Aashish Mehta

Price Dynamics in a Vertical Sector: The Case of Butter

We develop a reduced-form model of price transmission in a vertical sector, allowing for refined asymetric, contemporaneous and lagged, own and cross price effects. The model is used to analyze wholesale-retail price dynamics in the US butter market. The analysis provides strong evidence of asymmetric price transmissions. It documents the complex nature of nonlinear price dynamics in a vertical sector and its implications for the distribution of future prices. It finds evidence that the asymmetric response to shocks is stronger in the sort run for retail prices, and in the longer run for wholesale prices.

The Economics and Feasibility of Electricity Generation Using Manure Digesters on Small and Mid-Size Dairy Farms

The thrust of this paper has been significantly revised since the project was first conceived. The initial aim was to assess the economic viability of electricity generation using methane from manure digesters on dairy farms under different electricity rate regimes. The initial idea was a simple one. If electric companies (transmitters and distributors) buy and sell electricity to the same generator/user at different rates, there is potential for significant economic inefficiency. It was my hope that a sense of the magnitude of this inefficiency could be assessed. The assessment would begin with the determination of the number of generators likely to operate under different pricing regimes. Taking the price regime wherein electricity would be purchased and sold at the same price to be the efficient benchmark, an estimate of the cost inefficiency from extant price regimes could be recovered.As I have learned more about digesters, three points have emerged that speak to the inadvisability of using such an analysis to determine appropriate rate structures. The first, is that there are significant external benefits to producing electricity using digesters instead of coal. This means that the marginal social benefits of using biogas to generate electricity instead of coal are positive, implying that an otherwise efficient rate structure will err against biogas.The second consideration is that manure digester technology is still in its infancy. In the U.S., there are almost as many different digester designs as there are manure digesters. In 1994, there were only 25 digesters operating on commercial farms in the U.S. Today that number is up to 32, although only 14 of them are on dairy farms.Many of those digesters that are in operation are supported by research grants and “green power” prices for their electric output. The diversity of design is appropriate given the diversity of farm size, location, management, energy needs and climate, as well as the potential gains from further experimentation. However, it does make identification of a “typical” digester difficult, and prediction of adoption levels nearly impossible. It also means that entering into the digestion/generation business today is a risky proposition and that the risk is likely to decline significantly as the data and experience accrued by early adopters leads to improved design and operating guidelines. The existence of substantial external learning-by-doing benefits from the investments of early adopters implies that the pricing scheme conventionally regarded as efficient (wherein the distributor pays a buy-back rate equal to its selling price) would only be appropriate if accompanied by subsidies to early adopters. The asymmetrically large risks faced by early adopters are likely to reinforce the need to subsidize them.The third realization is that it is not useful to consider a farm’s digestion/generation operations merely as an appended operation that could marginally improve its bottom line. The economic linkages between digester and dairy operations are significant and complex. For example; the profit potential of a digester/generator depends critically on the quantity and quality of the manure and bedding that it must digest. In particular, there is evidence of economies of scale in the digestion/generation process, in large part due to the substantial fixed costs (with respect to size) of building a generator and equipping it to supply power to the grid. At the same time, smaller farms, which pay higher rates for purchased power, and use more energy per unit of dairy output, might stand to make relatively larger cuts in the costs of their dairy outputs. Thus, the impact of digestion technology and rate structure on the competitiveness of dairy farms of different sizes is, at least in theory, a qualitatively open question. And if the distribution of farm sizes is revised, then the predicted patterns of adoption must be revised as well.Even if this issue could be adequately resolved empirically, and a policy maker’s preferences with regards to farms size were clear to begin with, the interconnectedness of digestion and dairy operations has another influence on the policy debate. Manure digestion is extremely helpful in the elimination of odors. This could substantially reduce the legal costs, barriers to, and reasons to dislike, larger dairy farms. For all the above reasons, the impact of digester technology cannot be seriously assessed unless close attention is paid to its likely impact on dairy operations, the distribution of farm size and the economic implications of such distributions. Furthermore, while standard economic arguments suggest that the benchmark efficient pricing scheme, propped up with some lump sum subsidies to deal with potential externalities, should still be optimal, agricultural policies tend to be evaluated largely in terms of their distributional impact. Given the plethora of other distortions to the distribution of agricultural production over farms of different sizes, it is not obvious that rationalizing the price system for electricity sales promises obvious efficiency or equity gains.These concerns have led me to conclude that assessment of the correct rate structures for electricity produced from agricultural biogas should not be attempted outside of a complete model of a multi-output dairy farm, or in the absence of good, representative estimates of the parameters of the system.Instead, this paper will serve as a first pass at the economics of digester/generators. It is hoped that the calculations and insights will be of interest to potential adopters and policy practitioners alike, even though they will not yield strong conclusions for the reasons presented above. Some of the information presented in this paper was picked up in discussion with experts, from a tour of Tinedale Farm, and from a presentation by Dr. Robert Fick at the annual meeting of the Wisconsin chapter of the ASAE. Numerical values presented without citation fall into this category.

Why do diplomas pay? An expanded Mincerian framework applied to Mexico

We compare four explanations for the value of diplomas, each of which has implications for unemployment and wage variation amongst graduates, most of which have not previously been tested for when seeking to explain the effects of diplomas. We test for these implications using a refined econometric framework, exploiting idiosyncrasies in Mexican labour market and educational institutions. Premiums in Mexico appear to result from diplomas tied to jobs with downwards rigid wages – an uncommon but simple explanation. The standard explanations, including screening, are not suggested by Mexican data. Our results illuminate how labour markets segmented by diplomas clear. This depends upon the nature of the labour market rigidities exactly as predicted by neoclassical theory.

