Alex Tabarrok

Here is an example of price discrimination from the National Museum of India in Delhi, India. Motivating question for discussion. Is this fair or ethical? Would it be legal in the United States?

IndianPriceDiscrim

Today I spoke at Brookings India on Online Education and India. One of the things I discussed was how online technology and AI can dynamically adjust content to the needs of an individual learner. An Indian firm, Mindspark, is a leader in mathematics education that is synchronized to an individual student’s actual ability regardless of grade. The ubiquitous Karthik Muralidharan with co-authors Abhijeet Singh and Alejandro Ganimian have an important paper doing a RCT on Mindspark, finding large gains in math ability and also in Hindi ability for students who win vouchers to the program. David Evans at Development Impact the World Bank blog has an excellent post on the Mindspark RCT.

I want to focus on a different issues: the personalization of education is especially important in India because classes often contain students of widely different abilities. Here’s a graph from Muralidharan et al. showing the student’s grade along the horizontal axis with the student’s actual ability on the vertical axis. The students are drawn from a sample of Delhi public schools.

Grades

The graph shows two things of importance. First, if most students were operating at grade level the dots/students would be clustered around the blue line. But very few students in grade 6 are operating at a grade 6 level–most are operating at a grade 3 or 4 level and some even at a lower level. The distribution of ability level in the same grade is extreme. No math teacher can be expected to teach students in the same class who are operating at grade levels 2-7. Even if the teacher teaches to the level of the average student the material will go over the heads of many. As a result, many students do not progress. Indeed, the second point is shown by the red line, the best-fit line for academic growth. The growth in achievement is slower than the growth in the standard. As a result, over time students fall further and further behind the standard.

Keeping all students in the same grade at a similar level of ability would be excellent and the best way to do this is by teaching to a student’s actual ability but the only way to do that on an economical basis is through online learning and AI technology.

The Pathology of Domestic Aid

by on February 15, 2017 at 5:19 am in Uncategorized | Permalink

Arvind Subramanian, Chief Economic Adviser to the Government of India, and co-authors have a nice summary of the effect of internal domestic aid on governance (the longer version is a chapter in the excellent Indian Economic Survey.) The bottom line is this:

The evidence suggests that all the pathologies associated with foreign aid appear to manifest in the context of intra-country transfers too

In particular, using one measure of aid to states, Redistributive Resource Transfers or RRT the authors find:

rrtHigher RRT seem to be associated with:

  1. Lower per capita consumption
  2. Lower gross state domestic product (GSDP) growth
  3. Lower fiscal effort (defined as the share of own tax revenue in GSDP)
  4. Smaller share of manufacturing in GSDP, and
  5. Weaker governance.

Causality likely goes both ways of course but using an instrumental variable of distance to New Delhi (which correlates with transfers) the authors find suggestive evidence, as shown in the figure, that transfers are a cause of weaker governance.

It’s interesting to read an official government report which discusses instrumental variables!

For years, muscular dystrophy patients in the United States have been purchasing the drug deflazacort — used to stabilize muscle strength and keep patients mobile for a period of time — from companies in the United Kingdom at a manageable price of $1,600 a year.

But because an American company just got approval from the Food and Drug Administration to sell the drug in the United States, the price of the drug will soar to a staggering $89,000 annually, the Wall Street Journal reported last week.

Because the FDA restricts the importing of drugs from overseas if a version is available domestically, patients are stuck with the new, expensive version. This makes deflazacort the perfect case for advocates of international drug reciprocity — a reform that would make it easier for consumers to buy drugs that have been approved in other developed countries.

That is the introduction to an interview with yours truly in the Washington Post. I discuss thalidomide and the race to the bottom argument. Here is one other bit:

IT: Do you have any thoughts about the potential for FDA reform under this new administration and Congress?

AT: Peter Thiel’s speech at the Republican National Convention reminded us that we used to take big, bold risks — like going to the moon. Today, to say a project is a “moon shot” is almost a put-down, as if going to the moon never happened. We have become risk-averse and complacent, to borrow a term from my colleague Tyler Cowen. The result of the incessant focus on safety is playgrounds without teeter totters, armed guards at our schools and national monuments, infrastructure projects that no longer get built, and pharmaceutical breakthroughs that never happen.

