## Products: UHERO Working Papers

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# How Big? The Impact of Approved Destination Status on Mainland Chinese Travel Abroad

China’s Approved Destination Status (ADS) policy governs foreign leisure travel by citizens to ADS-designated countries. To model the effects of ADS on Chinese visitor arrivals, we specify a model of demand for a representative Chinese consumer who values trips to n differentiated foreign destinations. Using panel data for Chinese visitor arrivals for 61 countries from 1985 to 2005, we estimate fixed effects models accounting for selection effects and a semiparametric matched difference-in-differences (DID) model. The semiparametric matched DID estimates indicate that ADS increased Chinese visitor arrivals annually by 10.5 to 15.7 percent in the three-year period following ADS designation.

# Chinese Saving Dynamics: The Impact of GDP Growth and the Dependent Share

China’s national saving rate rose rapidly in the 2000s after declining through the late 1990s. These dynamics are not explained by precautionary motives, the institutional distribution of income, or reform related processes in general. Rather, we find a compelling explanation lies with GDP growth fluctuations and movement in the dependent share in population. We estimate a vector autoregressive model for the period 1978-2008, then generate in-sample simulations that successfully replicate the 2000s run-up in the saving rate. Our out of sample forecasts show the saving rate dropping in the 2010s as the dependency share falls and GDP growth moderates.

# An Assessment Of Greenhouse Gas Emissions-Weighted Clean Energy Standards

Published in the journal Energy Policy, this paper quantifies the relative cost-savings of utilizing a greenhouse gas emissions-weighted Clean Energy Standard (CES) in comparison to a Renewable Portfolio Standard (RPS). Using a bottom-up electricity sector model for Hawaii, this paper demonstrates that a policy that gives “clean energy” credit to electricity technologies based on their cardinal ranking of lifecycle GHG emissions, normalizing the highest-emitting unit to zero credit, can reduce the costs of emissions abatement by up to 90% in comparison to a typical RPS. A GHG emissions-weighted CES provides incentive to not only pursue renewable sources of electricity, but also promotes fuel-switching among fossil fuels and improved generation efficiencies at fossil-fired units. CES is found to be particularly cost-effective when projected fossil fuel prices are relatively low.

UHERO has developed a two-page Policy Brief on this paper. The full publication can be found at http://www.sciencedirect.com/science/article/pii/S0301421512000961

# The Effect of Minimum Drinking Age Laws on Pregnancy, Fertility, and Alcohol Consumption

Analysis of micro-level data reveals that changes in the minimum legal drinking age (MLDA)could induce changes in the intensity and location of alcohol consumption, sexual behavior, and teen fertility. Effects on teen fertility vary across different populations. Among 15-20 year-old non-poor whites, less restrictive legal access to alcohol decreases the probability of first pregnancy and abortion. For this group, easier legal access to alcohol likely increases the alcohol consumption in bars. For black and poor white young women, the results are sensitive to the alcohol consumption restrictions measure. A decrease in the MLDA increases the probability of first pregnancy and abortion. Yet, using a more precise measure that accounts for the MLDA and the woman’s age, these results generally no longer hold.

# Economic Analysis of the Proposed Rule to Prevent Arrival of New Genetic Strains of the Rust Fungus *Puccinia psidii* in Hawai‘i

Since its first documented introduction to Hawai‘i in 2005, the rust fungus *P. psidii* has already severely damaged *Syzygium jambos* (Indian rose apple) trees and the federallyendangered *Eugenia koolauensis* (nioi). Fortunately, the particular strain has yet to cause serious damage to ‘ōhi‘a, which comprises roughly 80% of the state’s native forests and covers 400,000 ha. Although the rust has affected less than 5% of Hawaii’s ‘ōhi‘a trees thus far, the introduction of more virulent strains and the genetic evolution of the current strain are still possible. Since the primary pathway of introduction is Myrtaceae plant material imported from outside the state, potential damage to ‘ohi‘a can be minimized by regulating those high-risk imports. We discuss the economic impact on the state’s florist, nursery, landscaping, and forest plantation industries of a proposed rule that would ban the import of non-seed Myrtaceae plant material and require a one-year quarantine of seeds. Our analysis suggests that the benefits to the forest plantation industry of a complete ban on non-seed material would likely outweigh the costs to other affected sectors, even without considering the reduction in risk to ‘ōhi‘a. Incorporating the value of ‘ōhi‘a protection would further increase the benefit-cost ratio in favor of an import ban.

# Species Invasion as Catastrophe: The Case of the Brown Tree Snake

This paper develops a two-stage model for the optimal management of a potential invasive species. The arrival of an invasive species is modeled as an irreversible event with an uncertain arrival time. The model is solved in two stages, beginning with the post-invasion stage. Once the arrival occurs, the optimal path of species removal is that which minimizes the present value of damage and removal costs plus the expected present value of prevention costs. An expenditure-dependent, conditional hazard rate describing species arrival is developed based on discussions with natural resource managers. We solve for the optimal sequence of prevention expenditures, given the minimum invasion penalty as just described. For the case of the Brown Tree Snake potentially invading Hawaii, we ﬁnd that pre-invasion expenditures on prevention are inverse U-shaped in the hazard rate. Efﬁcient prevention should be approximately $2.9million today and held constant until invasion. Once invasion occurs, optimal prevention requires $3.1million annually and $1.6million per year on species removal to keep the population at its steady state level, due to high search costs at very small population levels.

