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Economics 280 Courseware Notes.docx

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Queen's University
ECON 280
Anya P Hageman

Economics 280 Courseware Notes 21. Computing and Standardizing Rates  Population growth = (births-deaths) +(immigration-emigration)  (births-deaths) = natural increase (immigration-emigration) = net migration  Percentage increase = change in population/initial population x 100  Birth rate = number of births in the population/midyear size of population  Crude death rates are ineffective because they can be misleading  Standardized rates are more accurate (table 21-1) 22. The Sex Ratio  More boys than girls are born: usually 105 to 100  As children age, sex ratio falls below 1 because males exhibit risky behavior  Environmental factors in womb, occupational hazards, and war all affect population of males  Sex ratio for undergraduates is only 0.67, possibly caused by reduced interest in higher education, increasing female opportunity, or discrimination against men in school admissions  A high sex ratio may indicate immigration of men to work rough work environments  Eastern Europe: emigration of women to study abroad, led to shortage of women called “Frauenmangel”  High sex ratios in developing nations indicate son preference and the abortion of female fetuses (100 million women missing from Asia, 1990)  Excess male deaths: Sum of (ASMRMx-ASMRFx)Nx o Nx= mid-year population of men aged x 23. Designing Demographic Policy  Three basic ways to influence population behavior: o Persuasion o Coercion o Incentives  Persuasion is the most gentle way to influence behavior o Appeals to the individual as a decision maker capable of recognizing social good  If persuasion makes use of false information or exploits personal anxieties, it becomes coercive  The incentive approach uses the promises of rewards and/or the threat of punishments to steer behaviour. o If the rewards are offered to poor individuals, it becomes coercive  Should avoid coercion for two reasons o Coercion results in suffering and brings out the worst in those who administer the punishments o Coercion is a blunt instrument: rules which apply to everyone regardless of the intensity of their desires or the costs they face  Financial incentives like taxes and subsidies have advantages: o They do not ban behaviour outright or mandate a specific amount of behaviour from an individual o Allow individuals to make adjustments at the margin based on their own cost:benefit tradeoffs Taxation, subsidization, and other financial incentive tips: Tip #1: Target directly rather than indirectly - Precision  To have the greatest chance of success, policy should be aimed at the exact group of interest  If you want middle-aged men to start taking daily vitamins, you need to encourage the use oJust giving them vitamins wont be enough oHowever, sometimes targeting caregivers is the answer Tip #2: Target the binding constraint  Everyone has different limits and constraints oSleeping, energy, muscle mass, income, etc.  The first constraint we bump into is called the binding constraint  Example: a citizen knows which vitamins to buy and the time to buy them, but they cannot afford them oMoney is the binding constraint and a policy should be implemented to subsidize price Tip #3: Target at the margin  People evaluate things at the margin oDecide to buy vitamins, also decide whether to take them everyday  Advertisers should target and emphasize everyday use of the items that relate to their policies  Subsidization is ineffective after the point of purchase Tip #4: Taxes and Subsidies always affect both producers and consumers. The least price-sensitive party pays the tax. The most price- sensitive party gains the subsidy.  Example: Want to encourage vitamin D use oEither subsidize the cost of vitamin D by offering mail-in rebate or give vitamin D producers a subsidy on every bottle they sell  If you choose mail-in rebate and consumers are price sensitive (demand is elastic), then consumers will buy more vitamin D, driving up the price until they are not better off than before. oProducers benefit from higher prices oConsumers received subsidy, but did not benefit  If you choose producer subsidy and they are price-sensitive (supply is elastic), producers will produce more and drive down price oProducers may also produce slightly more vitamin D than before, but if the consumers are much less price sensitive (demand is inelastic) then purchases hardly increase oProducers lose most of the benefits of subsidy because supply is more elastic than demand  Same with tax, those who are the least price-sensitive will bear the burden  Cigarette users are more likely to be the least price sensitive as they are addicted oIf you tax supplier, they can pass on the cost to consumer because they will continue to buy them  If the elasticity of demand is less than the elasticity of supply, the smokers will continue to buy them Chapter 24: Dowries In India  A dowry is a payment made upon marriage, from one family to another  Usually from the bride’s family to the groom’s: aka “Groomprice” o May be in the form of goods such as clothing or jewelry, livestock or land, and cash  Historically practiced only among