Law

The (Soon-to-be) Prisoners Dilemma

by on August 11, 2015 at 11:13 am in Economics, Law | Permalink

An enterprising sheriff in Franklin county, KY posted the following flyer on Facebook.

drug dealers

The flyer resulted in successful prosecutions and is now being used by other police departments. More at the NYTimes.

Hat tip: Andrea Castillo.

WSJ: A federal court in New York delivered a setback to the Food and Drug Administration, ruling the agency can’t bar a drug company from marketing a pill for off-label use as long as the claims are truthful.

The decision by the federal district court in the Southern District of New York, is the latest of a line of such cases. It concerns the Irish company Amarin Pharma Inc. and its fish-oil-derived drug Vascepa, and it has been closely watched by the pharmaceutical industry. The company asked the court to stop the FDA from enforcing its off-label marketing ban, and the court agreed.

The ruling is important because in the last few years the FDA has extracted billions of dollars in settlements from pharmaceutical firms for engaging in what appears to be constitutionally protected speech. In fact, the courts have repeatedly ruled that FDA and Congressional restrictions on truthful and non-misleading off-label marketing are unconstitutional.

In Washington Legal Foundation v. Friedman, for example, the DC court issued an injunction preventing the FDA from prohibiting, restricting, sanctioning or otherwise seeking to limit pharmaceutical and device manufactures from disseminating information about off-label uses from peer-reviewed professional journals or textbooks. In U.S. v. Caronia the court (2nd circuit) reversed a criminal conviction and said that the FDA cannot criminalize truthful promotion of off-label uses of approved drugs. Indeed, the court in that case defended the utility of such promotion:

…prohibiting off-label promotion by a pharmaceutical manufacturer while simultaneously allowing off-label use “paternalistically” interferes with the ability of physicians and patients to receive potentially relevant treatment information; such barriers to information about off-label use could inhibit, to the public’s detriment, informed and intelligent treatment decisions. See Va. Bd. of Pharmacy v. Va. Citizens Consumer Council, Inc., 425 U.S. 748, 770 (1976)

…See also Sorrell, 131 S. Ct. at 2670- 72 (“[The] fear that [physicians, sophisticated and experienced customers,] would make bad decisions if given truthful information” cannot justify content-based burdens on speech.”) (citing sources);

…Liquormart, 517 U.S. at 503 (“[B]ans against truthful, nonmisleading commercial speech . . . usually rest solely on the offensive assumption that the public will respond ‘irrationally’ to the truth. . . . The First Amendment directs us to be especially skeptical of regulations that seek to keep people in the dark for what the government perceives to be their own good.”).

In Washington Legal Foundation v. Henney the court summed up concisely:

The First Amendment is premised upon the idea that people do not need the government’s permission to engage in truthful, nonmisleading speech about lawful activity.

(By the way, it’s this line of cases that makes me think that 23andMe has a strong first amendment case for presenting to customers information about their own DNA.)

The courts were exactly correct. Off-label uses of approved drugs are a vital part of the discovery process of modern medicine. New uses for old drugs are often discovered through serendipity and close observation in the field. Indeed, modern medicine moves faster than the FDA and it often happens that the first-line therapy is an off-label treatment. Prohibiting firms from truthfully discussing such treatments with physicians is not just unconstitutional it’s also paternalistic and harmful to patient welfare.

This case, Amarin v FDA, is especially egregious because the company wants to discuss with physicians the results of its own FDA-approved trial. Amarin has a fish-oil derived drug designed to reduce triglyceride levels and it already has approval to sell and market this drug in patients with very high levels of triglycerides. It also wanted approval to sell the drugs in patients with high (but not very high levels) and it conducted an FDA-approved trial that showed that the drug is safe and effective at reducing triglyceride levels in this set of patients.

Although the trial was successful the FDA, for reasons discussed below, refused to grant approval. Amarin isn’t disputing the refusal but they wanted to tell physicians the results of the trial and then let the physicians and their patients decide whether reducing triglyceride levels is something that they want to do given currently existing evidence about triglyceride levels and heart attacks. The FDA threatened to pursue civil and possibly criminal charges but the court has now precluded the FDA from those pursuits.

Aside from the first amendment issues, the case is also interesting as another example of how a capricious FDA can kill innovation through regulation uncertainty. (The story is similar in many respects to that told by Joseph Gulfo in Innovation Breakdown, see my review).

