Rating the FDA by Division

by on April 24, 2014 at 7:28 am in Economics, Law, Medicine | Permalink

In previous work, I have argued that asymmetric incentives make the FDA too risk averse with the result being excessive drug lag and drug loss. The FDA, however, is not a monolithic agency, it is divided into divisions which oversee different types of drugs. The divisions have different cultures, expectations histories and understandings. In my latest paper, written with Tufts researchers Joe DiMasi and Chris Milne, we put aside the question of global efficiency and ask a different question. How do the FDA divisions rate against one another? What we find is quite surprising: some of the FDA divisions appear to be much more productive than others. From the abstract:

After reviewing nearly 200 products accounting for 80 percent of new drug and biologic launches from 2004 to 2012, the authors find wide variation in division performance. In fact, the most productive divisions (Oncology and Antivirals) approve new drugs roughly twice as fast as the CDER average and three times faster than the least efficient divisions—without the benefit of greater resources, reduced complexity of task, or reduction in safety. The authors estimate that a modest narrowing of the CDER divisional productivity gap would reduce drug costs by nearly $900 million annually. The worth to patients, however, would be far greater if the agency could accelerate access to an additional generation of (about 25) drugs. Greater agency efficiency would be worth about $4 trillion in value to patients, from enhanced U.S. life expectancy. To reap such gains, this study encourages Congress and the FDA to more closely evaluate the agency’s most efficient drug review divisions, and apply the lessons learned across CDER. We also propose a number of reforms that the FDA and Congress should consider to improve efficiency, transparency, and consistency at the divisional level.

Andrew von Eschenbach a former Commissioner of the FDA and Director of the National Cancer Institute wrote a foreword to our paper. Eschenbach writes:

The authors of this report have taken a giant step…by assembling and analyzing a wide array of publicly available information about the relative performance of individual CDER divisions….Continuous, quality improvement measures routinely used by private industry could serve FDA leadership, sponsors, and patients by discerning factors that contribute to an optimal level of performance and, more important, disseminating such practices to ensure that all divisions achieve that performance. The payoff for such an effort could be enormous.

…Process improvement should not be a controversial proposal. An organization like the FDA—which is over a century old and which has maintained its current, basic organizational framework for decades—requires new tools to adapt to changing circumstances.

…I have enjoyed no greater privilege in my professional career than serving alongside the FDA’s talented staff. Today, the agency has more potential than ever to help the U.S. lead the world in advancing a biomedical revolution, one that will have an impact on every aspect of America’s economy and health-care system by improving health, increasing productivity, and reducing overall health-care costs.

…this report should be viewed as a positive, constructive contribution to a desperately needed dialogue on how to assist the agency in fulfilling this vital national goal.

Copyright is Out of Control

by on April 21, 2014 at 7:05 am in Books, Economics, Law | Permalink

I have written about patent and copyright law primarily from the perspective of an economist interested in the institutions and incentives that maximize innovation. As a textbook author, however, I must deal with copyright law in practice. Dealing with copyright law on the ground hasn’t caused me to change my views but it has made me more frustrated. I have also come to appreciate some of the subtler costs of the system. Two cases in point.

A lot of textbooks hire a photo editor to pick generic stock photos, this simplifies things because the bundlers pre-authorize permissions and prices. But we hand picked every photo in our book to illustrate a point which means that our permissions and legal staff often have to find owners and clear permissions on an individual basis. We are grateful that our publisher is willing to do this to produce a quality product but it sometimes leads to absurdities. For example, the publisher doesn’t like to use public domain images. Why not? What could be better than free? The problem is that the bundlers insulate a publisher from lawsuits but when we use a public domain image the publisher is open to lawsuit if a mistake has been made and that makes them fearful.

The general lesson is that strong IP shrinks the public domain not just because it keeps things out of the public domain but also because it makes the public domain appear to be uncertain and dangerous. It’s as if clean, mountain spring water were freely available but people bought from the bottlers instead out of fear of contamination.

Copyright law is one of the forces behind the rise of the mega-bundlers. Mega-bundlers benefit from economies of scale in cataloging IP but there are also economies of scale in dealing with the legal system and insuring against/for lawsuit. It’s probably no accident that two of the largest bundlers, Corbis and Getty, are owned by Bill Gates and (Getty heir), Mark Getty respectively. (FYI, Piketty should have said more about this kind of 21st century rentier in Capital).

