Month: June 2015
Do IP rights matter for health care markets?
Heidi L. Williams says yes:
A long theoretical literature has analyzed optimal patent policy design, yet there is very little empirical evidence on a key parameter needed to apply these models in practice: the relationship between patent strength and research investments. I argue that the dearth of empirical evidence on this question reflects two key challenges: the difficulty of measuring specific research investments, and the fact that finding variation in patent protection is difficult. I then summarize the findings of two recent studies which have made progress in starting to overcome these empirical challenges by combining new datasets measuring biomedical research investments with novel sources of variation in the effective intellectual property protection provided to different inventions. The first study, Budish, Roin, and Williams (forthcoming), documents evidence consistent with patents affecting the rate and direction of research investments in the context of cancer drug development. The second study, Williams (2013), documents evidence that one form of intellectual property rights on the human genome had quantitatively important impacts on follow-on scientific research and commercial development. I discuss the relevance of both studies for patent policy, and discuss directions for future research.
The NBER link is here.
Crowdsourced buses in Singapore, what would Oskar Lange say?
Crowdsourcing of buses will begin this summer, with transport rerouted according to data amassed from commuters’ smart cards. Unlike many similar cards elsewhere, these are tapped on boarding and alighting from buses, providing a fuller picture.
Based on this data, plus passenger feedback, routes will be retraced with fewer stops and — courtesy of expressways — shorter times
Ultimately, the plan is to build into crowdsourcing on demand, where passengers use smartphones to tell buses their locations and, depending on volume, can expect be picked up accordingly.
“Economics is the question at the end of the day,” says Mr Liu. “Will people be willing to pay a bit more for this convenience and direct service? So will it make commercial sense?”
That is from Louise Lucas at the FT.
Thursday assorted links
1. Sex Pistols to feature on a range of credit cards. “Virgin Money said it was “time for consumers to put a little bit of rebellion in their pocket”” And: “Most of the cards have a representative interest rate of 18.9% APR.”
2. “…the [Gates] foundation now spends more on global health every year than the World Health Organization.” Bravo I say. The rest of the piece reads like something out of Atlas Shrugged.
How economics might become more trendy
For a while new theory has been in short supply. So top plaudits are won by quality empirical work, but lots of people have good skills. There is thus a premium on a mix of clever ideas — often identification strategies — and access to quality data. Over time, let’s say that data become less scarce, as arguably has been the case in the field of history; for instance lots of economics researchers might have access to “Big Data.” Clever identification strategies won’t disappear, but they might become more commonplace.
We would then still need a standard for elevating some work as more important or higher quality than other work. Popularity of topic could play an increasingly large role over time, and that is how economics might become more trendy.
Is the Icelandic response to financial crisis generalizable?
Paul Krugman describes their policies as a mix of “debt repudiation, capital controls, and massive devaluation.” Matt Yglesias refers to putting some of their bankers in jail. But I say there is not a generalizable formula here.
Neither mentions that a major part of the Icelandic recipe was letting foreign deposit holders twist in the wind. That’s a transfer of wealth to the domestic economy and furthermore it was politically palatable; it is also a choice which won’t much help any larger country where most of the deposit holders are domestic. It is noteworthy that this kind of choice loomed large for Cyprus, another small country with a lot of foreign depositors.
Iceland is also so small that cutting off these creditors won’t much damage the broader global economy or lead to significant contagion. Today, in a much safer macroeconomic environment, we’re not even sure the same could be said for Grexit, and Greece is a pretty small country in economic terms.
On top of all that, not paying back the foreign depositors was a transfer to Iceland. It is easy enough to see why Icelanders might like that idea, but the objective foreign analyst, who ought not favor the more Nordic peoples above the others, also should consider the loss side of the ledger, namely in the UK and Netherlands.
What else?
Don’t forget that the value of the Icelandic stock exchange fell by 90% – how many other countries could endure that or would accept it? That is easier to pull off when there are only six stocks trading on your exchange and those equities are not central to your savings.
