There is increasing interest in the use of
"smart aid" - aid
programmes that use experimentation and focus on bottom-up projects in order to increase the effectiveness of each £
or $ given in aid
Does aid help or hinder economic growth and development? This is the subject of a fierce debate in the development economics literature
Flooding has been consistently in the news in recent years and examiners have already started to set questions about the costs and benefits of flood defence projects and the public good nature of flood defences. These investment projects invariably invite an evaluative cost-benefit approach. Here is a look at a controversial defence scheme for Venice - one that raises many environmental and economic issues.read more...»
There has been plenty of discussion in recent weeks about whether Britain might seriously start to consider leaving the European Union? Here is a selection of news pieces and discussion videos on the vexed question of UK membership.read more...»
Corporation tax is very much in the news. Starbucks is merely the latest to be in the spotlight, having paid no corporation tax on more than £1billion of sales in the past three years . This became noteworthy when the Prime Minister himself declared he was unhappy with the level of tax avoidance by big corporations working in Britain.
The plain fact is that if corporation tax did not exist, it would be madness to introduce it. The tax plays to the ignorance not only of the general public, but of almost all politicians. It encourages the fantasy that there is a free lunch, that someone else will pick up the bill for the welfare state and bloated state bureaucracy.read more...»
Every cloud has a silver lining! News reports out today confirmed that the original decision to award the next 15 year franchise of the West Coast Rail line to FirstGroup instead of the incumbent Virgin Rail has been rescinded and the bidding process re-opened at a potential wasted cost of £40 million (by the way, have they fixed that leaky roof at your school yet?). This may seem like a fiasco to train users and the general public alike but to us Economics teachers it's a super example of government failing to intervene correctly in a market.read more...»
Former Labour Deputy Prime Minister John Prescott was once (perhaps) quoted as saying: "The Green Belt is one of Labour's greatest achievements, and we intend to build on it!". Danny Boyle's dramatic and wonderful London 2012 Olympic opening ceremony "Isle's of Beauty" began with an unforgettable rural landscape which was soon to be transformed by an altogether harsher industrial landscape during the pandemonium.
For many years we have regarded our greenbelt protected land as a bulwark against urban sprawl and over-rapid commercial and industrial development. But this is about to change with a change in planning laws and regulations that will make it easier to turn farmland into business parks and new housing?read more...»
Using agrichemicals is directly correlated to infant mortality in India. This is the central finding of research presented by Nidhiya Menon (Associate Professor of Economics, Brandeis University) at the International Growth Centre’s Growth Week 2012.
This six minute news video report from CNN is superb, it focuses on pilot programmes to extend micro-insurance schemes for some of Kenya’s smallest and poorest farmers in a country where the agricultural sector is at high risk from the effects of drought. Kenya is the largest economy in east Africa but less than 4% of Kenyans have access to insurance. Many do not understand the concept of insurance, others cannot afford it or choose not to take it out when there are school fees to pay (opportunity cost writ large).
These pilot schemes offer hope for the future but insurance on its own is no panecea. Savings and access to credit are of equal significance in reducing vulnerability to extreme weather events.
The micro-insurance programmes embed mobile technology - for example the Kilimo Salama programme — Swahili for ‘safe farming’ — launched in 2011 provides small-scale farmers in Kenya with crop insurance by combining mobile phone payment with the data from automated weather stations.Kilimo Salama uses data from these stations to calculate the severity of droughts — or excessive rainfall. Eligible farmers then receive payouts via their mobile phones.
More here: Kenya pastoralists get insured for lossesread more...»
This blog provides an updated Storify on videos featuring development economist Esther Duflo, co-author of the best-selling book Poor Economics. Poor Economics maps out a third way between those experts who believe aid does more harm than good, such as William Easterly and Dambisa Moyo, and those who believe the reverse, like Jeffrey Sachs.
Banerjee and Duflo say the three main reasons aid is ineffective are “ideology, ignorance and inertia”. “Precisely because [the poor] have so little,” they write, “we often find them putting much careful thought into their choices: They have to be sophisticated economists just to survive.”