Here is another example. To illustrate the point that, contrary to what is often argued, a rich person might get more from another dollar than a poor person we have in Modern Principles a movie still of Scrooge McDuck swimming in money. We think the image speaks for itself but apparently that is a problem. The rights to the photo are–we are told–not the same as the rights to the characters shown within the photo. Thus, even though we have bought and paid for the right to print the photo, to ensure that the use of the characters within the photo falls under fair use we must discuss, comment on and critique the content of the photo in the text. 

The distinction between the photo IP and the what’s in the photo IP is one only a lawyer could appreciate, as is the solution. And I mean that without irony. I am not critiquing our publisher or their lawyers. Bear in mind that this is coming to us from the very highest legal counsel of a multi-billion dollar firm. Thus, I do not doubt that the dangers are real and the legal analysis acute. The problem is copyright law itself.

The episode illustrates more generally how the complexity of copyright law has greatly elevated the power of lawyers. It’s no accident that the permissions director is one of the few people at our publisher whose signature is absolutely necessary before our book, or any book, can be published. 

I am reminded of Mancur Olson’s 9th implication in The Rise and Decline of Nations:

The accumulation of distributional coalitions increases the complexity of regulation, the role of government, and the complexity of understandings, and changes the direction of social evolution.

From the comments

by on April 17, 2014 at 2:17 pm in Current Affairs, Law, Medicine | Permalink

This is from John B. Chilton:

For those who don’t click through this is what Tyler wrote:

“6. The exchanges will be mostly working by March 2014, but by then the risk pool will be dysfunctional. In the meantime, real net prices will creep up, if only through implicit rationing and restrictions on provider networks. The Obama administration will attempt to address this problem — unsuccessfully — through additional regulation.”

The simple answer to Christian’s query (“I’m curious how you stand now given current enrollment numbers and your previous prediction about a dysfunctional exchange.”) is that it’s not the enrollment numbers that matter, it’s the risk pool.

The jury’s out on the risk pool — lots of opinions out there on whether exchange premiums will go up for 2015.

Here is Ross Douthat on how will we know if Obamacare is working?  It is the best post on this debate so far.  He closes with this:

I’ll lay down this marker for the future: If, in 2023, the uninsured rate is where the C.B.O. currently projects or lower, health inflation’s five-year average is running below the post-World War II norm, and the trend in the age-adjusted mortality rate shows a positive alteration starting right about now, I will write a post (or send out a Singularity-wide transmission, maybe) entitled “I Was Wrong About Obamacare” — or, if he prefers, just “Ezra Klein Was Right.”

Let us start with “Teheran markets in everything”:

I think this happens only in Tehran. Some people get paid to walk behind your car, so the traffic cameras can not capture your plate number when you enter the restricted traffic areas!

The photo alas does not reproduce, and that is from a fascinating Quora discussion on “what is a job that exists only in your country?”

The Vietnamese water bag carriers are impressive (you get into a plastic bag and they pull you across a river).  Here is some Indian arbitrage:

Disabled people get 50-75% concession on train ticket from Indian Railways. Additionally, they can take one person as escort who will be entitled to the same amount of concession.

Some disabled people earn their living with this scheme. Their only job is travelling between different cities and taking Strangers (who actually want to go to some city) as escorts. These strangers pay 75% of the fare to the disabled people. Thus Stranger saves money, Disabled person earns profit.

This also was new to me:

In China, when there are big traffic jams, you can pay a fee to have two people on a motorcycle drive to your vehicle, where one takes your place at the steering wheel, and the other will take you wherever you need to go on his motorcycle.

Nor had I known about the “pet food taster” (Simon and Marks) or the costumes of those Australian Meter Maids.  India is prominent on the list but Mexico makes an appearance as well:

In Mexico we have men who make a living by discharging electricity into the bodies of consenting drunk people (who gladly pay a couple of dollars for the experience). These men usually hang around bars and areas where nightlife abounds and yell “toques toques!”(“discharges, discharges!”) while banging the two metallic handles of their contraption together. The device is a battery-operated metal box with a voltage regulator that can increase the intensity of the electrical current depending on how much the customer can take. It is generally accepted by Mexicans that a bit of electricity will increase your buzz…

It costs about $2-$4 per jolt.  Maybe the real winner should be this one:

United States of America: Man who walks on the moon (currently on hiatus).