Capital controls are also not an option for many economies, including those that are serious about being financial centers or having reserve currencies. More to the point, the flight of foreign capital is very often not a problem in the first place. And we have plenty of experience with capital controls and the overall record is at best mixed; this is hardly a neglected heterodox innovation. The imposition of Icelandic capital controls may well discourage foreign investment looking forward, and so the “record to date” will be misleading in this regard. This is again a way in which Iceland has transferred the costs of its adjustment into the future. On top of that, we still don’t yet know how well the Icelandic removal of capital controls will go.
I’m all for devaluing and accepting higher inflation in a lot of crisis situations. This part of the Icelandic recipe is generalizable. It’s worth noting, however, that the devaluation (especially with capital controls) imposed a harsh and immediate “austerity” on the Icelandic people, namely it was very hard to buy foreign goods for a while. In other words, rapid real wage cuts were imposed on just about everybody. If your country can do that, great, but it needs to be outlined how most economies will manage that trick. See also Scott Sumner’s remarks on whether Iceland avoided traditional fiscal austerity.
Given some very tough circumstances, Iceland also did a reasonable job of “ring-fencing” its banks and separating the good from bad assets. That may be generalizable too, although it doesn’t have the polemic punch of some of their other policy choices.
Overall, the experience from Iceland, upon closer inspection, is not very easily generalizable. I suspect it receives much of its praise for reasons of mood affiliation — what could sound tougher than putting bankers in jail? But overall, Iceland faced very different constraints and opportunities, relative to other countries in the financial crisis.
Addendum: Here are some relevant earlier posts.
Law of demand sentences to ponder
Adam Ozimek writes:
First, some look at the minimum wage literature and conclude that employers’ demand for low-skilled workers isn’t responsive to wage changes. However, there is relatively widespread agreement that the EITC increases labor force participation, which can be true only if employers are responding to lower wages by hiring more.
Immediately thereafter he makes a good point on the claim that EITC and minimum wages are “complementary” policies:
For a “complementary” minimum wage to prevent lower wages, it must also prevent the added labor force participation. In other words, lower wages are why employment goes up. If you stop the low wages, you stop the employment gains.
Do read the whole thing.
Wednesday assorted links
Europe facts of the day
“At least half of Germans, French and Italians say their country should not use military force to defend a NATO ally if attacked by Russia,” the Pew Research Center said it found in its survey, which is based on interviews in 10 nations.
There is more here, and so every great moderation must come to an end…
This is also of note:
According to the study, residents of most NATO countries still believe that the United States would come to their defense.
Meanwhile:
Eighty-eight percent of Russians said they had confidence in Mr. Putin to do the right thing on international affairs…
Solve for the equilibrium, as they like to say. It is much easier to stabilize a conservative power (e.g., the USSR) than a revisionist power (Putin’s Russia).
It is also worth thinking about how this entire state of affairs has come to pass.
What is the best novel about a bureaucracy?
I don’t quite mean “the best novel,” rather I mean “the best novel as a novel of bureaucracy.”
There is Franz Kafka, but I find his writings more theological and fantastic than insightful about bureaucracy per se. Besides, his short stories are his best work and the novels do not have proper endings.
There are post-war Eastern European novels galore, where to start? In the First Circle? Still, communist bureaucracies are no longer so typical, so I am not ready to award any of these novels first prize. Gogol’s earlier Dead Souls also stands out as a Russian candidate.
Joseph Heller’s Catch-22 is in the running, as are John Le Carre, Thomas Pynchon and David Foster Wallace. Here is a discussion of Dickens, Orwell, and other classics. Here is a jstor-gated survey of the topic. There are plenty of novels about universities, very few of which I can endure.
The Chinese have an entire genre of “bureaucracy literature.” And perhaps bureaucracy in science fiction is deserving of its own post.
In any case, my clear first choice pick is Anthony Trollope’s Barchester Towers, which I started reading a few days ago. Here is the first sentence of the Amazon.com review:
This 1857 sequel to The Warden wryly chronicles the struggle for control of the English diocese of Barchester. The evangelical but not particularly competent new bishop is Dr. Proudie, who with his awful wife and oily curate, Slope, maneuver for power.
So far I am finding that just about every page has insight about bureaucracy. Trollope, by the way, had extensive experience working for the Post Office in England and Ireland, and furthermore he missed out on a major promotion.
What else am I forgetting?
