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Economic Currents

Keep up to date with the latest UHERO news.

Forest protection provides important cost savings to water utility on Maui

Posted October 8, 2019 | Categories: Hawaii's Environment, Blog

Researchers from the University of Hawaiʻi Economic Research Organization and Water Resources Research Center partnered with the Nature Conservancy of Hawaiʻi to evaluate how native forest conservation contributes to local water supplies in a water stressed area in East Maui. They found that by preventing the degradation of native forest, conservation efforts could save the local water utility up to 137.6 million dollars over 100 years depending on a range of assumptions. This finding demonstrates that it makes practical sense for water utilities to join collective action efforts to finance watershed conservation, which in turn provides a suite of benefits in addition to water.

The team looked at potential futures of native forest under conservation versus no conservation.

Economic benefits of protecting groundwater recharge through conservation activities in Waikamoi preserve assuming a 10% spread rate of non-native species without conservation under different assumptions of future water scarcity and discount rates. The dark blue shows the part that that the water utility could finance based on savings, whereas the hatched shows the portion that could be co-financed by other entities who value the preserve. PV= present value.

Tropical forest conservation around the world provides many benefits, including supporting a diversity of flora and fauna as well a suite of ‘ecosystem services’ such as clean water and carbon sequestration. Biocultural values and livelihoods associated with tropical forests are also increasingly put forth as restoration objectives and have long motivated conservation efforts around the world. Yet, funding for tropical forest conservation remains limited and insufficient to meet the challenge of rapid biodiversity loss.

A promising partner for tropical forest conservation are emerging ‘natural infrastructure’ or investment in watershed services programs such as water funds. These programs convene water users (such as water utilities, beverage companies, non-profits, governments, and community groups) together to help finance upstream watershed management activities that help to ensure clean and ample water supplies for downstream cities and communities. Tropical forest conservation and restoration is often one strategy of these programs.

Yet, a major challenge is a lack of data on the potential water benefits and cost savings associated with watershed conservation efforts such as fencing and weed control that prevent the establishment of non-native species. In response to this gap, the UH team compared the groundwater recharge benefits of the Nature Conservancy’s Waikamoi Preserve with and without conservation actions over 100 years. They also expressed this difference in dollars based on cost savings to the water utility achieved through reducing reliance on more expensive alternatives.

UHERO graduate student Sarah Medoff hikes in the Waikamoi preserve.

The Nature Conservancy’s ~ 2,700 hectare Waikamoi preserve is the State of Hawaiʻi’s largest private nature reserve. The preserve is a truly exceptional places that provides a suite of interconnected benefits to the people of Hawaiʻi and the world, from conserving threatened and endangered bird and plant species to the deep interconnected cultural values associated with these ecosystems. This study found, that in addition to these benefits, conservation in Waikamoi also makes an important contribution to local water supplies. Through partnering with other groups and agencies to co-finance watershed conservation, water utilities can cost-effectively meet their water supply needs while also protecting a suite of other benefits associated with the preserve and other similar areas.

Modeled spread of non-native canopy species in Waikamoi without conservation (assuming a 10% spread).

UHERO team at Waikamoi with The Nature Conservancy.

- Leah Bremer

This study was published in Science of the Total Environment with authors Leah Bremer, Sarah Medoff, Chris Wada, Kimberly Burnett, and Kim Falinksi. The work was supported by The Nature Conservancy of Hawaiʻi and the National Science Foundation EPSCoR ʻIke Wai project.


Jones Act

Posted October 7, 2019 | Categories: Blog

The Merchant Marine Act of 1920, commonly known as the Jones Act, is a cabotage law that requires that all goods transported via water between two U.S. points be carried on ships that are American built, owned, crewed, and flagged1. The Jones Act was passed in response to World War I, with the goal of ensuring that the U.S. had a merchant marine fleet that was capable of assisting in times of war or emergency. Proponents also contend that the Jones Act supports domestic employment in the maritime industry.

While other countries also place limitations on international vessels, the U.S. is ranked as having the most restrictive maritime transport industry among all OECD countries. Critics argue that the Jones Act is a form of protectionism that impedes domestic trade and increases prices. The Act has been politically controversial, especially during recent hurricanes when the U.S. has temporarily waived these restrictions. The need for these waivers raises questions about whether the Jones Act has successfully maintained a domestic fleet capable of assisting in times of emergency. Furthermore, the U.S. does not impose similar American-built restrictions on rail, truck, or air transportation.