# Integration of North and South American Players in Japan's Professional Baseball Leagues

Teams in Japan’s two professional baseball leagues began to add foreign players to their rosters in the early 1950s, with the average number of foreign players per team reaching 5.79 in 2004. One reason for their increased use of foreign players was that foreign hitters substantially outperformed Japanese hitters. We show\ that the pace of team integration with African-American, Latino, and Caucasian players varied substantially across teams, a pattern also observed in North American professional baseball leagues. Using team data for the 1958-2004 seasons, econometric analysis shows that good teams that experienced a poor season played foreign players more frequently in the next season’s games.

# Alcohol Use and Pregnancies Among Youth: Evidence From a Semi-Parametric Approach

Despite a well-established correlation between alcohol intake and various risk-taking sexual behaviors, the causality remains unknown. I model the effect of alcohol use on the likelihood of pregnancy among youth using a variety of estimation techniques. The preference is given to the semi-parametric model where the cumulative distribution of heterogeneity is approximated by a 4-point discrete distribution. Using data on 17-28 year-old women from the National Longitudinal Survey of Youth, I find that alcohol consumption increases the likelihood of pregnancy by 4.7 percentage points. Quantitatively similar but statistically weaker effects were found in the fully parametric models such as the two-stage least squares model and the bivariate probit model. Finally, the fully parametric models that ignore the effect of unobserved heterogeneity failed to establish this relationship.

# The Direct and Indirect Contributions of Tourism to Regional GDP: Hawaii

After two decades of development and refinement, the Tourism Satellite Account (TSA) has been touted as the most comprehensive way to measure the economic contribution of tourism to a destination's gross domestic product. However, recent literature has pointed out that the TSA is deficient in that it does not yield the indirect contribution of tourism to GDP. This paper shows that the TSA cannot be used to estimate the indirect contribution unless the import content of tourism is zero. The indirect contribution can be estimated using input-output (I-O) multipliers. We illustrate using Hawaii as an example.

# Islands of Sustainability in Time and Space

We review the economics perspective on sustainable resource use and sustainable development. Under standard conditions, dynamic efficiency leads to sustainability of renewable resources but not the other way around. For the economic‐ecological system as a whole, dynamic efficiency and intergenerational equity similarly lead to sustainability, but ad hoc rules of sustainability may well lead to sacrifices in human welfare. We then address the challenges of extending economic sustainability to space as well as time and discuss the factors leading to optimal islands of preservation regarding renewable resources. Exogenous mandates based on moral imperatives such as self‐sufficiency and strong sustainability may result in missed win‐win opportunities that could improve both the economy and the environment, as well as increase social welfare across generations.

# Efficient Management of Coastal Marine Nutrient Loads with Multiple Sources of Abatement Instruments

Pollution management based on marginal abatement costs is optimal only if those abatement costs are specified correctly. Using the example of nitrogen pollution in groundwater, we show that the marginal abatement cost function for any given pollution source can be directly derived from a social-welfare maximization problem, wherein controls include both abatement instruments and inputs to pollution-generating production of a good or service. The solution to the optimization model reveals that abatement instruments for each source should be used in order of least marginal abatement cost, and the sources should in turn abate in order of least cost. The least-cost result remains optimal, even when the abatement target is exogenously determined.

# Health Inequality over the Life-Cycle

We consider the covariance structure of health. Agents report their health status on the basis of a latent health stock that is determined by permanent and transitory shocks, and time invariant fixed effects. At age 25, permanent shocks account for 5% to 10% of the variation in health. At age 60, this percentage rise to between 60% and 80%. We document a gradient in which permanent shocks matter less for college-educated people and for women.

# Ordering Renewables: Groundwater, Recycling and Desalination

Optimal recycling of minerals can be thought of as an integral part of the theory of the mine. In this paper, we consider the role that wastewater recycling plays in the optimal extraction of groundwater, a renewable resource. We develop a two-sector dynamic optimization model to solve for the optimal trajectories of groundwater extraction and water recycling. For the case of spatially increasing recycling costs, recycled water serves as a supplemental resource in transition to the steady state. For constant unit recycling cost, recycled wastewater is eventually used as a sector-specific backstop for agricultural users, while desalination supplements household groundwater in the steady state. In both cases, recycling water increases welfare by shifting demand away from the aquifer, thus delaying implementation of costly desalination. The model provides guidance on when and how much to develop resource alternatives.

# Indirect Inference Based on the Score

The Efficient Method of Moments (EMM) estimator popularized by Gallant and Tauchen (1996) is an indirect inference estimator based on the simulated auxiliary score evaluated at the sample estimate of the auxiliary parameters. We study an alternative estimator that uses the sample auxiliary score evaluated at the simulated binding function which maps the structural parameters of interest to the auxiliary parameters. We show that the alternative estimator has the same asymptotic properties as the EMM estimator but in finite samples behaves more like the distance-based indirect inference estimator of Gouri«eroux, Monfort and Renault (1993).

# Payment schemes in random-termination experimental games

We consider payment schemes in experiments that model infinite-horizon games by using random termination. We compare paying subjects cumulatively for all periods of the game; with paying subjects for the last period only; with paying for one of the periods, chosen randomly. Theoretically, assuming expected utility maximization and risk neutrality, both the cumulative and the last period payment schemes induce preferences that are equivalent to maximizing the discounted sum of utilities. The last-period payment is also robust under different attitudes towards risk. In comparison, paying subjects for one of the periods chosen randomly creates a present-period bias. Experimentally, we find that the cumulative payment appears the best in inducing long-sighted behavior.