Globalization and De-Globalization in Nanotechnology Research: The Role of China

The share of nanotechnology publications involving authors from more than one country more than doubled in the 1990s, but then fell again until 2004, before recovering somewhat during the latter years of the decade. Meanwhile, the share of nanotechnology papers involving at least one Chinese author increased substantially over the last two decades. Papers involving Chinese authors are far less likely to be internationally co-authored than papers involving authors from other countries. Nonetheless, this appears to be changing as Chinese nanotechnology research becomes more advanced. An arithmetic decomposition confirms that China’s growing share of such research accounts, in large part, for the observed stagnation of international collaboration. Thus two aspects of the globalization of science can work in opposing directions: diffusion to initially less scientifically advanced countries can depress international collaboration rates, while at the same time scientific advances in such countries can reverse this trend. We find that the growth of China’s scientific community explains some, but not all of the dynamics of China’s international collaboration rate. We therefore provide an institutional account of these dynamics, drawing on Stichweh’s [Social Science information 35(2):327–340, 1996] original paper on international scientific collaboration, which, in examining the interrelated development of national and international scientific networks, predicts a transitional phase during which science becomes a more national enterprise, followed by a phase marked by accelerating international collaboration. Validating the application of this approach, we show that Stichweh’s predictions, based on European scientific communities in the 18th and 19th centuries, seem to apply to the Chinese scientific community in the 21st century.

Do rights at home boost rights abroad? Sexual equality and humanitarian foreign policy

Does women’s empowerment strengthen global good citizenship? We test theories of democratic foreign policy and feminist international relations that suggest that more deeply democratic countries with greater gender equity will be stronger international human rights promoters. First, the direct empowerment of women as policymakers and civil society constituencies may shift states’ incentives and ability to pursue international human rights initiatives. Second, greater sexual equality may lead to feminist socialization of the wider society to promote human rights values. We test these predictions by measuring the relationship between five different measures of sexual equality and a country’s propensity to support 30 international human rights outcomes, including legal commitments, humanitarian assistance, and sanctions, controlling for previously established contributing factors such as level of development and democratic regime type. We find that more sexually equal countries are more likely to support international commitments to constrain state violence against individuals, international measures to combat gender and sexual orientation discrimination, and more and higher quality development assistance. However, sexual equality appears to yield less benefit for more costly human rights initiatives: yielding sovereignty to international legal institutions, promoting economic rights through concessionary trade policies, or adopting diplomatic sanctions against pariah states. These effects are stronger in democratic states, where citizen empowerment translates more readily into foreign policy, and are also found in a sample that excludes the Western powers.

Where have All the Educated Workers Gone? Services and Wage Inequality in Three Asian Economies

The wage returns to college have risen relative to those to secondary education in many developing economies. In India, the Philippines and Thailand, this is related to the expansion of services employment. We show this using decompositions connecting shifts in the returns to education to changing job opportunities. High‐skill services employment grew slowly while relative demand in the sector shifted from secondary to college graduates, pushing workers with secondary education into low‐skill intensive services. These polarizing trends in services employment account for the growing convexity of the Mincerian wage profile, and may constrain governments seeking to use educational expansion to alter the wage distribution.

Economic Liberalization and Rising College Premiums in Mexico: A Reinterpretation

Mexico’s college premium rose in the 1990s. Studies employing structural decomposition analyses treat the college premium as the relative price of “skilled” to “unskilled” workers. They find that reallocations of labor across industries and occupations cannot account for rising college premiums, and often attribute them to widely observed trade-induced increases in skills demand within the manufacturing sector. In contrast, using a reduced-form decomposition that moves beyond a binary definition of skill and allows for inter-occupation wage differentials, we show that employment shifts across occupations and industries can account for the increase in the college premium. We link the rising premium, and differences in its trajectory by gender and cohort, to the growth of specific professions that produce services, not manufactured goods.

Overeducation in Developing Economies: How can we test for it, and what does it mean?

A worker is said to be overeducated if he/she has acquired more education than is required to perform his/her job. In the absence of data measuring the number of years of schooling required to perform particular jobs, we propose a new approach to testing for overeducation. Overeducation is confirmed by rising education levels in jobs that offer very low returns to education and underwent little technological change. We find evidence of overeducation in technologically stagnant unskilled jobs in the Philippines, mild evidence in Mexico, and little evidence in India and Thailand. We show that a job’s mean and modal years of schooling are poor proxies for required education. We also show that overeducation sometimes increases within technologically stagnant unskilled jobs, even while skill biased technological change pulls other workers into jobs offering higher returns to schooling. This may be because the quality of education segments the labor market.

Manufacturing Matters...but It’s the Jobs That Count

This paper asks, first, whether today’s developing economies can achieve high-income status without first building large manufacturing sectors. We find that practically every economy that enjoys a high income today experienced a manufacturing employment share in excess of 18%–20% sometime since the 1970s. Manufacturing output share thresholds are much poorer predictors of rich-country status than their employment counterparts. This motivates us to ask whether it is becoming more difficult to sustain high levels of manufacturing activity. We find that the maximum expected employment share for a typical developing economy has fallen to around 13%–15%, and that deindustrialization in employment sets in at much lower income per capita levels of

Does Industry Affiliation Influence Wages? Evidence from Indonesia and the Asian Financial Crisis

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