Earl L. Grinols

An exact measure of welfare change

This paper develops a measure of the change in welfare of a household or an economy due to exogenous shocks or policy changes. The measure can be applied in a wide range of economies of scale, imperfectly competitive markets, unemployment, and domestic distortionary taxes. The welfare change measure is decomposed into five terms, which identify the five sources of welfare impacts: tax revenue, international transfer and borrowing, terms of trade, consumption substitution, and production substitution. The measure is simple to interpret and easy to apply in practice. All statistical data and information required to compute these terms are generally available or can be estimated easily.

The WTO Impact on International Trade Disputes: An Event History Analysis

Many consider improved dispute settlement one of the leading achievements of the WTO. This paper tests the implication of a game-theoretic approach that predicts that more efficient litigation devices increase the frequency and number of trade disputes. We propose an empirical event history analysis of GATT, WTO, and USTR Section 301 cases, identify the demographic patterns for births and lifespans of U.S. disputes, and test the hypothesis of a WTO structural break. The evidence supports the view that the WTO increased the incidence of U.S. trade disputes, while shortening their lifespan.

Replace Pharmaceutical Patents Now

Pharmaceutical patents are anachronistic holdovers from an era in which modern economic understanding and tax tools were unavailable. Superior mechanisms lie somewhere between a first best pricing solution for the entire economy at one extreme and the current arrangements at the other. We discuss the economics of suggested alternatives and suggest that the intertemporal bounty is the best way to meet the multiple objectives of immediate distribution at marginal cost pricing of newly innovated patented drugs and easily administered, efficient inducement to continued innovation. The intertemporal bounty prevents the expansion of monopoly power resulting from co-pay or -insurance provisions common to modern prescription drug plans.

The Intervention Principle

This paper investigates efficient policy interventions in market economies, establishing a general policy intervention result and explaining why more general results are not possible. The paper shows the applicability of the methodology to a number of new results in the theory of international trade, including policy intervention in the presence of increasing returns to scale. The analytical tools are not based on calculus, but set theory, agent optimization, and market clearing. They apply to discrete comparisons as well as for small changes.

Rules of origin and gains from trade

Free trade areas (FTAs) involve unharmonized tariffs and rules of origin that have prevented proving the formal general equilibrium existence of a welfare-enhancing FTA. This paper identifies the most restrictive limit that rules of origin can enforce and still continue to guarantee gains from trade for FTA formation. We note that many commonly used rules of origin exceed this condition in practice. We apply the identified welfare-supporting rules of origin and prove the existence of a FTA general equilibrium involving only within-FTA transfers that is at least as satisfactory for every consumer as an arbitrary original world trade allocation. The analysis also helps to explain why hub-and-spoke extensions of FTAs cannot be expected to guarantee gains from trade for all participants in general.

Industrial Targeting in Free Trade Areas with Policy Independence

We investigate the limits of a mechanism for free trade area (FTA) formation that simultaneously satisfies internal industrialization targets. For arbitrary targets, we find necessary and sufficient conditions that guarantee that the mechanism is efficient for member countries individually, even if other members do not implement the efficient policy. When the objective is conservative - designed to protect the level of industrialization previously achieved by the target industry - member countries are guaranteed gains from the efficient policy and their FTA participation. The analysis covers cases with transportation costs and explains why minimally restrictive rules of origin support efficiency and policy independence.

Problem Gambling, Mental Health, Alcohol and Drug Abuse: Effects on Crime

This research evaluates the connection between gambling and crime, simultaneously taking account of addiction-related mental health, alcohol, and drug use problems, using individual survey panel data collected on 4121 subjects over a period of 5 years. Pathological gambling is statistically significantly associated with elevated rates of crime and can be compared in its impact to substance abuse and mental health variables.

Intervention Efficiency, Incentive Symmetry, and Information

Assume that government maximizes the well being of its citizens subject to technological, political, and informational constraints. How should equilibrium be perturbed so that equilibrium post-perturbation quantities satisfy new exogenously-specified bounds? We prove an intervention principle and an incentive symmetry result that jointly describe the efficient intervention plus generate for it an equivalence class of interventions. If information is imperfect, asymmetric information may render some members of the equivalence class ineffective, but not others. This fact may be exploited in selected policy applications, meaning in cases where it is possible to increase the effectiveness of traditional entitlement programs, reduce their cost, or both.