Essays on Firm Heterogeneity with Empirical Applications in Economic History and Agricultural Economics

This thesis uses models of firm-heterogeneity to complete empirical analyses in economic history and agricultural economics. In Chapter 2, a theoretical model of firm heterogeneity is used to derive a statistic that summarizes the welfare gains from the introduction of a new technology. The empirical application considers the use of mechanical steam power in the Canadian manufacturing sector during the late nineteenth century. I exploit exogenous variation in geography to estimate several parameters of the model. My results indicate that the use of steam power resulted in a 15.1 percent increase in firm-level productivity and a 3.0-5.2 percent increase in aggregate welfare. Chapter 3 considers various policy alternatives to price ceiling legislation in the market for production quotas in the dairy farming sector in Quebec. I develop a dynamic model of the demand for quotas with farmers that are heterogeneous in their marginal cost of milk production. The econometric analysis uses farm-level data and estimates a parameter of the theoretical model that is required for the counterfactual experiments. The results indicate that the price of quotas could be reduced to the ceiling price through a 4.16 percent expansion of the aggregate supply of quotas, or through moderate trade liberalization of Canadian dairy products. In Chapter 4, I study the relationship between farm-level productivity and participation in the Commercial Export Milk (CEM) program. I use a difference-in-difference research design with inverse propensity weights to test for causality between participation in the CEM program and total factor productivity (TFP). I find a positive correlation between participation in the CEM program and TFP, however I find no statistically significant evidence that the CEM program affected TFP.

Three Essays on Economic Development in the Natural Resources Sector

This thesis examines two ongoing development projects that received financial support from international development organizations, and an alternative mining tax proposed by the academia. Chapter 2 explores the impact of commoditization of coffee on its export price in Ethiopia. The first part of the chapter traces how the Ethiopian’s current coffee trade system and commoditization come to be. Using regression analysis, the second part tests and confirms the hypothesis that commoditization has led to a reduction in coffee export price. Chapter 3 conducts a cost-benefit analysis on a controversial, liquefied natural gas export project in Peru that sought to export one-third of the country’s proven natural gas reserves. While the country can receive royalty and corporate income tax in the short and medium term, these benefits are dwarfed by the future costs of paying for alternative energy after gas depletion. The conclusion is robust for a variety of future energy-price and energy-demand scenarios. Chapter 4 quantifies through simulation the economic distortions of two common mining taxes, the royalty and ad-valorem tax, vis-à-vis the resource rent tax. The latter is put forward as a better mining tax instrument on account of its non-distortionary nature. The rent tax, however, necessitates additional administrative burdens and induces tax-avoidance behavior, both leading to a net loss of tax revenue. By quantifying the distortions of royalty and the ad-valorem tax, one can establish the maximum loss that can be incurred by the rent tax. Simulation results indicate that the distortion of the ad-valorem tax is quite modest. If implemented, the rent tax is likely to result in a greater loss. While the subject matters may appear diverse, they are united by one theme. These initiatives were endorsed and supported by authorities and development agencies in the aim of furthering economic development and efficiency, but they are unlikely to fulfill the goal. Lessons for international development can be learnt from successful stories as well as from unsuccessful ones.

The Economic Case for Electric Mining Equipment and Technical Considerations Relating to their Implementation

Underground hardrock mining can be very energy intensive and in large part this can be attributed to the power consumption of underground ventilation systems. In general, the power consumed by a mine’s ventilation system and its overall scale are closely related to the amount of diesel power in operation. This is because diesel exhaust is a major source of underground air pollution, including diesel particulate matter (DPM), NO2 and heat, and because regulations tie air volumes to diesel engines. Furthermore, assuming the size of airways remains constant, the power consumption of the main system increases exponentially with the volume of air supplied to the mine. Therefore large diesel fleets lead to increased energy consumption and can also necessitate large capital expenditures on ventilation infrastructure in order to manage power requirements. Meeting ventilation requirements for equipment in a heading can result in a similar scenario with the biggest pieces leading to higher energy consumption and potentially necessitating larger ventilation tubing and taller drifts. Depending on the climate where the mine is located, large volumes of air can have a third impact on ventilation costs if heating or cooling the air is necessary. Annual heating and cooling costs, as well as the cost of the associated infrastructure, are directly related to the volume of air sent underground. This thesis considers electric mining equipment as a means for reducing the intensity and cost of energy consumption at underground, hardrock mines. Potentially, electric equipment could greatly reduce the volume of air needed to ventilate an entire mine as well as individual headings because they do not emit many of the contaminants found in diesel exhaust and because regulations do not connect air volumes to electric motors. Because of the exponential relationship between power consumption and air volumes, this could greatly reduce the amount of power required for mine ventilation as well as the capital cost of ventilation infrastructure. As heating and cooling costs are also directly linked to air volumes, the cost and energy intensity of heating and cooling the air would also be significantly reduced. A further incentive is that powering equipment from the grid is substantially cheaper than fuelling them with diesel and can also produce far fewer GHGs. Therefore, by eliminating diesel from the underground workers will enjoy safer working conditions and operators and society at large will gain from a smaller impact on the environment. Despite their significant potential, in order to produce a credible economic assessment of electric mining equipment their impact on underground systems must be understood and considered in their evaluation. Accordingly, a good deal of this thesis reviews technical considerations related to the use of electric mining equipment, especially ones that impact the economics of their implementation. The goal of this thesis will then be to present the economic potential of implementing the equipment, as well as to outline the key inputs which are necessary to support an evaluation and to provide a model and an approach which can be used by others if the relevant information is available and acceptable assumptions can be made.