upper caste families in Northern India, where women sought men of superior rank o Referred to as “Hypergamy”  Historically practiced only among lower caste families in southern India, people took spouses of equal rank and payment was made to the bride’s family o Referred to as “Isogamy”  The size of the dowry has increased much faster than the rate of inflation o Dowries can be several times the household’s annual income, putting severe pressure on households (Rao, 2006)  “Net Dowry”: Add up what each spouse brings to the marriage o Value of his/her’s father land and value of their schooling  The difference is referred to as the “net dowry” o Can be misleading as the groom’s wealth remains under his control, as shown by the phrase “father’s land”  The dowry is a gesture of union between the two families o Assists the couple in setting up their home  Daughter’s are given their inheritance upon marriage o Son’s inherit later, otherwise they would have less incentive to work their father’s land and care for their parents  An increase in the average dowry could simply reflect rising parental wealth  Bhat and Halli(1999) argue that the dowry is demanded rather than volunteered, and that it takes control from the bride  Boserup (1970) suggests that dowries compensate the groom’s household for adopting an unproductive member o Dowry and monogamy seem to be associated with societies where women do not do farm work o Brideprice and polygamy are associated with societies where women do farm work o We would expect to see groomprice fall when women work, but this is not the case in India  Increasing dowries can result from competition for high status men in the context of rising wealth dispersion (inequality) within castes and clans  Sir Herbert Risley (1915) observed that uppercaste families used dowry and lower caste used brideprice. o Found that hypergamy resulted in an upward flow of women through social ranks o created a surplus of would-be brides for top-ranking grooms and men of a higher rank would receive a groomprice o Shortage of would-be brides for lower-ranking grooms, leading to them paying a brideprice  In Europe, modernization led to economic opportunities for all social classes o Material success became more important than social status o Social stratification declined and so did dowries  In India, the caste system is still strong o However, increased economic opportunity means that there is a wider variaition in income within castes  Anderson uses a model to show that this can lead to dowry inflation  Inflation in the north Indian dowry was first noticed at the turn of the century o Occurred among the upper castes of Bengal o Sought as bridegrooms men who had been educated in England with high paying government jobs  Groomprice inflation has been linked to increased income opportunities o Following the Indian independence of 1947, there has been a spread of dowry and increase in payments (Chauhan 1995) o During the Sung Dynasty in China, the number of educated persons increased greatly. More competition led to a rise in groomprices  Anderson’s Model: o A groom’s desirability to a bride (or her family) is a function of his income and the degree of which his rank exceeds hers o A bride’s family income determines the ability to pay groomprice o People pair off until an equilibrium is achieved o The bride has the partner most attractive to her family among those her family can afford o The highest ranking males end up with brides whose families offer the highest dowry o In equilibrium, a bride’s family pays a dowry large enough to outbid lower castes and other members of their own caste  The average groomprice will be higher if: o Income dispersion within his caste is high o Income dispersion within lower-ranking castes is high o Income dispersion between the wealthy of the lower castes and poor of the higher castes is high  Although a high-status man may be of lower income than others in his caste, lower-ranking women do not mind, which keeps his dowry relatively high o Dowries for higher income men in the same group then must rise relative to that lower bound  The man with the lowest income of each caste is essential: o Families in his own caste do not desire him, but must offer him more to prevent him from accepting a larger dowry from a lower caste family  If there is enough equality of opportunity and variation in wages, some high earning lower-caste men will be able to compete with upper-caste families o Drives up the groomprice of lower-caste and upper-caste dowries o check for blanks  Bhat and Halli: women’s families use the dowry to compete for grooms o Competition intensified before 1971 because of a growing shortage of grooms o Parents become desperate to marry off daughters before they become “ineligible” due to their age  The sex ratio in the total Indian population was steadily rising from 1911 to 1991, so one would think that there was no shortage of marriageable men but there are two reasons for a marriage squeeze: Chapter 25: How the Economy Affects Mortality Introduction  Income can mean many things: o Purchasing power o Employment o Correlated with a level of economic, political and scientific sophistication  In terms of purchasing power, the richer you are the better you are able