I believe I owe thanks to somebody on Twitter, alas I can no longer recall to whom.

Here is the new paper (pdf):

This article shows that official statistics substantially underestimate the net foreign asset positions of rich countries because they fail to capture most of the assets held by households in offshore tax havens. Drawing on a unique Swiss data set and exploiting systematic anomalies in countries’ portfolio investment positions, I find that around 8% of the global financial wealth of households is held in tax havens, three-quarters of which goes unrecorded. On the basis of plausible assumptions, accounting for unrecorded assets turns the eurozone, officially the world’s second largest net debtor, into a net creditor. It also reduces the U.S. net debt significantly. The results shed new light on global imbalances and challenge the widespread view that after a decade of poor-to-rich capital flows, external assets are now in poor countries and debts in rich countries. I provide concrete proposals to improve international statistics.
The original pointer was from Paul Krugman.  Yesterday I was at an IMF forum with Jeff Sachs and he too was placing great stress on this issue.

Should we regulate Bitcoin?

by on April 11, 2014 at 9:16 am in Economics, Law, Web/Tech | Permalink

There is a new paper by Jerry Brito, Houman Shadab, and Andrea Castillo, the abstract is here:

The next major wave of Bitcoin regulation will likely be aimed at financial instruments, including securities and derivatives, as well as prediction markets and even gambling. While there are many easily regulated intermediaries when it comes to traditional securities and derivatives, emerging bitcoin-denominated instruments rely much less on traditional intermediaries. Additionally, the block chain technology that Bitcoin introduced for the first time makes completely decentralized markets and exchanges possible, thus eliminating the need for intermediaries in complex financial transactions.

In this article we survey the type of financial instruments and transactions that will most likely be of interest to regulators, including traditional securities and derivatives, new bitcoin-denominated instruments, and completely decentralized markets and exchanges. We find that bitcoin derivatives would likely not be subject to the full scope of regulation under the Commodities and Exchange Act because such derivatives would likely involve physical delivery (as opposed to cash settlement) and would not be capable of being centrally cleared. We also find that some laws, including those aimed at online gambling, do not contemplate a payment method like Bitcoin, thus placing many transactions in a legal gray area.

Following the approach to Bitcoin taken by FinCEN, we conclude that other financial regulators should consider exempting or excluding certain financial transactions denominated in Bitcoin from the full scope of the regulations, much like private securities offerings and forward contracts are treated. We also suggest that to the extent that regulation and enforcement becomes more costly than its benefits, policymakers should consider and pursue strategies consistent with that new reality, such as efforts to encourage resilience and adaptation.

Along related lines, you might consider Adam Thierer’s excellent new book Permissionless Innovation: The Continuing Case for Comprehensive Technological Freedom.

There is yet another paper on this topic, I know you are weary of it, but I remain glued to the screen, so here goes:

Stock theft is an endemic crime particularly affecting deep rural areas of Pakistan. Analysis of a series of cases was conducted to describe features of herds and farmers who have been the victims of cattle and/buffalo theft in various villages of Punjab in Pakistan during the year 2012. A structured interview was administered to a sample of fifty three affected farmers. The following were the important findings: i) incidents of theft were more amongst small scale farmers, ii) the rate of repeat victimization was high, iii) stealing was the most common modus operandi, iv) the majority of animals were adult, having high sale values, v) more cases occurred during nights with crescent moon, vi) only a proportion of victims stated to have the incident reported to the police, vii) many farmers had a history of making compensation agreements with thieves, viii) foot tracking failed in the majority of the cases, ix) all the respondents were willing to invest in radio frequency identification devices and advocated revision of existing laws. The study has implications for policy makers and proposes a relationship between crime science and veterinary medicine.

The link is here, and for the pointer I thank Ben Southwood.  This is in fact a significant and understudied topic in development economics, namely small-scale predation in rural settings.

Not surprisingly, that piece appeared in the Berliner und Münchener tierärztliche Wochenschrift.

