Center for Economic Policy, HKUST

The 16th China Economics Summer Institute will be held on August 23-24, 2023 by Hong Kong University of Science and Technology. The event aims to create a community of top scholars working on Chinese economic development, and is open to those interested in conducting serious economic research on China.

Check out the event program at https://cep.hkust.edu.hk/events/the-16th-china-economics-summer-institute

Exciting news! The Hong Kong Economic Policy Challenge 2023 Grand Finale in association with HKUST Center of Economic Policy and Economics Department concluded on May 6th with impressive economic policy proposals from undergraduates worldwide, addressing the pivotal issue of the labor force crisis in Hong Kong.
Congratulations to the winning teams! Check out the list of awardees at https://cep.hkust.edu.hk/news/the-grand-finale-hong-kong-economic-policy-challenge-2023

Check out this letter co-wrote by Professor Sujata Visaria on "Hong Kong’s domestic workers must have the freedom to switch jobs – like everyone else." (Source: SCMP and Ming Pao)

Chinese version please see at https://shorturl.at/dfQS1

Hong Kong’s domestic workers must have the freedom to switch jobs Readers write in about the government’s battle against ‘job-hopping’, and the city’s dentist crunch.

Roundtable meeting on Empowerment and Wellness of Migrant Domestic Workers: Explorations for Cross-sector Collaborations between Field & Academic Experts

Migrant domestic workers (MDWs) contribute to Hong Kong society both through their care work, and by enabling labour force participation, mainly of Hong Kong women. Many observers implicitly assume this is “win-win” for both sides, and specifically that this “importation” of low-skilled labour creates both short and long-term gain for the migrants. However, researchers, NGOs, and practitioners in both Hong Kong and sending countries have highlighted the challenges that prevent this happy outcome. Many have made migrant workers’ empowerment and wellness the key pillars of their research, programming and advocacy.

Find out more about the event at https://cep.hkust.edu.hk/events/roundtable-meeting-on-empowerment-and-wellness-of-migrant-domestic-workers-explorations-0

Why Micro-Credit May Leave Women Worse Off: Non-Cooperative Bargaining and the Marriage Game in South Asia

Micro-credit programmes targeting women continue to grow in South Asia, although research suggests that wives frequently hand over loans to their husbands. Women may also be unable to control the income generated by micro-enterprises. This article presents an intra-household bargaining model explaining these findings and showing how credit may leave women worse off, while benefiting men. This game-theoretic model also shows why a woman might rationally choose to give her loan to her husband even though she does not expect to benefit and knows he may not repay. Finally, the article identifies the conditions necessary for micro-credit to benefit women.

Read the paper at https://cep.hkust.edu.hk/publications-media/why-micro-credit-may-leave-women-worse-off-non-cooperative-bargaining-and-the

Photo by Rinku Jareda from Pixabay

[Update]

Team registration has been postponed to 28 April at https://lnkd.in/erVtDanB
Proposal submission deadline by 30 April

The high housing price and cost of raising a child have contributed to a declining birth rate, and stringent Covid policy over the past three years and the lack of industrial diversity have caused a brain drain amongst ex-pats and tech talents in Singapore, Canada, and the mainland, which both result in a deficiency of high-caliber talents and thus threaten Hong Kong’s competence as a city.

This year, HKEPC 2023 will receive economic policy proposals from undergraduates across universities around the world on a pivotal issue for the future of Hong Kong: labor force crisis. Through this competition, we strive to empower students in addressing this increasingly relevant problem.

Submit your enquiry at [email protected]

Is the PDS Already a Cash Transfer? Rethinking India’s Food Subsidy Policies

Critics argue that India’s mismanaged Public Distribution System (PDS), which sells subsidised cereals to poor families, should be replaced by cash transfers. Others fear cash may be misused. Using National Sample Survey data, this article demonstrates that families treat additional PDS subsidies wholly as a source of cash – exactly like a cash transfer. More worryingly, cereal consumption has not increased, despite higher real subsidies. Moreover, neither the PDS nor cash transfers are likely to raise total food expenditure in poor families. Finally, therefore, the paper explores how higher food consumption and other objectives of PDS subsidies may be achieved.

