,400 respectively. Conclusions This study has implications for the cost-benefit assessment in wellbeing initiatives for the Chinese population.

A Model of Inequality Aversion and Private Provision of Public Goods

I develop a model of inequality aversion and public goods that allows the marginal rate of substitution to be variable. As a theoretical foundation, utility function of the standard public goods model is nested in the Fehr-Schmidt model. An individual’s contribution function for a public good is derived by solving the problem of kinky preference and examining both interior and corner solutions. Results show that the derived contribution function is not monotonic with respect to the other individual’s provision. Thus, the model can be used to explain empirical evidence for the effect of social comparison on public-good provision.

TWO-FACTOR PRODUCTION FUNCTIONS WITH GIVEN MARGINAL RATE OF SUBSTITUTION

The article is devoted to the study of inverse problems of identifying two-factor production functions from given marginal rate of technical substitution. The analytical forms of twofactor production functions with given linear-fractionalmarginal rate of technical substitution of labor by capital. Classes of two-factor production functions that correspond to given (constant, linear, linear-fractional, exponential, etc.) marginal rate of technical substitution areindicated. The obtained results can be applied in modeling of production processes.