Minimum wage hikes and real net wages

by on April 10, 2014 at 3:51 am in Economics, Law | Permalink

Richard McKenzie reports:

…past experience has confirmed the nonmonetary impact of a minimum-wage hike on workers, not only in reduced fringe benefits but in increased work demands and decreased job training. For example:

  • When the minimum wage was increased in 1967, economist Masanori Hashimoto found that workers gained 32 cents in money income but lost 41 cents per hour in training — a net loss of 9 cents an hour in full-income compensation.
  • Similarly, Linda Leighton and Jacob Mincer in one study, and Belton Fleisher in another, concluded that increases in the minimum wage reduce on-the-job training and, as a result, dampen long-run growth in the real incomes of covered workers.
  • Additionally, North Carolina State University economist Walter Wessels determined that a wage increase caused New York retailers to increase work demands. In most stores, fewer workers were given fewer hours to do the same work as before.
  • More recently, Mindy Marks found that the $0.90 per hour increase in the federal minimum-wage rate in 1990 reduced the probability of workers receiving employer-provided health insurance from 66.2 percent to 63.1 percent, and increased the likelihood that covered workers would be reduced to part-time work by 26 percent.

Wessels also found that for every 10 percent increase in the minimum wage, workers lose 2 percent of nonmonetary compensation per hour. Extrapolating from Wessels’ estimates, an increase in the federal minimum wage from $7.25 to only $9.00 an hour would make covered workers worse off by 35 cents an hour.

And if the minimum wage were raised to $10.10 an hour, for example, the estimated 16.5 million workers earning between $7.25 and $10.10 could lose nonmonetary compensation more valuable than the $31 billion in additional wages they are expected to receive.

I would be skeptical or agnostic about some of those particular estimates, but surely the general point holds, and is hardly ever mentioned by advocates of hiking the minimum wage.

John McAfee serves up many (speculative) points of interest:

The most powerful tool a traveler can possess is a Press card. It will allow you to completely bypass the “documentation” process if you have limited time or limited funds and don’t want to deal with it. I have dozens stashed in all my vehicles, in my wallet, in my pockets, in my boats.

I am paranoid about being caught without one when I need one. They have magical properties if the correct incantations are spoken while producing them. A sample incantation at a police checkpoint (this will work in any Third World country):

“Hi, I’m really glad to see you.” (produce the press card at this point). I’m doing a story on Police corruption in (fill in country name) and I would love to get a statement from an honest police officer for the story. It’s for a newspaper in the U.S. Would you be willing to go on record for the piece?” You can add or subtract magic words according to the situation. Don’t worry about having to actually interview the officer. No sane police person would talk to a reporter about perceived corruption while at the task of being perceived to be corrupt. He will politely decline and quickly wave you through. If you do find the rare idiot officer who wants to talk, ask a few pointed questions about his superiors and it will quickly awaken his sensibilities. He will send you on your way.

The press card is powerful, but has risks and limitations. Do not attempt this magic, for example, at a Federale checkpoint in Mexico on a desolate road late at night. You will merely create additional, and unpleasant work for the person assigned to dig the hole where they intend to place you.

Here is another bit:

Smile and, if possible, joke. Say something like: “I’d like to stay and chat but I’m in a hurry to meet a girl. Her husband will be back soon.” This will go a long way toward creating a shared communion with the officers and will elicit a shared-experience type of sympathy.

The advice is interesting throughout, but caveat emptor, please.

For the pointer I thank Patrick.

There is now talk of this:

Washington could become one of the first U.S. cities to allow its cabdrivers to ignore their meters and adjust fares depending on demand.

D.C. Council members Mary M. Cheh (D-Ward 3) and David Grosso (I-At Large) have introduced legislation that would allow the city’s taxi drivers to embrace “surge pricing,” a practice used by popular mobile-dispatched car services such as Uber, in which prices are adjusted in real-time according to demand.

The council members say that the shift, which would apply only to passengers who use their smartphones or tablets to book a ride, will allow traditional cabs to better compete with new app-based ride services that have sprung up in the District and across the country.

The move could benefit riders by allowing them to comparison shop. But surge pricing has its critics, who say the practice can lead to gouging.

There is more here.