to afford good nutrition, shelter, and medical care  Life expectancy rises for individuals with greater income and wealth o Americans of higher socioeconomic status gained more in terms of life expectancy between 1980-2 and ’98-2000 o Gap in top decile and lowest decile grew from 2.8 to 4.5 years  Wealth is not the only indicator of inequality: o The difference in life expectancy between the poorest black men and richest white women was more than 14 years o Gap between white and black Americans is at its lowest point ever: Non-Hispanic white American men are expected to live 76.2 years compared to 70.8 for black American men o In Canada, life expectancy was 79 for males and 83 for females but only 73 for males and 78 for females in the three territories  There can be bias if graphs and charts are not standardized for age. One must look critically at the numbers presented o Example: Many young people in the Northern Territories commit suicide  Individual income helps with mood and helps health care be more affordable o But it can also be associated with overindulgence, overwork, and unsafe environments  Unemployment and boom times are not exactly associated with lower mortality o Suicide rates may increase during recessions and degenerative diseases are unaffected by the business cycle o Mortality rates for infants, from accidents, and infection all drop during recessions  Children conceived during high unemployment are healthier Muney (2004): o Selection (changes in the type of mothers that conceive during recessions) o Improvements in health behavior during recessions  Life expectancies are higher in higher income nations. However, there is a point which benefits cease and then reverse o After a country reaches $11,000 GNP per capita few health benefits arise from further economic growth o Mortality becomes procyclical (correlated with business cycle) 26. The Stages of Mortality transition  Were steady prior to 1750  Demographic transition o Britain experienced gradually falling mortality rates through the nineteenth and twentieth centuries  Finland was studied from 1750 to 1880 (Kannisto 1999): o Life expectancy of an infant rose to that of a fifteenth in 1880  Kannisto considers the point when the paradox of life table vanishes to be the moment that the second stage of mortality transition occurred in Finland  1880-1945: The age of bacteriology o Improvements in health and sanitation  Reduced deaths of children aged 1-4 by 2% per year o Richer, fattier diets actually hurt male’s life expectancy?  1945-1970: The age of antibiotics o Huge reduction in in pre-adult mortality  Tuberculosis was wiped out  1980-1995: The age of delayed Aging o People aged 50-100 experience big drops in mortality o Progress is made fighting degenerative disease  These four stages correspond to the age of pestilence and famine, the age of receding pandemics, and the age of man-made disease:  Omran’s Three Stages: The age of pestilence and famine o Corresponds to Malthusian assumptions and predictions o Economy is based on agriculture and the use of natural resources o Sporadic improvements in tech/productivity unable to keep pace with population growth o Clark: living standards in societies without settled agriculture were better than living standards in preindustrial areas o Average life expectancy is between 20 and 40 o Females have higher mortality rates than males due to childbirth  The age of Receding Pandemics o Pandemic is an epidemic that is global o Epidemic is the outbreak of contagious disease o Endemic is constantly present, predictable deaths o Mortality rates decline sharp and permanent  Life expectancy at birth is now about 50  Female mortality now lower than males o Battles against pandemic and endemic diseases undergirded by farming, engineering, and transportation breakthroughs o Developed imports of medical tech has doubled life expectancy since 1940  However, mortality rates still very high  The Age of Degenerative and Man-made Disease o People have high standard of living, contract degenerative disease due to length of life o Man-made disease caused by risking behaviour  Smoking, drinking, over-eating, high-fat diet, etc. 27. Crisis vs. Chronic Death Rates  Crisis: Unpredictable and Chronic: Everyday  Vallin’s calculations: See Calculations page  Economic Consequences of the Black Death o Killed 1/3 of Europe’s population in the 14 century o Many died because of poor level of nutrition, sanitation, and medical knowledge o The survivors actually benefitted from the new rising standard of living  Less people = more space and higher wage Why violence has declined – Pinker 2011  1) Pacification o Rise of state societies o Governments now have monopoly on force  15% of deaths  <5% of deaths  2) Civilization o Literacy  literature is now relevant, education is facilitated o IQ has increased reason and empathy o Decline in culture of honour o Humanitarian revolution  Anti-slavery, anti-cruelty, anti-torture o Rights revolution  Minorities, women, focus on the powerless Guardian Culture Commercial Culture Trading is not classy Force is not classy Power and advantage Voluntary agreements Loyalty Honesty Revenge Respect contracts Tradition Innovation Wisdom, co-operation, common Wisdom, co-operation, common