The two authors are part of a group of economists known as the “randomistas”. They have used randomised control trials across five continents to test the impact of policies aimed at beating poverty, from the provision of free anti-malaria bed-nets to education subsidies.read more...»
Here is an example of a fast-growing developing country in Africa making important investment to help meet ambitious targets for supplying energy from renewable sources. Katrina Manson films and reports for the Financial Times from the Great Rift Valley on Kenya’s latest plans to exploit geothermal energy to produce electricity.
The fixed costs of finding geo-thermal sources, build the turbines and then connect to Keyna’s energy grid are huge. But a move towards smaller geo-thermal energy plants provide a more cost efficient approach. Successful investment will help to reduce energy imports, provide a viable alternative to uncertain hydro-electric power, create new jobs and contribute to Kenya’s search for sustainable growth.read more...»
There is growing interest among policy makers about the importance of protecting and enhancing natural capital to support sustainable growth and development. I have put together a selection of recent news video resources on natural capital that might be useful for students and teachers who are new to the idea and who might want to look at it as part of their study of environmental and development economics.read more...»
Alcohol-related accidents are the leading cause of death and serious injury for victims of car crashes in France and the government has decided to introduce a strong behavioural nudge by making it compulsory for every car to have a portable breathalyser kit in their vehicles or risk a fine. This applies to every vehicle including those driven by tourists. Vehicle owners will have until November 2012 to get used to it before the fines are imposed.
Having a breathalyser in the glove box or on the front passenger seat might well be an effective reminder for people before they turn on the ignition. Reminders of our mortality and/or our morality can often prime us to make safer, better choices. I applaud the French government for introducing this new law. All motorists must also have with them a high-visibility safety vest and a warning triangle.read more...»
The introduction of a carbon tax in Australia has become one of the most hotly debated political and economic issues for many years in that country. The economy has enjoyed strong growth in recent times buoyed by rising demand for and prices of many of Australia’s huge endowment of natural resources.
Under the new carbon tax, around 300 of the worst-polluting firms to pay a A$23 (£15) levy for every tonne of greenhouse gases they produce.
Will a carbon tax threaten this growth? Or will it prove to be an inspired decision - helping to pave the way for greener growth and a faster pace of innovation not least in renewable energies and low-carbon goods and services?read more...»
Channel 4 news reports here on how CCTV and other technologies are being used to monitor fishing in the north sea in a bid to scale back the horrendous amount of fish discards. This happens when fishing vessels throw back dead fish into the water when a catch exceeds the quota - a terrible waste of an already scarce resource. The average European fishing trawler discards 38 per cent of its catch - for some species of fish 90 per cent are thrown away but with the aid of technology this can be reduced to less than 1 per cent.read more...»
To mark the 2012 Rio Summit, the United Nations has started to publish an Inclusive Wealth Index which builds into an evaluation of a country’s wealth the impact of economic growth and development on the stock of a country’s natural capital. This chart from the Economist would be an excellent starting point for discussion of changes in natural wealth for a range of countries.read more...»
Many people take as given a pressing need to increase capital investment in the infrastructure of our energy sectors - but how strong are the economic and social impacts of such investment? The LSE Growth Commission met this week to discuss this and I have brought together some of the arguments drawing on a number of various twitter feedsread more...»
There are many different market failures when it comes to understanding some of the key environmental problems and challenges of the age. Addressing, attacking and correcting for complex and multiple market failures requires pointing to different policy instruments / interventions. Together can they make a sizeable difference to consumer and business behaviour and lead us away from a “business as usual” approach?read more...»
The cost-benefit principle is one of those core ideas that can be brought into so many evaluation discussions both in micro and macroeconomics – you should be using it in your papers!read more...»
This highly interactive programme on Al Jazeerah a few days ago focused on the impact of foreign aid on the African economy. It runs for 35 minutes but there is plenty of interesting debate and many comments flying in on the twitter feeds. Plenty of discussion that might inform a revision session on the future for the African economy and the debate over the effectiveness of aid programmes.read more...»
The capacity and efficiency of our transport infrastructure has a huge bearing on the supply-side potential of the economy and in this Channel 4 news video, the CEO of British Airports Authority argues that Heathrow is now full to bursting. The Conservative and Liberal Democrat coalition manifesto in 2010 ruled out a third runway at Heathrow - to the relief of those (including me) who live under Heathrow flight paths. But without much needed investmnt in air transport, there are fears that UK business will suffer and the economy will become less attractive to inward investment.read more...»