Read the paper at https://cep.hkust.edu.hk/publications-media/is-the-pds-already-a-cash-transfer-rethinking-indias-food-subsidy-policies

Photo by Dulana Kodithuwakku on Unsplash

Pandemic and containment policies in open economy

This paper analyzes the economic and epidemiological externalities of containment policies in an open-economy setting with firm entry and exit, SIR virus transmission, and a production network. Motivated by empirical evidence that non-pharmaceutical intervention policies (such as workplace closure or social distancing) are substitutes for medication-related policies (healthcare facilities and vaccine development), the authors incorporated four types of containment policies into their model. They find the workplace closure policy is the most effective in pandemic management, and social distance is a beggar-thy-neighbor strategy. Furthermore, this paper evaluates the efficacy of existing policy combinations and compares them to the optimal policy choice in the cooperative and Nash equilibrium, and a “prepare-for-worst” situation. Inter-country policy collaboration allows each country to specialize in different policies while also improving overall welfare. Real-world policies differ from optimum policies in the cooperative and Nash equilibrium, but they are closer to the second-best policies in the “prepare-for-worst” scenario, in which the U.S. policies cannot be predicted.

Read the paper at https://cep.hkust.edu.hk/publications-media/pandemic-and-containment-policies-in-open-economy

Photo by Nick Fewings on Unsplash

Resource Allocation Among Competing Innovators

Many innovative products are designed to satisfy the demand of specific target consumers; thus, the innovators will inevitably compete with each other in the product market. This paper investigates how a profit-maximizing principal should properly allocate her limited resources to support the innovations of multiple potentially competing innovators. The study finds that, as the available resources increase, the optimal diversification of investment may first increase and then decrease. This interesting nonmonotone pattern is driven by a trade-off between the risk of innovation failure and rent dissipation because of competition. Using this framework, this paper also analyzes a nonprofit principal seeking to maximize the total number of successful innovations, the probability of at least one innovator succeeding, consumer surplus, and total social welfare. A nonprofit principal tends to invest more diversely compared with a for-profit counterpart.

Key insights and policy recommendations out of this paper are discussed in the HKUST IEMS Thought Leadership Brief #46 authored by Sunny Yangguang Huang. Read the HKUST IEMS Thought Leadership Brief at https://iems.ust.hk/publications/thought-leadership-briefs/huang-resource-allocation-among-competing-innovators-tlb46

Read the paper at https://cep.hkust.edu.hk/publications-media/resource-allocation-among-competing-innovators

Photo by Markus Winkler on Unsplash

Expanding Footprints: The Impact of Passenger Transportation on Corporate Locations

This article investigates how transportation networks shape firms' geographic footprint by reducing monitoring costs of distant investments. Exploiting the staggered expansions of China's passenger high-speed rail (HSR) network, the authors document that the amount of intercity investment between a pair of cities increases by 45% with the introduction of an HSR line connecting the cities. They enhance the causal inference by applying high-dimensional fixed effects, and focusing on city pairs that are "accidentally" connected in the network. The HSR effect is the strongest in industries that require on-site monitoring, as well as for controlling stakes in large distant investments.

Read the paper at https://cep.hkust.edu.hk/publications-media/expanding-footprints-the-impact-of-passenger-transportation-on-corporate

Photo credit: Image by 终有 那天 on Unsplash

When student incentives do not work: Evidence from a field experiment in Malawi

James Berry, Hyuncheol Bryant Kim and Hyuk Harry Son study how the structure of tournament incentive schemes in education can influence the level and distribution of student outcomes. Through a field experiment among upper-primary students in Malawi, they evaluate two scholarship programs: a Population-based scholarship that rewarded overall top performers on an exam and a Bin-based scholarship that rewarded the top performers within smaller groups of students with similar baseline scores. This study finds that the Population-based scholarship decreased test scores and motivation to study, especially for those least likely to win. By contrast, they find no evidence for test score impacts among those in the Bin-based scholarship program.

Read the paper at https://cep.hkust.edu.hk/publications-media/when-student-incentives-do-not-work-evidence-from-a-field-experiment-in-malawi

Photo Credit: Image by Van Tay Media on Unsplash

Indemnification, Monitoring, and Competition: Evidence from R&D Contracts

This article examines the adoption of indemnification clauses in research and development (R&D) contracts, in which a firm commits to reimbursing its agent against liabilities and legal costs. Indemnification achieves efficient risk sharing but dilutes the agent’s incentives to take precautions. Such incentives may be restored if the firm offers contingent indemnification and monitors the agent’s activities.
By investigating R&D agreements between pharmaceutical firms and biotech agents, Xinyu Hua, Di Guo and Kun Jiang observe a positive correlation between the use of indemnification clauses and the use of termination rights that allow firms to terminate projects without cause.

Read the paper at https://cep.hkust.edu.hk/publications-media/indemnification-monitoring-and-competition-evidence-from-rd-contracts

Photo Credit: Image by Hans Reniers on Unsplash