In the century since the Jones Act was passed there has been a dramatic rise in the Asian shipbuilding industry, due to improved production methods, specialization, and standardized designs. It cost about 20% more to build a large merchant ship in the U.S. than in a foreign shipyard in the 1920s, but now it costs approximately 400-500% more (see Figure 1) The number of private U.S. shipyards capable of making large merchant ships has plummeted (from 64 post-WWII to 3 today). As a result, the number of American-built Jones-Act-eligible ships has decreased from 195 in 1997 to 92 in 2016, while the number of non-Jones Act eligible has remained relatively stable (see Figure 2). The U.S. was the preeminent shipbuilding nation post WWII, but now 91% of large merchant ships are built in Japan, Korea, and China. Thus, the requirement that domestic water shipments be transported on American-built vessels has become more onerous over time.

Figure 1

Figure 2

In a recent UHERO working paper titled “Cabotage Sabotage: The Curious Case of the Jones Act,” I use a large data set on the movement of 43 different commodities by mode of transport (i.e. air, water, truck, rail) between every U.S. state over the period 1997 to 2016, to investigate whether the Jones Act has indeed reduced domestic water shipments. Using consumer price data, the paper also examines whether the Jones Act has increased prices. The causal effect of the declining capacity of Jones Act ships on both domestic shipments and prices is identified using econometric techniques.

The first set of results show that the Jones Act has reduced domestic water shipments relative to shipments via other modes of transport and relative to imports from abroad. These are useful counterfactual groups because neither imports nor shipments via other modes of transport are regulated by the Jones Act. The findings show that a ten percent decline in the capacity of Jones Act ships reduces domestic waterborne shipments by 4.7% relative to other modes of transport and by 11.4% relative to waterborne imports. The effect of the Jones Act on domestic water shipments is found to be stronger in coastal states and for commodities that are typically transported via water. Overall these findings confirm an intuitive but important point that as domestic water trade becomes more difficult, due to the Jones Act, shipments shift to other modes of transport or the U.S. acquires these goods from abroad instead.

The second set of results show that as domestic shipments into coastal states decline, due to the Jones Act, prices increase. Using a back of the envelope calculation, these findings indicate the decline in Jones Act ship capacity can explain 2.6% of the observed increase in prices from 1997 to 2016.

These findings support common, but to date unverified, claims that the Jones Act has reduced domestic water trade between U.S. states and this in turn has increased domestic prices. Whether these drawbacks outweigh the potential benefits to the domestic maritime industry is an open question. However, at the very least these findings indicate that the costs associated with the Jones Act are empirically important and should be taken into account by policy makers.

- Will Olney


1In order to be classified as American built the hull and superstructure of the ship must be produced in the U.S. and all assembly must occur in the U.S. American ownership is defined as U.S. citizens holding at least a 75% controlling interest in the business entity. The ship must be flagged (i.e. registered) in the U.S. and is thus subject to U.S. laws. Finally, the crew is required to be U.S. citizens or permanent residents, but no more than 25% of the crew can be permanent residents and all officers and engineers must be U.S. citizens.

Tariff Peril

Posted May 8, 2019 | Categories: Hawaii's Economy, Blog

In a Sunday Tweet, President Trump threatened this week to increase dramatically the tariffs he has placed on imports from China. The aggressive trade policies of the administration and retaliation by foreign countries are already having an adverse impact on the US, China, and other trade partners. Further escalation could potentially lead to a broad global slowdown. How large are these effects likely to be?

So far, there have been several rounds of US actions. To date these include tariffs on imported washing machines and solar panels and levies on imports of steel and aluminum. The administration has imposed 10% bilateral tariffs on $50 billion of imports from China, later expanded to another $200 billion of Chinese goods. Levies on imported autos and parts are also under consideration. In this week’s announcement, the President threatened to go ahead on Friday with a previously announced hike to 25% tariffs on Chinese goods, citing the unwillingness of China to move forward with structural changes demanded by the US in ongoing negotiations.