In a fresh move to reduce consumption of cigarettes, legislation has come in force banning the displays of cigarettes for sale in large retail stores. The display ban will apply to shops of more than 280 sq m (3,014 sq ft). Newsagents and small stores can display cigarettes until 2015, giving them time to refit shelves and cabinets.. It is part of the armoury of interventions that have been tried over the years to change consumer behavioural - from real terms increases in cigarette taxes to bans on advertising and ever-stronger advertising and health campaigns. The focus of the ban is to influence younger smokers by removing cigarettes from point of sale display - will it be effective?
This news report below from Al Zajeerah looks at the new measureread more...»
Here is a revision presentation offering ideas for stronger evaluation and analysis in your AS and A2 economics exam papers. Ten strands are suggested for students who want to build really good answers especially to evaluation questions.read more...»
Nottingham has become the first major city in the UK to introduce a compulsory workplace parking levy (WPL). Businesses in Nottingham with more than 10 parking spaces will have to pay an annual charge to the council of £288-per-space.
Critics of the scheme argue that the levy will add to costs and damage profits at a time when the local economy is struggling to drag itself out of recession. They believe that the levy will be an unfair extra charge for people who work shifts or live in areas without adequate public transport have to drive. The Taxpayers’ Alliance which is a fierce critic of what they see as inefficient local government opposes the WPL and say that 96% of Nottingham businesses in the area oppose the charge, with 62% of those businesses claiming that they would now consider relocating their interests.
The council’s defence is that the revenue from the levy will be hypothecated - that is the money will be earmarked to help fund improvements to Nottingham’s tram system, infrastructure with long term economic benefits. Other transport projects will be allocated funding from the tax.
Pricing to ration scarce parking space is an attempt to manage demand for car use within the city centre and to tackle congestion particularly at peak periods. Other cities are said to be interested in launching similar schemes and Nottingham’s experience may well tell us how quickly it will be rolled out in the years to come. A key decision for many businesses is whether to pass on the charge to their employees.
How will the charge be likely to affect:
1/ Demand for city park and ride schemes?
2/ Demand for Nottingham’s tram system?
3/ Demand for tele-working among Nottingham’s businesses
4/ Profits for businesses with more than 10 workers inside the parking levy area?
5/ Demand for public car parks
It is over five years since the publication of the Stern Report and much has happened in the intervening period. Stern however was at pains to emphasise that his core message remained undimmed, namely that the costs of inaction are enormous but the costs of early action to cut emissions are manageable. We have seen in recent years rapid technological change much of which is hugely encouraging in taking us closer to de-coupling the relationship between production and consumption and carbon emissions. But more is needed, Stern is arguing in these three lectures for a new industrial revolution, a deep set of changes to production processes and technologies that happens across every sector. The economics and politics of how progress might be made in moving towards a new revolution will be the focus of the second and third lectures.
LECTURE 1 - Tuesday 21 February 2012
What we risk and how we should cast the economics and ethics
LECTURE 2 - Wednesday 22 February 2012
How we can respond and prosper
LECTURE 3 - Thursday 23 February 2012
How we can get there: building national and international action
Most governments have used a combination of policies with varying levels of success. One policy option is the use of variable rates of Excise Duty. The March 2011 budget resulted in a rise in the duty on strong beers (above 7.5% alcohol) of 25%, and the duty on weak beers (below 2.8%) cut by 50%.read more...»
The crucial issue of how best to tackle climate change and make significant progress towards a low-carbon economy is one that gives students tremendous opportunities to hone their analysis and evaluation skills. A few weeks ago the Australian government was successful in getting through the Senate proposals for a new carbon tax and in this blog we link to some excellent video reports on the background to this decision.read more...»
Justin Rowlatt from the BBC has been investigating some of the remarkable progress being made in controlling deforestation in Brazil. The battle focuses on an area known as the “arc of destruction” and the video reports here show the impact of a government making a clear commitment to tackling the issue and backing it up with force and with incentives.read more...»