To wit: Amarin wanted approval to sell its drug to patients with high levels of triglycerides and they obtained a special protocol agreement (SPA) from the FDA to run a study in this population. Quoting the court:

An SPA agreement is a written agreement that a manufacturer may enter into with the FDA, which sets out the design and size parameters for clinical trials of a new drug, and the conditions under which the FDA would approve the drug. For the manufacturer, such an agreement minimizes development risk by providing regulatory predictability: Provided that the manufacturer follows the procedure set in the SPA agreement and the drug proves meets the benchmarks for effectiveness set in the agreement, the FDA must approve the drug.

The results of the study were good:

The ANCHOR study achieved each numeric objective that the SPA Agreement had set: The results showed that Vascepa produced a statistically significant decrease in triglyceride levels in persons with persistently high triglycerides, as well as in other lipid, lipoprotein, and inflammatory biomarkers.

…Because Amarin had met all requirements for approval set out in the ANCHOR SPA Agreement, Amarin anticipated that the FDA would approve Vascepa for the additional use that Amarin sought, i.e., by patients with persistently high triglycerides.

Instead of approving the drug, however, the FDA rescinded their agreement. The FDA argued that although the drug did reduce triglyceride levels it was no longer certain that reducing triglyceride levels would reduce cardiovascular events.

Can you imagine the tailspin this sent researchers at Amarin into when they learned that the drug would not be approved despite passing all the agreed upon tests? (Read Gulfo for a vivid account of his case).

Who will invest in bio-medical advances with this kind of risk? Sergei Brin said that he didn’t want to invest in health care because “It’s just a painful business to be in . . . the regulatory burden in the U.S. is so high that I think it would dissuade a lot of entrepreneurs.” It’s precisely this kind of regulatory uncertainty that an SPA was meant to avoid. By rescinding their agreement, the FDA is sending the message to investors that no one is safe.

*Just Married*

by on August 9, 2015 at 2:33 am in Books, Law, Philosophy | Permalink

That is the new and highly intelligent book by Stephen Macedo, and the subtitle is Same-Sex Couples, Monogamy & the Future of Marriage.  I balk at only one of his conclusions: he is pro-gay marriage, where I agree, but he does not believe in legal polygamy.  For instance he argues there is no polygamous orientation comparable to a same-sex orientation, rather polygamy is a preference.  He views polygamy as unstable, and also as leading to distributive injustice, with high status males reaping excess gains.  Furthermore the historical record of polygamy is often negative.  Here are relevant comments from Will Wilkinson, who (like me) is convinced by Macedo on gay marriage but not polygamy.  Is polygamy going to be such a significant practical problem that we ultimately have to in some way wield the coercive apparatus of the state if people insist on trying to practice it?  Would polygamous-equivalent contracts be not just left unenforced but also banned?  I don’t quite see how a liberal doctrine gets you there.  Furthermore, might polygamy make more sense in some eras than in others?  (“Not your grandfather’s polygamy!”)  I still wish to defend the presumption for some notion of freedom of contract.

There is a newly published paper by Andrew Beauchamp:

The U.S. abortion market has grown increasingly concentrated recently, while many states tightened abortion laws. Using data on abortion providers, I estimate an equilibrium model of demand, price competition, entry and exit, to capture the effect of regulation on industry dynamics. Estimates show regulations played an important role in determining the abortion market structure and evolution. Counterfactual simulations reveal increases in demand-aimed regulation were the most important observed factor in explaining recent abortion declines. Simulating Utah’s regulatory regime nationally shows tightening abortion restrictions can increase abortions in equilibrium, mainly through tilting the competitive landscape toward low-price providers.

There are ungated versions here, and for the pointer I thank the excellent K.

Good sentences about Godzilla

by on August 5, 2015 at 3:17 pm in Film, History, Law | Permalink

In movie after movie, people merely ran away from the stampeding monster, and no one tried to face up to the issue of accountability, he said.

Those are the words of the new director for the series.

That is the new and excellent book by Sebastian Strangio, which you can think of as a post-Sihanouk look at the country from a political economy point of view.  Here are just a few bits:

The cruelty and callousness that allowed jilted wives to order and commit such brutal attacks on young women also had its echo in history.  As the historian Michael Vickery has written, patterns of sudden and extreme violence had deep roots in Cambodia, especially against those groups and individuals defined in some way as enemies.  Through cruel violence found its fullest expressions under Pol Pot, it long predated Democratic Kampuchea, stemming from cultural notions of face, honor, and revenge, in which personal grudges (kum) could elicit a disproportionate and overwhelming response.

And:

Hun Sen’s rise over the past two decades has been accompanied by the rise of what might be called HunSenomics — a blend of old-style patronage, elite charity, and predatory market economics.  Since the transition to the free market in 1989, Hunsenomics has succeeded in forging a stable pact among Cambodia’s ruling elites, but has otherwise done little to systematically tackle the challenges of poverty and development.