As STEM fields become increasingly popular, it is important that we teach young people about the incentives and protections available to them through the patent system. IPO Education Foundation is excited about the opportunity to work with the GSCNC and the USPTO to bring the patent system to girls through the IP patch…

There is more here, via Mark Thorson.

The Supreme Court just voted to eliminate aggregate contribution limits, here is David’s response:

The McCutcheon decision is a rare win for the parties. It enables party establishments to claw back some of the power that has flowed to donors and “super PACs.” It effectively raises the limits on what party establishments can solicit. It gives party leaders the chance to form joint fund-raising committees they can use to marshal large pools of cash and influence. McCutcheon is a small step back toward a party-centric system.

In their book “Better Parties, Better Government,” Peter J. Wallison and Joel M. Gora propose the best way to reform campaign finance: eliminate the restrictions on political parties to finance the campaigns of their candidates; loosen the limitations on giving to parties; keep the limits on giving to PACs.

Parties are not perfect, Lord knows. But they have broad national outlooks. They foster coalition thinking. They are relatively transparent. They are accountable to voters. They ally with special interests, but they transcend the influence of any one. Strengthened parties will make races more competitive and democracy more legitimate. Strong parties mobilize volunteers and activists and broaden political participation. Unlike super PACs, parties welcome large numbers of people into the political process.

There is more here.  Ray LaRaja makes related points here.

Andrew Sullivan argues Eich should not have been forced to resign from Mozilla for his anti-gay marriage donations, combined with his unwillingness to recant his position.  As a supporter of gay marriage (as of course Sullivan is too), I very much agree.  Like Sullivan, I see such such ideological witch hunts as unjust, counterproductive, and stifling of free discourse.

I see some further economic angles to this dispute.

First, it implies the market share of browsers is fairly arbitrary, and highly subject to potential consumer rebellion.  I can think of other businessmen who have alienated parts of the American public through their political stances, but still their products are bought and there is little talk of deposing them from their leadership roles.  Free products seem especially vulnerable to fluctuations in corporate image, in part because no product has a durable edge on price.  Since more of our economy seems headed in the direction of “free to consumers for direct use,” we might want to start thinking about this tendency a little more carefully and cautiously.  Charging people a positive price liberates you to be less conformist, at least provided you fare well in market competition.

Second, ambitious young people just got more boring.  It wasn’t long ago that opposition to gay marriage was the mainstream position in American society and of course in many places it still is.

Third, let’s say that “recantation” is becoming more important and more potent as a defense mechanism against charges (I’m not sure this is generally true, but it does seem to be true in the Eich case).  That will make people more likely to express their eccentricities in youthful bursts, rather than as a consistent pattern of donations or support over many years.  Consistent support over time is harder to recant, but a single act is easier to write off as a youthful indiscretion.

David Ball, a professor of risk management at Middlesex University, analyzed U.K. injury statistics and found that as in the U.S., there was no clear trend over time. “The advent of all these special surfaces for playgrounds has contributed very little, if anything at all, to the safety of children,” he told me. Ball has found some evidence that long-bone injuries, which are far more common than head injuries, are actually increasing. The best theory for that is “risk compensation”—kids don’t worry as much about falling on rubber, so they’re not as careful, and end up hurting themselves more often.

From The Overprotected Kid by Hanna Rosin in the Atlantic.

Addendum: More on the Peltzman Effect.

Adam Levitin writes:

The IRS ruled that Bitcoin and other virtual currencies are property, not currency.  This means that they are subject to capital gains taxation.  And that means that Bitcoins are not fungible.  The price at which a particular Bitcoin was acquired (and this is traceable) determines the capital gains on that particular Bitcoin when spent.  If I spend Bitcoin A, which I bought at $10, but is now worth $400, I’ve got a very different tax treatment than if I spend Bitcoin B, which I bought at $390. (Poor Satoshi–he’s got a lot more capital gains than most…)  This means Bitcoins are not fungible, and that makes it unworkable as a currency.  If I have to figure out which particular Bitcoin in my wallet I want to spend and what the tax treatment will be, Bitcoin just doesn’t work as a commercial medium of exchange.  Bitcoin still works as a speculative medium, but Bitcoin’s claim has always been to being more than the latest iteration of the trading sardines–it aspired to be a commercial medium.  I don’t see that happening now.

The article is here.