This blog provides a link to a new prezi presentation on the economics of solar subsidies - I have been using it as part of my teaching on aspects of environmental economics for Unit 3 AQA but it might also be useful for unit 1 market failure. I have kept theoretical diagrams out of it and plan to build up relevant analytical concepts such as economies of scale, consumer subsidies, economic and social welfare, government failure et al on a normal whiteboard rather than embed them into the Prezi. I hope it is useful.
Follow the tags at the bottom of the blog entry for more recent articles on solar subsidies such as feed-in-tariffs and other environmental economic resources.read more...»
I do my level best to avoid the processed meat aisles in the supermarkets - or at least the lower end of what is on offer (I remember once the 5pence sausage that was a guaranteed 2 per cent pork!). But perhaps excessive consumption of processed meats - much of which finds a way into the traditional Full-English might be doing people much more harm than good? Follow this BBC news report for more details.read more...»
This autumn the world’s biggest solar plant power station opened in Spain. Comprising 600,000 parabolic mirrors, the Andasol 3 CSP plant is the size of 70 soccer fields and has 88km of piping. The economies of scale are huge and if solar power is going to work and be viable anywhere it is probably here or in North Africa.read more...»
From tsunamis to tornadoes, from droughts to floods, 2011 was a particularly nasty year for natural disasters in many parts of the world. These natural disasters inevitably have demand and supply side effects affecting not just those countries affected but ripple impact across regions and in the broader global economy.
The Al Jazeera news video report below provides a clear overview of some of the major natural climatic shocks of 2011 and could easily be used as an introductory resource to discuss what are some of the micro and macroeconomic effects in both the short and medium term.
* Effects on the stock of physical capital / infrastructure
* Impact on a country’s human capital
* Effects on commodity prices, export revenues
* Effects on agricultural output, profits, investment, productivity
* Ripple effects on manufacturing industries and energy supply/cost
* Impact on state tax revenues and the costs of re-building and providing emergency financial support
* Effect on the movement of population following extreme climatic events
* Natural disasters and changes in the distribution of income / risk of poverty
This Economist graphic (published in Jan 2012) looks at the human cost of natural disasters and claims that “the world has succeeded in making natural disasters less deadly.”read more...»
If you are a fan of laminate flooring, wood panelled walls or neat wood-based fencing for the garden, the chances are that you will be paying higher prices in the years ahead. Despite the Britain offering a temperate climate for a plentiful supply of wood and a well organised system of land registry and plantation management, the UK market price of different types of timber has shot up over the last two years.read more...»
It seems those fortunate enough to live next to Hyde Park are increasingly bothered by the negative externalities arising from the concerts put on there. This BBC article is a good illustration of the difficulties involved at arriving at a socially-optimal level of production.
British Petroleum has decided to exit the solar energy energy industry claiming that the business has become unprofitable because of excess supply and falling prices. In 2011 a number of solar firms have gone out of business including California’s Solyndra and Germany’s Solon. BP will focus instead on investing in other renewable energy sectors including wind power and biofuels.
Whilst the decision by BP to exit the industry appears significant, infact total global investment in solar power continues to rise. MidAmerican Energy Holdings owned by Warren Buffett have agreed to purchase a $2 billion solar project under development in California and a 49 percent stake in a $1.8 billion plant in Arizona.
Google Inc. and KKR & Co have announced a joint venture to pump money in four California solar power plants with total capacity of 88 megawatts. The powerful search engine business uses a huge anount of energy every year and has committed itself to large scale investment in renewable energy supplies to help power their server farms.
The Human Development Report 2011 reported that deforestation is a severe problem. In the last two decades, Latin American and Sub-Saharan Africa have experienced severe forest losses, especially when compared to the rest of the world.
For economists the economic and social costs of rapid deforestation represent a telling example of the tragedy of the commons where the pursuit of individual self-interest can risk a permanent destruction of natural resources that undermines the sustainability of communities and societies for current and future generations. The United Nations calculates that deforestation and degradation is responsible for nearly 20 per cent of global greenhouse gas emissions.
Will the REDD programme make a difference?