In each of these cases so far, other countries have retaliated in kind, often choosing targets for maximum political effect, including Harley Davidson motorcycles and Kentucky bourbon. In some cases, the possibility of levies has forced partners into trade agreements or at least negotiation. Threatened tariffs on auto imports from the European Union have been held off for now pending trade negotiations. Under threat of further trade restrictions, Canada and Mexico have agreed to a new deal to replace NAFTA. And President Trump has suggested that an expansion of tariffs to the remaining $267 billion in US purchases from China might be avoided if a trade agreement can be struck soon.

There is an overwhelming consensus among economists that these restrictive trade measures are harmful to many countries—including the US. Immediate costs include higher prices on imported consumer goods, higher production costs from imported inputs, and decreased access to foreign markets. While there will be some US jobs created as some production is re-shored, the number will be small, and other jobs will be lost as US companies are forced to abandon highly efficient global production arrangements or move offshore. Potential losses could hit business expectations and investment, and financial markets could also be affected, as recent volatility illustrates. In the long run, the US will lose out on opportunities by locking itself out of new trade liberalization agreements.

How large are these costs likely to be? The direct effect of the measures taken so far is fairly small. For example, the New York Times estimates that the appliance and solar panel tariffs and the 10% levy on $250 billion of Chinese imports will cost the average American family $127, about two-tenths of one percent of income. The International Monetary Fund estimates that the threatened hike in tariffs on China to 25%, on top of measures already implemented by the US and Chinese, will still take just two-tenths of a percent off US GDP and half a percent off Chinese output.

But estimates of adverse effects grow much larger if all threatened additional actions are carried out and equivalent foreign retaliation occurs. Throw in knock-on effects on confidence and investment and adverse stock market reaction, and the IMF estimates 2019 losses of nearly 1% of GDP for the US and 1.6% for China. The global economy overall would take a hit of nearly 1% of GDP. The United Nations separately estimates that spiraling trade barriers could cut world growth by more than 1%.

It is unclear how likely it is that all of these actions and reactions will occur, particularly the potential falloff in capital investment and equity markets. But the bottom line is that Trump’s trade policies are already hurting the US. And a full-blown trade war would certainly have enough juice to edge us toward the next global downturn.

Effects of trade policy relative to baseline GDP levels

- Byron Gangnes, Peter Fuleky, and Carl Bonham


The Impact of Medicaid on Health Care Utilization among Hawai‘i’s COFA Migrants

Posted April 16, 2019 | Categories: Blog

The Compacts of Free Association (COFA) are treaties between the United States (US) and three Micronesian nations: the Republic of Palau, the Republic of the Marshall Islands, and the Federated States of Micronesia. Collectively, citizens of these nations are often referred to as “Micronesians.” COFA guarantees Micronesians free entry into the United States, the ability to work, and access to health care. Because of these provisions, many citizens of these nations have immigrated to the United States. Most COFA migrants reside in Hawai‘i and Arkansas. Currently, Hawai‘i is estimated to have about 28,000 COFA migrants. While precise motives for migration vary, economic considerations and threats from climate change throughout Micronesia provide strong incentives to leave COFA nations to come to the US. In addition, many citizens of COFA nations come to the US due to the lack of adequate health care in Micronesia.

Prior to 1996, COFA migrants in the US were eligible to obtain health insurance from the federal Medicaid program. However, welfare reform in 1996 made this group ineligible for federal funds through Medicaid. Note that Medicaid reform provided provisions for many immigrants to be eligible for Medicaid after residing for five years in good standing in US. However, because most COFA migrants are not classified as immigrants, but as “non-qualified aliens,” this provision did not apply to them. Hence, on one hand, COFA guaranteed this population access to health care in the US, but on the other hand, the 1996 welfare reform prohibited COFA migrants from obtaining it from the federal government.

Despite the lack of federal Medicaid financing for COFA migrants, the State of Hawai‘i continued to provide coverage via state-funded health insurance in various forms for many low income COFA migrants, including through a state Medicaid plan provided by the State of Hawai‘i Medicaid agency (called Med-QUEST). Due to a court ruling in April of 2014, however, state Medicaid coverage for this population was suspended1. As a consequence, most non-disabled, non-infant, non-pregnant, and low income COFA migrants were ultimately denied access to traditional Medicaid benefits in March of 2015. Instead, they were asked to obtain private health insurance through the health care exchanges set up under the Affordable Care Act.