sense, savings sense, savings 28. Mortality Policy  Degenerative diseases generally attract more funding than endemic poorer nations  Targeting the root problem is more effective than the symptoms  Use a cost-benefit analysis  VSL: Value of a Statistical Life o Amount a group would pay to reduce the overall mortality rate, not knowing which of them will die o Inferred by how much extra wage a risky job receives, or how much more you would pay for added safety features on a vehicle o Average about $7 million for every middle-aged life saved  Older people are “valued” less, because they have less time  QALY/DALY o Perfectly healthy life has a DALY score of 0 and a premature death has a score of 1 o QALY scores are not intrinsic worth or medical judgment. Not an economic assessment either o They are the preferences of the individual, calculated by asking those how much of a healthy life they would have for their disability  Example: 1 year paralyzed = 10 months healthy o DALYs are weighted by two factors  When: A year of disability which is expected in future years is discounted relative to this coming year with same disability  Whom: A year of disability at an old/young age is given less weight compared to a person of middle age  Weighted age= age -BetaAge o DALYs measure pain to people still alive who are concerned with earning ability 29. How The Economy Affects Fertility Introduction  Birth rate: births/midyear population x 100  Fertility: Births/midyear population of woman 15-49 x 1000 o 15-19 fertility rate=live births to 15-19s/mid-year population of 15-19s x 1000  Fertility rate of females over 30 has been rising since 1970 o Postponement of child-bearing  Completed fertility rate: when women born the same year (birth cohort) are no-longer of child bearing age  Total Fertility Rate (hypothetical) o Assumes women behave the same at each age group over their life  Example: women who are 25 in 2010 will not behave the same when they are 30 in 2015 o ASFR of all age groups/1000 x range of age groups o Replacement rate is 2.1. Canada’s is 1.58 o TFR has been declining since 1926 (with exception of baby boom) o Females babies of ASFR and then compute TFR, we have gross reproduction rate o Adjusted TFR = TFR (t) / (1-r(t))  R(t) = avg age of woman giving birth(t+1) – avg age of woman giving birth (t-1)  TFR = 1-0.06 = 1.6/0.94 = 1.7 2002 o Birth-order specific TFR computes for one kind of child (eldest, second, third etc) Bonus: How the Assiniboine Died of Small Pox 1. Demography: 15% die during epidemic 2. Environmental Science a. 8219  5243 = 36% less 3. Epidemiology a. Mortality rate = incident rate x case mortality 4. Economics a. Big drop in beaver pelt trade 5. Reports from trading post a. P(1808) = 6,800 b. P(1782) = e 26(0.0= 6800 c. P(1782) = 5243 30. Determinants of Fertility  Opportunities o Factors include:  Degree of social isolation  Sexual activity rates  Sex ratio  Usual age of marriage or living  Types of marriage (polygamy vs monogamy)  Absence of spouse  Likelihood of divorce  Time between unions o Social and religious norms, income, geography, and political crises influence these factors o Prosperity, peace, and secularization mean greater opportunities  Ability to achieve intentions o Parents must be healthy, women must be able to carry a child to term o Breastfeeding, malnutrition, disease, and stress all interfere with pregnancy o Parents may have trouble limiting family size  Religious and secular limitations  Some are ignorant of birth control or do not have access o “Fertility Trap”: delayed child-bearing until the parent’s fertility has declined or there are too few years to give birth to originally intended number of children  Big one was caused by collapse of communism  Economic prosperity is essential  Intentions o Social and religious traditions may discourage any deviation from the norm o Decision makers:  West: heterosexual couple relying on own powers  Others: Husband has more influence, or parents do o Target number of children depends on:  Personal preferences  Social and religious norms  Infant and child mortality  Economic considerations  Previous experience with children o Extra children are sometimes born trying for desired characteristics o Genetic testing is probably reducing overall fertility  75% of fetuses identified as having down syndrome were aborted o Secularization is associated with falling fertility rates more than anything else  Encourages education, personal development, and decision making without religious authority 31. Economic Influences on Desired Family Size  Some parents may look to their children for security but if the capital:labour ratio is low and returns to capital is greater than returns to labour o Government needs to implement:  Employment insurance  Pensions  Safe saving investments o Citizens can then divert money away from children and support themselves o Child Utility Function  Maximize U (NQ, S)  N = # of kids, Q = childhood activities  S = Stuff you would do without kids o Parental constraints: wage income, limited amount of time which for one of the parents is allocated between work and childcare  Time spent with children means no wage now and a lower wage in the future o If t
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