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Author ORCID Identifier

https://orcid.org/0000-0002-2710-8770

AccessType

Open Access Dissertation

Document Type

dissertation

Degree Name

Doctor of Philosophy (PhD)

Degree Program

Resource Economics

Year Degree Awarded

2022

Month Degree Awarded

May

First Advisor

Debi Prasad Mohapatra

Second Advisor

Christian Rojas

Third Advisor

Jun Ishii

Subject Categories

Growth and Development | Industrial Organization | Public Economics

Abstract

Developing countries typically implement public policies that modify the market structure to reach a specific goal. However, in this attempt to achieve a policy objective, policymakers may not consider unintended consequences caused by firms' and consumers' optimizing behavior. Moreover, the reaction of market agents to the implemented policy may undermind its effectiveness or lead to an outcome opposite to the one persuaded. This dissertation uses a set of structural models to assess the welfare effect of both intended and unintended consequences of public policies introduced in developing countries.

In the first chapter, we evaluate the welfare implications of a public procurement program, where the Ecuadorian government procures medicines used for cancer treatment and distributes them to patients for free with the aim to benefit the poor. First, we consider a targeting strategy commonly implemented in various developing countries, where patients below a given income threshold qualify for the free drug. We compare this with a simpler drug distribution mechanism where every patient is a potential recipient of the free drug and the patients are served on a first-come-first-serve basis. Our results show that the poor patients do self-select into the program, and the first-come-first-serve strategy does benefit the poor more compared to the relatively rich. However, the targeting strategy does a much better job in serving the poorest patients. Second, we study the supply side implications of this program Our counterfactual exercises show that when the government procures low-cost drugs and provides them for free, it distorts the supply side incentives, and hence, market prices of similar low-cost drugs may increase by about 7% in response. Prices of the high cost drugs remain mostly unaffected. Therefore, the policy may end up negatively affecting near-poor patients that did not qualify for the free government drug.

In the second chapter, we study the existing and proposed policies aiming to reduce emissions from new passenger vehicles in Colombia, which has used preferential sales taxes and import tariffs to stimulate hybrid and electric cars sales. Using highly detailed data on vehicle purchases and attributes, we estimate an equilibrium model of Colombia’s market that includes a random-coefficients logit demand structure and endogenizes firms’ markups. Using the model to simulate policies, we find that Colombia’s sales tax and import tariffs have increased hybrid and electric vehicle market shares by 0.9 to 2.7 percentage points at welfare costs of $40-48 per ton of carbon dioxide reduction. Potentially taxing carbon dioxide emissions rates of new vehicles would have roughly similar welfare costs. The high welfare costs of these policies arise from pre-existing distortions caused by market power, which yields large private welfare costs of shifting from gasoline to hybrid and electric vehicles.

In the third chapter, I evaluate the welfare consequences of Domestic Industrial Policy implemented by the Indian government that imposed a tariff on imported mobile phone components to motivate investment in the local mobile phone manufacturing industry. To this end, I compute the consumer surplus as well as the producer surplus changes due to changes that would have resulted from the continuing implantation of this policy. Toward this end, I develop and estimate a structural model of India's mobile phone market, one where firms endogenously decide production location, product set, and prices. I evaluate the effects of the policy through counterfactuals simulated using the estimated structural parameters. The results suggest that the continuation of this policy will lead to large-scale production relocation, products exiting the market, and price increases leading to a drop in consumer surplus.

DOI

https://doi.org/10.7275/28615093

Creative Commons License

Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License
This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 4.0 License.

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