The new administration is unpredictable, but when it comes to the FDA, unpredictable is better than business as usual.

The administration has yet to appoint a great FDA commissioner. Early names floated included Balaji Srinivasan, Jim O’Neill, Joseph Gulfo, and Scott Gottlieb but Srinivasan seems to have removed himself from the running. O’Neill would be great but I don’t think the US is ready, so that leaves Gulfo and Gottlieb. My suspicion is that Trump will like Gulfo because of Gulfo’s entrepreneurial experience but, as I said, the new administration is unpredictable.

Jeremy McLellan is a comedian but like all great comedians he captures truths and complexities underneath the laughs.

Valentine’s Day is a just a fake holiday invented by Hallmark to sell greeting cards. So what have you invented recently to make people happy? Nothing, that’s what!

In three lovely sentences McLellan recaps Hayek versus Galbraith on the nature of advertising, consumer demand and entrepreneurship. Entire dissertations could be written parsing this out.

The world’s largest exporter of roses is an Indian firm, Karuturi Global, which has leased 3,000 square kilometers of land in Ethiopia.

I talked today about globalization and the price system using Valentine’s Day and the rose market as a jumping off point. I spoke at the Sarla Anil Modi School of Economics at NMIMS in Mumbai. The students were excellent. Lots of well informed, enthusiastic questions, and debate.

Here is a bit of what I said:

India Fact of the Day

by on February 8, 2017 at 7:36 am in Economics, Law, Travels | Permalink

In India it is illegal for the police to arrest a woman after dark. The law apparently stems from a case decades ago when a woman was arrested at night and raped by the police. The law doesn’t seem like the second-best way to prevent police rapes let alone the best way. But what should an enlightened court do? Rape is already illegal. The courts create law but the law doesn’t rule. Thus, instead of obliging the police to control themselves the law gives women the grounds to refuse arrest. Imperfect but perhaps easier to monitor.  In India the state is so weak that third and fourth best solutions may be the only ones possible.

The Demand for Applause

by on February 5, 2017 at 2:07 am in Current Affairs, History | Permalink

I was reminded today of the story recounted by Solzhenitsyn in The Gulag Archipelago about how the great leader demanded applause:

At the conclusion of the conference, a tribute to Comrade Stalin was called for. Of course, everyone stood up (just as everyone had leaped to his feet during the conference at every mention of his name). … For three minutes, four minutes, five minutes, the stormy applause, rising to an ovation, continued. But palms were getting sore and raised arms were already aching. And the older people were panting from exhaustion. It was becoming insufferably silly even to those who really adored Stalin.

However, who would dare to be the first to stop? … After all, NKVD men were standing in the hall applauding and watching to see who would quit first! And in the obscure, small hall, unknown to the leader, the applause went on – six, seven, eight minutes! They were done for! Their goose was cooked! They couldn’t stop now till they collapsed with heart attacks! At the rear of the hall, which was crowded, they could of course cheat a bit, clap less frequently, less vigorously, not so eagerly – but up there with the presidium where everyone could see them?

The director of the local paper factory, an independent and strong-minded man, stood with the presidium. Aware of all the falsity and all the impossibility of the situation, he still kept on applauding! Nine minutes! Ten! In anguish he watched the secretary of the District Party Committee, but the latter dared not stop. Insanity! To the last man! With make-believe enthusiasm on their faces, looking at each other with faint hope, the district leaders were just going to go on and on applauding till they fell where they stood, till they were carried out of the hall on stretchers! And even then those who were left would not falter…

Then, after eleven minutes, the director of the paper factory assumed a businesslike expression and sat down in his seat. And, oh, a miracle took place! Where had the universal, uninhibited, indescribable enthusiasm gone? To a man, everyone else stopped dead and sat down. They had been saved!