And:

Because Hunsenomics provides few incentives for sustainable agricultural development, Cambodia’s land and water resources remain drastically underutilized.  Just a third of Cambodia’s total land area is currently under cultivation — a much lower proportion than in neighboring countries.  Only 18 percent of this  land was irrigated as of 2005, compared to 33 percent in Thailand and 44 percent in Vietnam, and due to lack of maintenance only a fifth of irrigation systems were fully functional.  As a result, rice yields per hectare lag far behind the likes of Vietnam and Thailand.

Definitely recommended, and as Dan Klein and I used to say to each other “You so much learn the whole book.”

Tsuyoshi Shimmura, Shosei Ohashi, and Takashi Yoshimura have a new paper:

The “cock-a-doodle-doo” crowing of roosters, which symbolizes the break of dawn in many cultures, is controlled by the circadian clock. When one rooster announces the break of dawn, others in the vicinity immediately follow. Chickens are highly social animals, and they develop a linear and fixed hierarchy in small groups. We found that when chickens were housed in small groups, the top-ranking rooster determined the timing of predawn crowing. Specifically, the top-ranking rooster always started to crow first, followed by its subordinates, in descending order of social rank. When the top-ranking rooster was physically removed from a group, the second-ranking rooster initiated crowing. The presence of a dominant rooster significantly reduced the number of predawn crows in subordinates. However, the number of crows induced by external stimuli was independent of social rank, confirming that subordinates have the ability to crow. Although the timing of subordinates’ predawn crowing was strongly dependent on that of the top-ranking rooster, free-running periods of body temperature rhythms differed among individuals, and crowing rhythm did not entrain to a crowing sound stimulus. These results indicate that in a group situation, the top-ranking rooster has priority to announce the break of dawn, and that subordinate roosters are patient enough to wait for the top-ranking rooster’s first crow every morning and thus compromise their circadian clock for social reasons.

In case you had any doubts.  The pointer is from Michelle Dawson.

The University of New Hampshire’s Bias-Free Language Guide came in for widespread criticism earlier this week for possibly chilling speech by labeling words such as “American,” “illegal alien,” “foreigners,” “mothering,” and “fathering” as problematic and non-preferred.

Commendations are due, however, to university president Mark Huddleston. The UNH reports:

The associate vice president for community, equity and diversity removed the webpage this morning after a meeting with President Huddleston. The president fully supports efforts to encourage inclusivity and diversity on our campuses. He does not believe the guide was in any way helpful in achieving those goals. Speech guides or codes have no place at any American university.

From Free Exchange at The Economist:

In the first [paper] Isaac Sorkin of the University of Michigan argues that firms may well substitute machines for people in response to minimum wages, but slowly. Mr Sorkin offers the example of sock-makers in the 1930s, which took years to switch to less labour-intensive machines after the federal minimum wage was brought in. He also explains how this finding squares with other research. Most studies look at past minimum wage increases that were not inflation-proofed. Firms may decide not to go through the hassle of investing in labour-saving machines if the minimum wage will affect them less over time. But they could respond differently to a more permanent increase.

Mr Sorkin crunches the numbers, using a model of the American restaurant industry in which companies choose between employees and machines. He investigates the effect of a permanent (ie, inflation-linked) increase in the minimum wage and shows that the tiny short-run effects on employment normally seen are fully consistent with a long-run response over 100 times larger. The lack of evidence for a big impact on employment in the short term does not rule out a much larger long-term effect.

In a second paper, written with Daniel Aaronson of the Federal Reserve Bank of Chicago and Eric French of University College London, Mr Sorkin goes further, offering empirical evidence that higher minimum wages nudge firms away from people and towards machines. The authors look at the type of restaurants that close down and start up after a minimum-wage rise. An increase in the minimum wage seems to push some restaurants out of business. The eateries that replace them are more likely to be chains, which are more reliant on machines (and therefore offer fewer jobs) than the independent outlets they replace. This effect has not been picked up before because the restaurants which continue to operate do not change their employment levels, so the jobs total does not shift much in the short run.

The piece offers further points of interest.

Inputs are imported too

by on July 30, 2015 at 9:56 am in Economics, Law | Permalink

Ted Diamantis, an importer of Greek wines who is based in Chicago, has been helping his suppliers stock up on bottles, labels and printing ink. The barrels, though, have him worried.

In two or three weeks, some of Greece’s winemaking regions will begin their annual grape harvest. The wineries Mr. Diamantis buys from age their wine in barrels from Italy and France, but Greece’s capital controls make it difficult for them to send money out of the country to pay for the barrels they need for this season. No barrels means no wine for Mr. Diamantis.