REDD stands for Reducing Emissions from Deforestation and Forest Degradation in Developing Countries and is designed to provide financial incentives funded by advanced nations for developing countries to preserve their forests and instead invest in low-carbon paths to sustainable development.
The UN estimates financial flows of up to $30bn could come from REDD and related initiatives - the scheme effectively allows rich countries to offset their carbon emissions from domestic industries and consumers by funding clean low-carbon development projects in developing countries. But it is highly controversial and opposed by many organisations such as Friends of the Earth and the World Rainforest Movement.
In this blog we have put together some web resources on the issue of deforestation - focusing on causation, consequences and also on some of the policy approaches that might work to bring about behavioural change.
When is electricity demand highest in the UK? The answer comes at the end of the blog!
The UK government is committed to the rolling out of smart energy meters between now and the end of 2020. Millions of homes will have smart meters installed which track how much electricity you use and when you use it - the installation cost is approximately £350 per unit although this may come down with the utilisation of economies of scale. Smart meters will give consumers and the utility businesses minute-by-minute information about energy consumption and this could fast-forward the launch of time of use pricing tariffs for us all in the years ahead. It will mark a move away from flat-rate tariffs towards fully-fledged peak and off-peak pricing.
At the moment around one in ten households are on Economy 7 tariffs which offers lower prices for electricity used during off-peaking times in the late evenings and early mornings. Economy 7 seems to have been around for as long as CEEFAX and if you understand that you are giving your age away!read more...»
Thames Water has plans for a super sewer running 20 miles from Hammersmith to Beckton but the plan has come up against intense opposition from many local resident groups. It is a good example to use of cost-benefit analysis in action with a project that will directly affect millions of people living and working in the capital. There is an almost unending list of stakeholders involved in the debate.read more...»
To promote the expansion of renewable energy sources, many governments have introduced subsidies for consumers who install solar panels.
In April 2010, the Labour government introduced generous feed-in tariffs to encourage households to install solar photovoltaic systems. Anyone spending £13,000 up front to fit a system to their home was paid 41.3p per kilowatt hour (kWh) generated – enough to earn them a typical annual income of £900 a year in payments, on top of a £140-a-year saving in reduced electricity bills. The big six energy companies are required by law to pay householders who generate their own energy.
It looks like the days of generous subsidies for solar panels are coming to an end and there is a rush on to install them before the feed-in-tariff system is changed.read more...»
This short video report from Will Ross for the BBC from the island of Lamu, considers a number of economic concepts.read more...»
A hat tip to Mark Seccombe for spotting this fine piece of economics writing from the New York Times economics blog.
Casey Mulligan explores the question of whether the US coast guard should enforce that boats install safety beacons as a way of cutting the number of incidents they are required to attend. Does providing a safety-net regardless of whether participants have covered the cost of providing themselves with basic safety equipment lead to a problem of moral hazard? Has mandatory safety belts in cars led to a reduction in the quality of driving? Would compulsory air bags do the same? When is the state justified in applying and enforcing stringent safety requirements on people and businesses as they go about their daily lives?
Here is a super short transport cost benefit analysis example regarding plans to re-open a rail link between Oxford and Milton Keynes could generate millions of pounds for the economy. In total it would cost £178m and then £11.6m a year to run, but Oxford Economics says it would bring an economic benefit to the area which it estimates at £32m a year. This BBC news video would make for a good short introduction to the example, and here are some other links to coverage of the Oxford Economics research in the local papers.
Oxford Mail: Rail link could be worth £38m a year
Official web site East West Rail
A hat tip to John Wilson from New Zealand for spotting this superb article which looks at smarter consumer spending and using opportunity cost as a concept to put some of our many choice in context. Some great examples here that might be used at the start of an AS Micro course.
A controversial motorway extension in Scotland is set to open. Glasgow’s new £657m M74 extension set to open (BBC News). The 6-lane elevated M74 extension is over-budget at a cost of £657m, which works out at £131m per mile or £75,000 a yard (£80,000 a metre). How can road extensions cost so much? Can the costs be justified by the suggested economic benefits? The BBC article provides a good mini-case study in transport cost-benefit analysis. Here are some other supporting links:read more...»