There are several reasons to suspect that this move from Medicaid to private insurance might have reduced the use of medical services. First, take-up rates of insurance may have declined as a consequence of the transition which may, in turn, have reduced the use of medical services. For example, enrollment in private insurance in the exchanges is notably more complicated than enrollment in the State’s Medicaid program. Medicaid has a year-round enrollment period, whereas the enrollment period on the exchanges is only six weeks. In addition, COFA migrants must first apply for Medicaid and get rejected before they can apply for insurance on the exchanges which are also not translated into COFA languages (Hofschneider 2019). Second, cost-sharing is minimal on Medicaid, whereas most private plans have co-payments and co-insurance which can be prohibitive for poorer migrants. While the premiums for this population were covered by Medicaid, payment processes and expectations can still be complex to understand and navigate, particularly, for this population.

In a recent UHERO working paper titled, “The Impact of Public Health Insurance on Medical Utilization in a Vulnerable Population: Evidence from COFA Migrants,” we investigate the effect of the expiration of Medicaid benefits on medical utilization among COFA migrants. We show that there was a sharp reduction in the number of emergency and in-patient medical care admissions charged to the State’s Medicaid program after the expiration of benefits for COFA migrants relative to the non-Hispanic white and Japanese populations in Hawai‘i. In particular, Medicaid-funded ER visits and inpatient admissions declined by 69% and 42%, respectively. This sharp reduction in utilization is consistent with other studies that have investigated the impact of the expiration of Medicaid benefits such as studies on Tennessee after it discontinued Medicaid benefits (see DeLeire 2018, Tarazi 2017, Tello-Trillo 2016). At the same time, there was a substantial increase in the number of emergency room (ER) visits and inpatient admissions charged to private payers, indicating that there was a move towards private insurance among COFA migrants after Medicaid benefits expired. However, the magnitude of this increase was smaller than the reduction in Medicaid-funded utilizations. As a result, net inpatient admissions and emergency visits declined.

These findings can clearly be seen in Figure 1. The figure shows the utilization of COFA migrants in Hawai‘i relative to our control groups for each month between January 2014 and December 2015 for both inpatient and ER utilization. The vertical line corresponds to the official expiration date of March 2015. The left panel shows a net decline of inpatient utilization after the expiration date but no relative impact prior to the official expiration date. In the jargon of the empirical microeconomics literature, this means that there were no pre-trends which is a precondition for valid causal inference. Note that these utilizations could have been charged to any payer and so they include those charged to both private and public insurers. The right panel shows that there was also a dramatic decline in emergency room (ER) visits charged to any payer. By-and-large, this decline took place after the official expiration date. However, and in contrast to inpatient utilization, we do see that the downward trend in utilization pre-dated the official expiration date. This implies that the actual treatment effect is greater than what we have estimated. While it is not entirely clear why the decline in ER utilization pre-dated March 2015, we suspect that the confusion surrounding the policy may have led many providers to believe that COFA migrants could be not enrolled in Medicaid even while they were still eligible.

This confusion can be seen by a commensurate run-up in uninsured visits to the ER by COFA migrants after and just prior to the expiration of benefits. This is shown in Figure 2 which displays uninsured ER visits of COFA migrants relative to our control groups in each month during 2014-15. First, this figure shows an increase in uninsured ER visits after the expiration of Medicaid benefits. This indicates that, in the immediate aftermath of the expiration of benefits, many COFA migrants were not enrolled in private insurance plans. Second, the figure also shows that the ramp-up in ER visits pre-dated March 2015, which is a period when COFA migrants should have been enrolled in the State’s Medicaid plan. Typical practice at most hospitals with emergency rooms is to support the enrollment of eligible, uninsured patients into Medicaid; this guarantees that the hospital will get paid for the visit. That we do not see this in the period just prior to the expiration date indicates a rigidity preventing this from happening2.

This implies that the reduction in insured COFA migrants’ ER visits was offset by an increase in the number of uninsured visits to ER. The corresponding increase in uninsured ER visits was about one-third of the decline in Medicaid funded ER visits. These were visits that ostensibly should have been covered by private insurers.