The squirrel had been smart enough to jump off his revolving wheel. That, however, was how they discovered who the independent people were. And that was how they went about eliminating them. That same night the factory director was arrested. They easily pasted ten years on him on the pretext of something quite different. But after he had signed Form 206, the final document of the interrogation, his interrogator reminded him:

“Don’t ever be the first to stop applauding.”

Let’s recognize Frederick Douglass more and more for his terrific views on immigration:

I submit that this question of Chinese immigration should be settled upon higher principles than those of a cold and selfish expediency.

There are such things in the world as human rights. They rest upon no conventional foundation, but are external, universal, and indestructible. Among these, is the right of locomotion; the right of migration; the right which belongs to no particular race, but belongs alike to all and to all alike. It is the right you assert by staying here, and your fathers asserted by coming here. It is this great right that I assert for the Chinese and Japanese, and for all other varieties of men equally with yourselves, now and forever. I know of no rights of race superior to the rights of humanity, and when there is a supposed conflict between human and national rights, it is safe to go to the side of humanity. I have great respect for the blue eyed and light haired races of America. They are a mighty people. In any struggle for the good things of this world they need have no fear. They have no need to doubt that they will get their full share.

But I reject the arrogant and scornful theory by which they would limit migratory rights, or any other essential human rights to themselves, and which would make them the owners of this great continent to the exclusion of all other races of men.

See also this earlier post by Ilya Somin.

Brad Stone’s The Upstarts

by on January 31, 2017 at 7:22 am in Books, Economics, Law | Permalink

Today in the WSJ I review Brad Stone’s new book about Airbnb and Uber, The Upstarts. Here is one substantive bit:

upstartsInstead of thinking about how to protect the hotel and taxi industries, policy makers should be thinking about how to make it easier for the next Airbnb or Uber to compete. They could require, for instance, that key application program interfaces remain open to competitors, just as some utilities are required to allow alternative energy companies to send electricity through their networks.

Likewise, it’s not obvious that requiring Uber to contract with drivers as employees rather than as independent contractors is a good idea, even for the drivers. Lots of people are willing to drive for Uber, which suggests that Uber is providing drivers with opportunities superior to those that they can find elsewhere. The first rule of the regulator’s oath should be: “Do not destroy mutually profitable exchanges.” Banning the independent-contractor model could also make it harder for cash-strained startups to compete with Uber. Uber might even accept new regulations as a way of raising the costs of its rivals and locking in its monopoly. From upstart to rent-seeker in just seven years—the speed is astounding, but the arc is commonplace.

Read the whole thing.

Stanley Pignal, the new Mumbai-based South Asia correspondent for The Economist, tweeted:

Having landed two hours ago, I’m upgrading myself from “India novice” to “India watcher”. Tomorrow “expert”, next week “veteran”

With that in mind as also applying to me, here are some initial thoughts:

People in India drive on the wrong side of the road and I’m not talking about the fact that they drive on the left.

It’s easier to find a good Indian restaurant in Fairfax than in Bandra.

The quality of the intellectual class relative to GDP per capita is the highest of any country I know.

The quality of the intellectual class at the top is as high as Singapore but in Singapore the intellectual class runs the government.

You can take a 1-hour UBER ride for a $5, A taxi is even cheaper. A 10-minute auto-rickshaw drive is 50 cents.

Google FI worked right off the airplane. If you are coming to India for a week or two it’s great. Oddly, however, all of the Indian apps for food delivery, calling the Indian equivalent of UBER or paying with digital cash only accept an Indian telephone number so I am going to have to get a SIM card. Unfortunately, for reasons unknown, getting a Sim card is a bureaucratic hassle although apparently it’s scheduled to get better.

English is fine for getting around. The surprise is the number of Indians who don’t speak English and yet have to operate in a world in which advertising, signage, operating instructions, and so forth are in English.

Netflix works!

Inequality as measured by a standard Gini index is actually lower in India than in the United States. As measured by what you can see, however, inequality is very high. It’s easy to step out of a Louis-Vuitton boutique and over a child sleeping in the street. Doesn’t appear to be causing a revolution, however.

Crime is low. Much lower than in the United States.

Pollution is high, much higher than in the United States, and at levels that do not seem optimal even give low GDP per capita.