The tragedy of the commons and the grave consequences for the state of marine ecology are highlighted in this new report. Covered with passion in this blog. Climate change, pollution and over-fishing are two fundamental problems for the oceans. More details here from the International Programme on the State of the Ocean (IPSO) website.
The report identifies a number of important policy approaches to tackle the problems - The scientists say that the ‘precautionary principle’ must be used in terms of oceanic impacts, in other society shouldn’t don’t proceed with activities unless they are proven to be largely safe for marine ecosystems. And they argue for much stringer use of property rights by widening the size of international marines of the sea.
TED Talk: Jeremy Jackson: How we wrecked the ocean
Helpful revision notes provided by a new government report yesterday, attempting to put a financial value on Britain’s ecology. The ‘National Ecosystem Assessment’ attempts to give a standard valuation on ‘ecosystem services’ like pollination by insects, water and air purification by soils and plants, the flood alleviation provided by woods and marshes upstream of towns and cities, and the value of living close to a green space; for example the value of living near a green space is calculated as £300 in terms of savings to the NHS. The first of 6 key findings of the NEA is:
“The natural world, its biodiversity and its constituent ecosystems are critically important to our well-being and economic prosperity, but are consistently undervalued in conventional economic analyses and decision making.”
Are highly competitive markets most likely to lead to outcomes that achieve economic efficiency? The common characteristics of markets that are considered to be “competitive” are:read more...»
Thought-provoking quotation from astronaut Alan Shepard, who became the first American in space in 1961:
“It’s a very sobering feeling to be up in space and realise that one’s safety factor was determined by the lowest bidder on a government contract.”
Here is a selection of this week’s TV (and a bit of radio) that seems to have some good economics content and might provide a welcome, yet useful, break from revision.
Sunday 15th May: BBC4 8pm, ‘The Secret Life of the National Grid’ - could be worth a look in terms of economies of scale, network externalities, economic growth and the importance of infrastructure
Sunday 15th May: Radio 4 8pm, ‘The Bankers and the Bottom Billion’ - possibly some useful bits in terms of development economics
Monday 16th May: BBC1 8.30pm, ‘Panorama’ - this week’s investigative documentary looks at the illegal trade in waste electronic products following the introduction of regulations governing how we can dispose of such things - probably very good in terms of analysing a type of government failure
Monday 16th May: BBC1 9pm, ‘The Street That Cut Everything’ - looks rather entertaining as well as providing a bit of an insight into topics such as government spending on public goods and goods that generate positive externalities
Monday 16th May: BBC4 9pm, ‘The Golden Age of Canals’ - whilst at first glance this may not seem too appealing, I suspect there are some interesting nuggets in terms of networks and infrastructure spending, as well as a look at why canals fell into obsolence due to the invention of the combustion engine (some creative destruction here!)
Tuesday 17th May: BBC3 9pm, ‘Secrets of the Superbrands: Technology’ - a good look at how monopolies put up strategic barriers to entry in terms of branding and smart use of technology to achieve consumer loyalty
Thursday 19th May: ITV1 7.30pm, ‘The True Cost of a Car’ - a look at the impact on motorists of rising fuel prices and insurance premiums, which will bring in cross-elasticity of demand in a roundabout way
Thursday 19th May: Radio 4, 8pm, ‘The Report’ - a closer look at the operation of supermarkets and why there is opposition to their expansion (useful for looking at the impact of rising market power)
Friday 20th May: BBC2 7pm, ‘Wind Farm Wars’ - probably very useful for those sitting AS Unit 1 this summer in terms of negative and positive externalities of production, and the ins and outs of cost-benefit analysis
Hopefully there’s some light relief in there for everyone! All of the BBC programmes will be available on iPlayer for several days after they’ve been broadcast.
Should we screen for signs of disease or change the default and provide drugs as a default option beyond a certain age? In a fascinating new study, medics from the Wolfson Institute at Barts and the London Medical School have put forward the case for offering everyone statins over the age of 55 preventative as treatment for blood pressure and cholesterol - they claim that offering relieving drugs might prevent as many as 100,000 heart attacks and strokes each year in England and Wales alone. It is an interesting example of a cost-benefit approach when allocating health service spending.read more...»