Pharmaceutical innovation can be enormously valuable, leading to the development of medical treatments that save lives and improve patient quality of life. However, new medications that are powerful and effective are often accompanied by painful and uncomfortable side effects. This article summarizes a recent paper, “Why Medical Innovation is Valuable: Health, Human Capital, and the Labor Market”Â. The author develops a dynamic framework to assess the value of pharmaceutical innovation. The framework incorporates patient incentives for long-run health along with their preferences for treatments with fewer side effects. A key finding is that evaluating effective medical treatments without considering their side effects can be misleading.
Does welfare inhibit success? The long-term effects of removing low-income youth from the disability rolls
Despite the controversy surrounding welfare programs, there is little empirical evidence about the long-term effects of these programs on recipients. In a recent paper, Deshpande (2016), I study the long-term effects of removing low-income youth from a large cash welfare program, using a policy change from the 1996 welfare reform law. I find that youth who are removed from welfare have low earnings and minimal earnings growth in adulthood. The results indicate that this welfare program does not substantially inhibit success and self-sufficiency among youth.
Can market based regulation reduce greenhouse gas emissions? Evidence from the United States
Market-based mechanisms such as âcap-and-tradeâ have become increasingly popular policy tools for reducing harmful emissions. But designing these schemes so that emissions are curbed efficiently requires understanding key elements of an industryâs structure, notably the degree of market power and the extent to which unregulated foreign producers compete with domestic firms. This research investigates these issues in the US cement industry, an emissions-intensive sector exposed to foreign competition. The findings suggest that the optimal regulatory policy in such industries may be to rebate compliance costs partially on the basis of output or to impose border tax adjustments.
Studying advanced mathematics: the potential boost to womenâs career prospects
Why are there so few women in highly paid careers as chief executives and, more generally, in finance, business, science, technology, engineering and mathematics? Analysing Danish data on young people whose educational and professional lives have been tracked over two decades since they started high school, this research suggests that part of the reason lies in restrictive bundling of courses, which deters talented young women from acquiring advanced mathematical skills. Changing the learning environment and designing the curriculum to identify and foster young women with high mathematical abilities would attract more of them and help to reduce the gender pay gap.
Economic benefits of transportation infrastructure: historical evidence from India and America
Dave Donaldson is an empirical trade economist and recipient of the 2017 John Bates Clark Medal. His research examines the intersection of international trade and development economics. Donaldsonâs paper âRailroads of the Raj: Estimating the Impact of Transportation Infrastructure?â (American Economic Review, forthcoming) investigates the economic benefits from building transportation infrastructure studying the case of railways in 19th century India. This paper is widely viewed as both a methodological breakthrough and substantively important paper in the field. The article below provides a summary of his work.
Why currency devaluations are losing economic punch
Competitive devaluations are again becoming a popular macroeconomic policy. For example, a competitive devaluation was one of the three pillars of Abenomics, the economic policy of Shinzo Abeâs administration to fight secular stagnation in Japan. It was also discussed as a potential tool for debt-ridden southern European countries, had they been able to abandon the euro.
But while Japan reduced the value of the yen by 50 percent relative to the US dollar between 2012 and 2015, the impact on trade and employment was underwhelming. The Economist derided the policy as an âuncompetitive devaluation.â[1]
Why small isnât always beautiful: labor regulations and firm growth
Regulations often have unintended costs as well as intended benefits. France has a large number of labor market regulations that bind when a firm has 50 or more employees. These regulations are intended to help workers, but they also act as a tax on large firms. This discourages firms near the threshold from growing larger and producing more output. We calculate that these French labor regulations depress overall economic output by over 3%.
Disability insurance and the dynamics of the incentive-insurance tradeoff
Recent growth in the number of Disability Insurance claimants has led to calls for substantial scaling back of the program. We evaluate the incentive cost of the DI program against its insurance value to those in need. The main failure of the program is the number of severely work limited who do not receive insurance: the program is badly targeted.
The gender wage gap: how firms influence womenâs pay relative to men
Employersâ pay policies can contribute to the gender wage gap if women are less likely to work at high-paying firms or if women negotiate worse wage bargains than men. Analysing data from Portugalâs labour market, this research finds that differences among firms can explain up to 20% of the gender wage gap. Women tend to be employed at less productive firms that offer lower wages to their employees. Moreover, when women are hired by better-paying firms, their wages rise less than men, possibly because they are less effective negotiators. These findings call for renewed attention to equal pay and fair hiring laws.
Reducing the cost of living: how global retailers improve household welfare in Mexico
Big-box retail stores arriving from foreign countries have transformed the way Mexican households shop for goods, sparking a âsupermarket revolutionâ. Traditionally, consumers in developing countries have shopped at street markets and small, independent stores. However, consumers have switched to shopping at foreign retailers, who offer a larger variety of products at cheaper prices. Despite concerns that foreign retailers might adversely affect local employment and household incomes, our evidence shows that allowing them to operate their businesses in Mexico has generated substantial welfare gains for households across the income spectrum by lowering the cost of living, while having limited impacts on total employment, incomes, and local businesses closing.
