Andrea Podhorsky, PhD

This paper develops a model of the bitcoin market that views the bitcoin as a tradeable commodity whose supply is managed by the Bitcoin protocol. Miners utilize equipment and electricity to solve complex computational problems and the first miner to solve a problem is rewarded with bitcoins. The protocol adjusts the difficulty of the problem to target a constant growth rate in the supply of bitcoins over time. The model demonstrates that an increase (decrease) in the difficulty works in effect like a government's placing an ad valorem tax (subsidy) on the price of a commodity. The rents that would have arisen from limiting supply, however, are wasted as electricity costs. It is shown that an actual tax on the price of the bitcoin can be used to displace the electricity costs. Using data from March 2014 to January 2019, it is estimated that the difficulty adjustment mechanism resulted in net welfare losses to the miners and buyers of bitcoins of 373.8 million USD. Average initial tax rates of 35% and 347.5% would have fully displaced the electricity costs and maximized their reduction, respectively..

This paper studies how information disclosed by voluntary environmental certification programs creates incentives for firms to invest in environmentally friendly process and production methods (PPMs). I develop a model with differentiated products and imperfectly informed consumers. Consumers care about the environmental characteristics of goods but cannot directly observe them. Firms differ in their ability to improve their PPMs, and have no incentive to do so absent government intervention or a program that provides information to consumers. A scheme of voluntary labels awarded to firms whose PPMs satisfy a chosen standard gives some firms enough incentive to invest to improve their technology. I use the model to explain how environmental certification programs improve consumer welfare and characterize the welfare maximizing labeling standard. Despite that taxation and regulation are more costly than certification because their compliance is mandatory, they yield greater social welfare due to their effectiveness in curtailing aggregate environmental damage.

The Fairtrade program transfers income to farmers by establishing a price floor and an alternate distribution channel that bypasses intermediaries between the raw commodity and world markets. I develop a model of the international commodity supply chain, with monopolistically competitive final goods producers and consumers who value the ethical quality of goods. A small number of oligopsonistic intermediaries purchase the raw commodity from farmers in a given country and then sell to final goods producers in the world market. I consider the effects of a Fairtrade program that is too small to have an effect on the world price of the commodity. I show that the Fairtrade program decreases the intermediaries' market power and consequently, even farmers that are not selected into the program receive a higher wage than in the absence of the program. I establish the Pareto optimal Fairtrade price and assess the overall efficiency of the program. The program is a more efficient way to transfer income to farmers than a direct transfer equal to the premium commanded by certified products if the Fairtrade price is not set too high above the efficient wage for farmers. If the number of intermediaries were large, however, then the direct transfer is more efficient than the program even for small binding price floors. Keywords: certification, Fairtrade, oligopsonistic intermediaries, supply chain.

This paper studies how the voluntary standards established by certification programs affect consumer welfare and international trade in an open world economy. I develop a two-country model with differentiated products and imperfectly-informed consumers. Consumers in both countries value the quality of goods, but cannot discern these product characteristics unless goods are certified. Firms in each country differ in their abilities to produce quality, and the distribution of technological ability is superior in the home country. I first consider the circumstance in which the home country's government unilaterally administers a certification program, while the foreign country lacks such an institution. I show that the home country's terms of trade are increasing in the standard. It follows that the standard chosen by the home country is protectionist in the sense that it is greater than the standard that would be chosen by a world welfare maximizing authority. Also, the volume of trade is lower under the home country's program than if a world authority were to choose the standard. The volume of trade and foreign welfare, however, are greater under the home country's program than if there is no certification program at all. Next, I consider the case where a certification program is administered by each country, and standards are set non-cooperatively. I show that the home and foreign country standards are strategic complements, and hence an exogenous increase in the choice of standard by one country will lead to an optimal choice of a greater standard by the other. The paper concludes with a discussion of the global inefficiencies that result from the non-cooperative setting of voluntary standards and their policy implications.