In many, many cases, people have a preference for working and doing business with those who share the same religious beliefs, come from the same geographic region, or have something else in common. If this preference arises from discrimination against other groups – if there is economically inefficient favoritism – the economy will not reach its full potential. But could there also be efficiency gains from transacting with people who are culturally proximate? If so, is it possible for the gains to be large enough to more than offset the losses from discrimination? Surprisingly, the answer to both questions is yes. However, that does not mean the barriers between groups should be reinforced. Policies that break down informational barriers between groups could produce further gains.
A central question in the US debate over privatized Medicare is whether increased government contributions to private plans generate lower premiums for consumers or higher profits for producers. This research finds that insurance companies pass through 45% of higher payments in lower premiums and an additional 9% in more generous benefits for those who enroll in Medicare Advantage. Since the findings also suggest that the less than full pass-through is a result of insurer market power, efforts to make markets more competitive may be key to increasing the pass-through to consumers.
The impact of industrial policy on China’s economic growth has been difficult to assess, in part due to the lack of direct evidence on government support measures, which remain secret. This research uncovers hidden subsidies provided to the Chinese shipbuilding industry, which has more than doubled its global market share in recent years. The subsidies decreased shipyard costs in China by 13-20% between 2006 and 2012, policy interventions that have led to substantial misallocation of global production with no significant gains for consumers. Japan, in particular, has lost market share.
The number of people living in poverty in countries around the world is commonly measured using the World Bank’s poverty line – the ‘$1 per day’ that many people have heard of, though it has risen over time and now stands at $1.90 per day. However this measure assumes that the needs of the poor are the same in every country, an assumption at odds with the evidence and common sense. This paper develops a Basic Needs Poverty Line that overcomes this problem giving us new and in some cases surprising insight into the severity of the poverty problem in both rich and poor countries around the world.
While much attention has been paid to the education premium on the labor market, little study has been devoted to the marriage market. Looking back at four decades of US marriages, this research finds that more highly educated people are more likely to marry and that their spouses tend to be of similar academic achievement. Additionally, more educated couples invest greater time in developing their children’s potential. Meanwhile, children from less educated households enjoy fewer resources and are less likely to marry highly educated spouses, the upshot of which could be less social mobility and wider economic inequality.
Regulated utilities are tasked with investing in the electricity distribution system in a way that delivers a reliable power service. This research explains how the regulatory process in the United States leads to under-investment in such infrastructure and too many power outages. The findings show how the politics of the regulatory environment can sometimes help and sometimes harm the problem of under-investment.
This paper studies the aftermath of the MillerCoors joint venture, which merged the operations of SAB Miller and Molson Coors in the United States. The prices of MillerCoors and its biggest rival, Anheuser-Busch Inbev, increased after the joint venture was consummated. These changes are consistent with post-merger coordination between MillerCoors and Anheuser-Busch Inbev.
In September 2008, the UK government announced a surprise stimulus policy in response to a dramatic fall in the housing market: a property transaction tax on houses sold in a certain price range was temporarily eliminated. This column reports research showing that this stimulus boosted transaction volumes by 20% and increased consumer spending by an amount equal to the forgone tax revenue. Cutting transaction taxes during economic downturns can thus be an effective way to stimulate both the housing market and the broader economy.
Are differences in earnings between career-minded men and women the result of differences in performance – and if so, what explains the gender gaps in performance? This column explores these questions by analysing data on the careers of American lawyers who graduated at the turn of the millennium. Among these highly skilled young professionals, a key explanation of gender gaps in performance, earnings and career progression is the difference between men and women’s desire to ‘make partner’.
What are the effects of geographical variations in personal and corporate taxes on the location decisions of innovative individuals and companies? This column reports research showing that state taxes have a significant effect on the localization of star scientists and firms that employ star scientists. Local policy-makers would do well to consider this previously unrecognized cost of high taxes when deciding how much to tax highly productive, high-income workers.