In the developed world you go outside for fresh air. In India you go inside for fresh air. (Many homes and businesses have air purifiers with hepa air filters. I bought two.)

PM Modi wants to bring Elon Musk’s hyperloop technology to India. Delhi to Mumbai in an hour. Mumbai to downtown Mumbai in an hour and a half…on a good day. Start simple!

Retail, one of the largest sectors in many economies including India, is very inefficient. You have to go to a dozen small stores in different parts of town to get half of what you need. I was surprised to see a Walmart in Mumbai on Google maps. Great! I took an Uber. It was fake.

Parts of Mumbai are reminiscent of Havana–elegant buildings put up in earlier times including some art-deco buildings, that are now falling apart and even abandoned due to rent control and poor land use policy. At the same time, Mumbai looks like Miami with much new construction interwoven with the older decay. Capitalist shoots pushing out of socialist pavement.

The Power of Online Education

by on January 27, 2017 at 2:21 am in Economics, Education | Permalink

One of the best things about teaching at Marginal Revolution University is the emails that Tyler and I receive from our students all over the world. Here’s a recent email we got from Rasim Mollayev, a student in Azerbaijan.

Sir! I’m writing this from Baku, Azerbaijan. I am studying at ADA University in Baku. Due to my personal and health problems I couldn’t attend my lectures properly in previous Fall 2016 semester. I missed most of my “Principles of MicroEconomics” class.

And then I found your videos on YouTube and prepared for all my midterm and final exams with your videos and quizzes. And passed that course successfully. I just wanted to say thanks for your great help.

Cool!

In India, a whopping 21% of the Members of Parliament have serious criminal cases against them. Why are criminals successful in politics? Writing in the FT, David Keohane reviews Milan Vaishnava’s excellent new book, When Crime Pays: Money and Muscle in Indian Politics.

Vaishnav’s main explanation for the continued electoral success of criminally tainted politicians is quite simple: They provide services the state does not.

In short, the state has failed to keep up with its voters’ expectations and that failure — of the rule of law along with many basic services — has allowed criminal politicians to serve in lieu of the state: providing protection, social welfare of a sort since the state makes it hard to get even a drivers license without paying a bribe, dispute resolution in the absence of a functioning court system etc. As Vaishnav says, the corrupt politician becomes “the crutch that helps the poor navigate a system that gives them so little access” in the first place….

In no time, Dagdi Chawl became ground zero for Mumbai’s notorious underworld. From his fortress-like compound, Daddy dispensed patronage, protection, and even justice to local residents. Journalists who came to interview Gawli wrote of the hundreds of men and women — unemployed youth, ageing widows, aspiring gangsters, and established politicians — who queued up on a daily basis in front of the iron gates of Gawli’s compound just for a few minutes of face time in the hopes of being showered with Daddy’s munificence. They came seeking building permits, ration cards, welfare payments, employment — a things the state was meant to provide but was either unable or unwilling to.

So, “a reputation as a matabhare (literally, ‘heavy handed’) person is considered to be an asset” in India because the state is so absent in so many ways.

Frances Kelsey Syndrome

by on January 25, 2017 at 7:30 am in Economics, Law, Medicine | Permalink

Occasionally I have been told that FDA reform is something that only a few libertarian economists support. But in fact, there is strong support for reform in much of the medical community. See, for example, the survey that Dan Klein and I did on off-label prescribing and FDA reform or the many surveys of physicians done by CEI.

I mentioned Dr. Vincent DeVita in my post, Will Trump Appoint a Great FDA Commissioner? It’s worthwhile exploring DeVita’s views at greater length because he is a prominent figure in the field of oncology. Here, from Wikipedia, is some background on DeVita:

Vincent Theodore DeVita, Jr., MD is an internationally recognized pioneer physician in the field of oncology. DeVita spent the early part of his career at the National Cancer Institute (NCI). In 1980, the president of the United States appointed him as director of the NCI and the National Cancer Program, a position he held until 1988. While at the NCI, he was instrumental in developing combination chemotherapy programs that ultimately led to an effective regimen of curative chemotherapy for Hodgkin’s disease and diffuse large cell lymphomas. Along with colleagues at the NCI, he developed the four-drug combination, known by the acronym MOPP, which increased the cure rate for patients with advanced Hodgkin’s disease from nearly zero to over 70%.