The U.S. listing gap
From a new NBER paper by Craig Doidge, G. Andrew Karolyi, and René M. Stulz:
The U.S. had 14% fewer exchange-listed firms in 2012 than in 1975. Relative to other countries, the U.S. now has abnormally few listed firms given its level of development and the quality of its institutions. We call this the “U.S. listing gap” and investigate possible explanations for it. We rule out industry changes, changes in listing requirements, and the reforms of the early 2000s as explanations for the gap. We show that the probability that a firm is listed has fallen since the listing peak in 1996 for all firm size categories though more so for smaller firms. From 1997 to the end of our sample period in 2012, the new list rate is low and the delist rate is high compared to U.S. history and to other countries. High delists account for roughly 46% of the listing gap and low new lists for 54%. The high delist rate is explained by an unusually high rate of acquisitions of publicly-listed firms compared to previous U.S. history and to other countries.
I do not currently see an ungated copy.
Tuesday assorted links
1. How did American beer get so bland?
2. Insightful comments about Beatles songs. The more obscure the song, the better the comment.
3. There is no great stagnation.
4. The Indian fear of gold? And “On April 1, the Securities and Exchange Commission approved a request by a private stock exchange partnered with Overstock to deal in “digital securities.””
5. Dick Thaler is launching a blog.
6. Iceland to lift capital controls, worth watching.
7. Yaramiso (speculative).
Why Does Ursula K. Le Guin Hate Amazon?
Ursula K. Le Guin’s poorly-argued and evidence-free rant against Amazon is more about her hatred of capitalism than about Amazon’s actual effect on the market for books. Here’s Le Guin:
[Amazon’s] ideal book is a safe commodity, a commercial product written to the specifications of the current market, that will hit the BS list, get to the top, and vanish. Sell it fast, sell it cheap, dump it, sell the next thing. No book has value in itself, only as it makes profit. Quick obsolescence, disposability — the creation of trash — is an essential element of the BS machine. Amazon exploits the cycle of instant satisfaction/endless dissatisfaction. Every book purchase made from Amazon is a vote for a culture without content and without contentment.
The same argument was made in the late 1990s against chain bookstores like Border’s. It wasn’t a good argument then (see Tyler’s masterpiece, In Praise of Commercial Culture) but at least at that time it was debatable. Le Guin’s attempt to resurrect the argument today is bizarre. Does anyone doubt that it is easier to buy a niche book today than it ever has been in the entire history of the world? Indeed, does anyone doubt that it is easier to buy a Ursula K. Le Guin book today than it ever has been in the entire history of the world?
Larger markets support greater variety. A bookstore that only sells locally can’t stock many books. It’s the smaller store that fears taking a risk because the opportunity cost of shelf space is so high. Amazon lowers the cost of stocking books through efficient logistics and by warehousing in relatively low-cost areas (subject to being close to markets). The fixed costs of distribution are then spread over a much larger (inter)-national market so it pays to stock many more books.
Amazon makes a lot of money selling niche books. The precise numbers are debatable because Amazon doesn’t release much data but Brynjolfsson, Hu and Smith estimated that the long-tail accounted for nearly 40% of Amazon sales in 2008, a number that had risen over time. Indeed, since costs aren’t that different it’s not obvious that Amazon makes much more from selling a million copies of a single book than from 10 copies of each of 100,000 books (especially if they are ebooks).
Ebooks take this argument to the limit and the data show greater diversity in who publishes books than ever before. According to a recent Author Earnings report:
…indie self-published authors and their ebooks were outearning all authors published by the Big Five publishers combined
Perhaps what pushes Le Guin onto the wrong track is that there are more (inter)-national blockbusters than ever before which gives some people the impression that variety is declining. It’s not a contradiction, however, that niche products can become more easily available even as there are more blockbusters–as Paul Krugman explained the two phenomena are part and parcel of the same logic of larger markets. It’s important, however, to keep one’s eye on the variety available to individuals. Variety has gone up for every person even as some measures of geographic variety have gone down.
In the past small sci-fi booksellers in out-of-the-way places (link to my youth) barely eked out a living from selling books. Precisely because they didn’t make a lot of money, however, the independents signaled their worthy devotion to the revered authors. Today, Amazon sells more Le Guin books than any independent ever did. But Bezos doesn’t revere Le Guin, he treats her books as a commodity. That may distress Le Guin but for readers, book capitalism is a wonder, books and books and books available on our devices within seconds, more books than we could ever read; a veritable fountain, no a firehose, no an Amazon of books.