Another important result from our study is that the expiration of Medicaid benefits appears to have increased ER visits of Micronesian infants that were funded by Medicaid. This can be seen in Figure 3 where we show the effects of the transition from Medicaid by age on Medicaid-funded ER visits. We break the treatment effects down by age into five year age bins, except we used a separate category for infants. The figure shows that Medicaid-funded ER visits declined for most ages under 65 except for infants who experienced a dramatic increase. While the hospital data that we use makes it hard to pin down the precise mechanism, we suspect that the expiration of benefits for most COFA migrants may have led many to believe that their newborns were also not covered by Medicaid contrary to fact (infants remained eligible for Medicaid after March 2015). This may have led to a decline in ambulatory care for newborns that was made up for by an increased use of the ER for Micronesian infants.

In some sense, this can be viewed as a reverse woodworking effect. Benefits expired for a large swath of the Micronesian population in Hawai‘i. Many COFA migrants were actually still covered by the State’s Children’s Health Insurance Program (CHIP) program. However, it appears as if the salience of the expiration of benefits for the majority of migrants led many eligible migrants to believe that they were not covered. In a similar vein, but in the opposite direction, Frean, et al. (2017) found that the expansion of Medicaid under the ACA increased enrollment in Medicaid among people who were previously eligible for Medicaid benefits.

Our findings indicate that medical utilization declined for COFA migrants after Medicaid benefits expired. This could be good or bad. It could be good if the transition to private insurance increased the use of preventative services that reduced the need for ER visits and hospitalizations. However, many aspects of our analysis are not consistent with this story. Notably, the increase in uninsured ER visits after and just-prior to the expiration of benefits is not consistent with increased prevention. It also indicates low take-up rates of private insurance which is a pre-condition for better use of preventative care. In addition, the increase in ER visits by Micronesian infants after benefits expired appears to be consistent with a substitution of ER visits for ambulatory care, which is also not consistent with increased prevention. Our interpretation of our findings then is that the decline in utilization is probably not a reflection of increased prevention. We suspect that it is a reflection of low take-up of private insurance and the effects of costs sharing on utilization. This most likely reflects a decline in needed care.

Figure 1: Event Analysis, Inpatient and ER Utilization

Figure 2: Event Analysis, Uninsured ER Visits

Figure 3: Effects by Age

- Timothy Halliday and Randall Q Akee



DeLeire, T. (2018). The Effect of Disenrollment from Medicaid on Employment, Insurance Coverage, Health and Health Care Utilization (No. w24899). National Bureau of Economic Research.

Frean, M., Gruber, J., and Sommers, B. D. (2017). Premium subsidies, the mandate, and Medicaid expansion: Coverage effects of the Affordable Care Act. Journal of Health Economics, 53, 72-86.

Hofschneider, A, “Micronesians in Hawaii Still Struggle to Get Health Care” Civil Beat, April 3, 2019.

McElfish, P.A., Hallgren, E. and Yamada, S., 2015. Effect of US health policies on health care access for Marshallese migrants. American journal of public health, 105(4), pp.637-643.

Tarazi, W. W., Green, T. L., & Sabik, L. M. (2017). Medicaid disenrollment and disparities in access to care: evidence from Tennessee. Health services research, 52(3), 1156-1167.

Tello-Trillo, D. S. (2016, June). Effects of Losing Public Health Insurance on Healthcare Access, Utilization and Health Outcomes: Evidence from the TennCare Disenrollment. In 6th Biennial Conference of the American Society of Health Economists, Ashecon.

1For details, see McElfish, et al. (2015).

2Private communication with physicians working at Queens Medical Center in Honolulu indicated that just prior to the expiration of Medicaid benefits, there was a sense that it would be difficult to enroll uninsured COFA migrants in the State’s Medicaid program so many providers may not have put forth the effort.

Seiji Naya Memorial Lecture: From First Canoe To Statehood, Eight Hundred Years of Economic And Political Change in Hawai‘i

Posted March 15, 2019 | Categories: Blog

UHERO Fellow Sumner La Croix will be giving The Seiji Naya Memorial Lecture on Thursday, April 11th. Sumner will be talking about his new book, "From First Canoe to Statehood: Eight Hundred Years of Economic and Political Change in Hawai‘i"

Reception starts at 5:30 pm
Seminar: 6:00 pm – 7:30 pm
Shidler College of Business, Room A101

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