“Without the ability to access your capital, you can’t buy anything,” said Mr. Diamantis, who is in Greece meeting with his business partners. “The marketplace is frozen.”

That is from Stacy Cowley at the NYT.  Similar examples illustrate why Greece leaving the euro, even if a better idea for the longer term, would not have been such a picnic in the short run.  Exports would have collapsed, not boomed.

A very good sentence

by on July 29, 2015 at 1:01 pm in Current Affairs, Law, Philosophy | Permalink

We care about African animals and British people, but ignore African people and British animals.

That is from Andrew Pearson, via Ben Southwood.  And here is an interesting WaPo Lindsey Bever article about the economics of hunting big game.

Killing lions right outside of park boundaries seems like a systemic problem, not just a one-off instance:

Between 1999 and 2004 we undertook an ecological study of African lions (Panthera leo) in Hwange National Park, western Zimbabwe to measure the impact of sport-hunting beyond the park on the lion population within the park, using radio-telemetry and direct observation. 34 of 62 tagged lions died during the study (of which 24 were shot by sport hunters: 13 adult males, 5 adult females, 6 sub-adult males). Sport hunters in the safari areas surrounding the park killed 72% of tagged adult males from the study area. Over 30% of all males shot were sub-adult (<4 years). Hunting off-take of male lions doubled during 2001-2003 compared to levels in the three preceding years, which caused a decline in numbers of adult males in the population (from an adult sex ratio of 1:3 to 1:6 in favour of adult females). Home ranges made vacant by removal of adult males were filled by immigration of males from the park core. Infanticide was observed when new males entered prides. The proportion of male cubs increased between 1999 and 2004, which may have occurred to compensate for high adult male mortality.

The 2007 paper is here (pdf), by Loveridge, Searle, Murindagamo, and MacDonald, via Hollis Robbins.

They are not good, as evidenced by a new paper by Buggle and Nafziger (pdf):

This paper examines the long-run consequences of serfdom in the countries of the former Russian Empire. We combine novel data measuring the intensity of labor coercion on the district level in 1861 with several intermediate and present-day outcomes. Our results show that past serfdom goes along with lower economic well-being today. We apply an instrumental variable strategy that exploits the transfer of serfs on monastic lands in 1764 to establish a causal link between past serfdom and current economic development. Tracking the evolution of city populations throughout Soviet times corroborates the finding of persistent economic differences. Furthermore, our results suggest a political economy mechanisms linking higher historical economic inequality with worse public goods provision (roads and education), as well as lower urbanization and structural change towards factory production, as explanation for this persistence. We do not find differences in contemporaneous cultural attitudes and preferences.

The pointer is from Pseudoerasmus.

Arresting the central bank’s governor. Emptying its vaults. Appealing to Moscow for help.

These were the elements of a covert plan to return Greece to the drachma hatched by members of the Left Platform faction of Greece’s governing Syriza party.

That is from the FT, and there is more:

The plan demonstrates the apparently ruthless determination of Syriza’s far leftists to pursue their political aims — but also their lack of awareness of the workings of the eurozone financial system.

For one thing, the vaults at the Nomismatokopeion currently hold only about €10bn of cash — enough to keep the country afloat for only a few weeks but not the estimated six to eight months required to prepare, test and launch a new currency.

The Syriza government would have quickly found the country’s stash of banknotes unusable. Nor would they be able to print more €10 and €20 banknotes: From the moment the government took over the mint, the European Central Bank would declare Greek euros as counterfeit, “putting anyone who tried to buy something with them at risk of being arrested for forgery,” said a senior central bank official.

“The consequences would be disastrous. Greece would be isolated from the international financial system with its banks unable to function and its euros worthless,” the official added.

For all the flaws of the euro, the case for it has never been made more effectively.

Overall, the dogmatic argument that a financial transactions tax is unworkable is clearly false. It operates in a lot of countries. The wide-eyed hope that such a tax can be a truly major revenue source also seems to be false. In part because of concerns over the risk of creating counterproductive incentives–either just to structure transactions in a way that minimizes such a tax or even to react in a way that reduces liquidity and increases volatility in financial markets–the rate at which such taxes are set is typically pretty low. As the authors write, “the idea that an FTT can raise vast amounts
of revenue—1 percent of gross domestic product (GDP) or more—has proved inconsistent with actual experience with such taxes.”

The question with any tax is not whether it is perfect, because every real-world tax has some undesirable incentive effects. The question is whether a certain tax might have a useful role to play as part of the overall portfolio of real-world taxes. For what it’s worth, this particular review of the evidence leaves me skeptical that expanding the currently existing US financial transactions tax from its very low present level would be a useful step.

That is from Timothy Taylor.