China (India) facts of the day
The ratio of incomes gives a sense of the relative differences in productivity between the cities and countryside. For China, this ratio is 3.2 – the highest in world. On average, urban workers are more than three times as productive as rural workers and are being compensated accordingly. No wonder some 270m migrant workers have flocked to the cities to secure better paying industrial jobs. For India, the same measure gives a ratio of 1.6, one of the lowest for emerging market economies, indicating that urban productivity is only moderately higher than in rural areas, and cities do not offer such a magnet of higher earnings.
The other key indicator is the relative difference in property prices in China versus India. China’s mega-cities have seen a five-fold increase in property prices in renminbi terms, or nearly seven-fold in US dollars over the past decade. No wonder concerns about a possible property bubble in China dominate global financial news. Yet despite these astounding increases, property prices in Beijing and Shanghai are still only half those of their Indian counterparts of New Delhi and Mumbai.
…India’s excessively high property prices reflect a combination of two archaic practices. One is the legacy of its colonial past in reserving large parcels of valuable urban land for government use, including sprawling and wasteful estates for civil servants and military cantonments. The other comes from outdated and overly rigid building codes that discourage concentrated development of commercial activity and housing in the core of its major cities. This pushes development to the outer suburbs, making it difficult to realise the agglomeration benefits that drive productivity gains.
That is from Yukon Hwang at the FT.
Interpreting the results of the Oregon Medicaid experiment
There is a new and probably very important paper by Amy Finkelstein, Nathaniel Hendren, and Erzo F.P. Luttmer:
We develop and implement a set of frameworks for valuing Medicaid and apply them to welfare analysis of the Oregon Health Insurance Experiment, a Medicaid expansion that occurred via random assignment. Our baseline estimates of the welfare bene fit to recipients from Medicaid per dollar of government spending range from about $0.2 to $0.4, depending on the framework, with a relatively robust lower bound of about $0.15. At least two- fifths – and as much as four- fifths – of the value of Medicaid comes from a transfer component, as opposed to its ability to move resources across states of the world. In addition, we estimate that Medicaid generates a substantial transfer to non-recipients of about $0.6 per dollar of government spending.
An implication of this is that the poor would be better off getting direct cash transfers: “Our welfare estimates suggest that if (counterfactually) Medicaid recipients had to pay the government’s cost of their Medicaid, they would not be willing to do so.”
And perhaps this sentence could use the “rooftops treatment”:
It is a striking finding that Medicaid transfers to non-recipients are large relative to the benefits to recipients; depending on which welfare approach is used, transfers to non-recipients are between one-and-a-half and three times the size of benefits to recipients.
Or this:
Across a variety of alternative specifications, we consistently find that Medicaid’s value to recipients is lower than the government’s costs of the program, and usually substantially below. This stands in contrast to the current approach used by the Congressional Budget Office to value Medicaid at its cost. It is, however, not inconsistent with the few other attempts we know of to formally estimate a value for Medicaid; these are based on using choices to reveal ex-ante willingness to pay, and tend to fi nd estimates (albeit for different populations) in the range of 0.3 to 0.5.
Nevada enacts school choice
On Tuesday night, Nevada governor Brian Sandoval signed into law the nation’s first universal school-choice program. That in and of itself is groundbreaking: The state has created an option open to every single public-school student. Even better, this option improves upon the traditional voucher model, coming in the form of an education savings account (ESA) that parents control and can use to fully customize their children’s education.
…As of next year, parents in Nevada can have 90 percent (100 percent for children with special needs and children from low-income families) of the funds that would have been spent on their child in their public school deposited into a restricted-use spending account. That amounts to between $5,100 and $5,700 annually, according to the Friedman Foundation for Educational Choice. Those funds are deposited quarterly onto a debit card, which parents can use to pay for a variety of education-related services and products — things such as private-school tuition, online learning, special-education services and therapies, books, tutors, and dual-enrollment college courses. It’s an à la carte education, and the menu of options will be as hearty as the supply-side response — which, as it is whenever markets replace monopolies, is likely to be robust.
The pointer is from Adam Ozimek.