DeVita was the Director of Yale Cancer Center from 1993 to 2003. He is currently the chair of the Yale Cancer Center advisory board and is professor of internal medicine and of epidemiology and public health at Yale’s medical school.

DeVita currently serves on the editorial boards of numerous scientific journals and is the author or co-author of more than 450 scientific articles. He is one of the three editors of the popular textbook (also available online) Cancer: Principles and Practice of Oncology and serves as the editor-in-chief of The Cancer Journal.

In his book, The Death of Cancer, DeVita has a chapter on the FDA. The title of that chapter? Frances Kelsey Syndrome. He writes:

The thalidomide episode sent the message to those who worked at the FDA that the way to do right by people was to say no. Saying yes would prove perilous–not only to patients, but to the careers of a reviewer. As a result, the agency tends to reward those who say no, not yes. (In fact, there’s an annual Frances Kelsey award. But there are no awards for getting a good drug quickly into the public domain.)

Exactly right. Later he discusses another problem that he sees with FDA evaluation procedures:

We are approaching what we might have considered nirvana years ago. We can design drugs that will hit a specific target, and by being so specific, they have fewer side effects. But because effective treatments almost always require hitting more than one target at the same time, some very good and relatively safe cancer drugs show no evidence of effectiveness when used alone.

What a dilemma. After spending millions of dollars developing a drug, a company may be forced to abandon it for lack of efficacy, when, if approved, it would be another exciting tool for clinical investigators who want to explore combinations of targeted therapies in post-market research trials. Compound that with the FDA’s insistence on testing them first on patients with very advanced, resistant disease, and many potentially useful drugs don’t look so good. As a result, drug companies are reluctant to invest money in new cancer drugs, because they might never make it past the FDA’s hurdles.

DeVita may be wrong but he’s certainly not uninformed.

DIY Gene Therapy

by on January 24, 2017 at 6:03 am in Economics, Law, Medicine, Uncategorized | Permalink

As I noted in yesterday’s post, Will Trump Appoint a Great FDA Commissioner?, personalized medicine is a challenge to the FDA. Technology Review has an excellent piece on an extreme version of personalized medicine, DIY gene therapy:

Hanley, 60, is the founder of a one-man company called Butterfly Sciences, also in Davis. After encountering little interest from investors for his ideas about using DNA injections to help strengthen AIDS patients, he determined that he should be the first to try it. “I wanted to prove it, I wanted to do it for myself, and I wanted to make progress,” says Hanley.

Most gene therapy involves high-tech, multimillion-dollar experiments carried out by large teams at top medical centers, with an eye to correcting rare illnesses like hemophilia. But Hanley showed that gene therapy can be also carried out on the cheap in the same setting as liposuction or a nose job, and might one day be easily accessed by anyone.

…Hanley opted instead for a simpler method called electroporation. In this procedure, circular rings of DNA, called plasmids, are passed into cells using an electrical current. Once inside, they don’t become a permanent part of person’s chromosomes. Instead, they float inside the nucleus. And if a gene is coded into the plasmid, it will start to manufacture proteins. The effect of plasmids is temporary, lasting weeks to a few months.

Hanley’s method is painful and doesn’t last long but it’s remarkable that it can be done at all.

At least one additional person who underwent self-administered gene therapy is a U.S. biotech executive who did not want his experience publicly known because he is dealing with the U.S. Food and Drug Administration on other matters.

Hanley says he did not secure the approval of the FDA before carrying out his experiment either. The agency requires companies to seek an authorization called an investigational new drug application, or IND, before administering any novel drug or gene therapy to people. “They said ‘You need an IND’ and I said, ‘No, I don’t,’” recalls Hanley, who traded e-mails with officials at the federal agency. He argued that self-experiments should be exempt, in part because they don’t pose any risk to the public.

Hat tip: Samir Varma.