Ep. 79: Social organization and redistribution

Drug prices have become a hot-button issue in the United States, with politicians across the spectrum agreeing that American consumers pay too much for prescription medications. But bringing down drug prices raises fundamental economic challenges that affect innovation, access, and healthcare costs worldwide. In a paper in the Journal of Economic Perspectives, author Margaret K. Kyle examines how different countries approach pharmaceutical pricing regulation and the lessons to be  learned from international experience. Her work reveals that while the United States does pay significantly higher prices for drugs, the story is more nuanced than a simple comparison suggests. Kyle recently spoke with Tyler Smith about why economists generally support market solutions but make an exception for pharmaceuticals, how "pay-for-performance" contracts and subscription pricing models could bring down costs, and why simple solutions like copying other countries' prices might backfire.

Civil conflict has plagued much of Africa, with ethnically diverse countries experiencing particularly high rates of violence. Yet within these nations, patterns vary, leading to questions of why some groups rebel while others do not and why a given group rebels at certain times but not at other times. In a paper in the American Economic Review, author Eleonora Guarnieri untangles the factors that drive groups to rebel against their central government. She shows that when ethnicities become more culturally distant from those in power, their likelihood of engaging in civil conflict increases significantly.  Her research suggests that conflicts arise as a result of ethnic favoritism in resource distribution and from fundamental disagreements over the types of public goods that central governments should provide. Guarnieri recently spoke with Tyler Smith about how she estimated the impact of cultural distance on civil conflict, and what her findings may mean for reducing violence across Africa's diverse societies.

The Clean Air Act has been an essential tool for reducing air pollution in the United States. But standard estimation methods may overstate its impact, according to a paper in the American Economic Journal: Economic Policy. Authors Lutz Sager and Gregor Singer reexamined the 2005 regulations targeting fine particulate matter (PM2.5) and found that improvements in air quality were closer to a 3 percent reduction in pollutants rather than the 10 percent suggested by conventional methods. However, they also found that the benefits from cleaner air may be larger than previous estimates suggested. Sager and Singer recently spoke with Tyler Smith about methods for properly estimating regulatory impacts that feature time trends and the implications for other measures based on estimates of air quality improvements.

The patchwork nature of America's public safety net has evolved over centuries, shaped by political winds and changing views on poverty. Understanding this complicated history may help shed light on the core tensions that continue to define debates about who deserves assistance and how it should be provided. In a paper in the Journal of Economic Perspectives, author Christopher Howard explored how programs targeted at people with low incomes expanded from meager, local support in colonial times to the large-scale programs of today. He draws a distinction between two parallel systems: means-tested programs targeted specifically at low-income Americans and inclusive social insurance programs available to citizens across income levels.  Howard recently spoke with Tyler Smith about the surprising political durability of some targeted programs, the dramatic success of Social Security in reducing elderly poverty, and the ongoing gaps in the public safety net that leave many Americans vulnerable.

Between 2006 and 2013, China’s government poured enormous resources into its shipbuilding industry through various subsidies—from providing free coastal land to offering financing assistance for ship buyers. But estimating the true scale and impact of these policies is challenging, as governments are often opaque about their industrial support programs. In a paper in the Journal of Economic Perspectives, authors Panle Jia Barwick, Myrto Kalouptsidi, and Nahim Bin Zahur developed new methods for overcoming these measurement challenges and quantifying China’s support for its shipbuilding industry.  Their research reveals which types of industrial policies work best, when they should be implemented, and why countries might pursue them even when the direct economic returns are low. These insights are particularly relevant today, as countries around the world are increasingly embracing industrial policies to support strategic sectors. Barwick and Kalouptsidi recently spoke with Tyler Smith about how they measured China's shipbuilding subsidies, why entry subsidies are particularly inefficient, and the importance of timing industrial support with market cycles

A growing number of US households hire advisers to assist with major financial decisions, such as planning life events or making portfolio choices for retirement. But some advisers exploit the inherent complexity of these decisions and the lack of sophistication of their clients to benefit themselves. In a paper in the Journal of Economic Perspectives, Mark Egan, Gregor Matvos, and Amit Seru show that about 7 percent of financial advisers have serious misconduct records, with rates reaching nearly 30 percent in some regions and firms. The authors explain why misconduct clusters in certain firms and geographic areas, particularly those with wealthy but less financially sophisticated populations. Importantly, the researchers also show that widely publicizing the names of the firms with the highest misconduct rates can lead to a substantial reduction in misconduct. Egan recently spoke with Tyler Smith about how the complex regulatory landscape of financial advising creates potential confusion for consumers and the best ways to clean up the industry.

In 2017, then-President Trump signed into law the Tax Cut and Jobs Act, which was arguably the largest corporate tax cut in US history. The TCJA significantly lowered the statutory rate that corporations pay in taxes and reshaped numerous tax rules. Proponents said it would boost US competitiveness on the international stage and juice business investment. But its overall effects are still being debated among economists. In a paper in the Journal of Economic Perspectives, authors Gabriel Chodorow-Reich, Owen Zidar, and Eric Zwick explored the current understanding of the TCJA, discussing its costs and benefits, as well as future policy implications. They argue that, contrary to what some proponents said, the tax cuts significantly reduced tax revenues.  Zwick recently spoke with Tyler Smith about the legislation, who benefited the most from the bill, and whether provisions that are set to expire in the coming years should be retained.

A half a century ago, new high-yield varieties of crops were introduced to India, and it transformed the country's farming. This so-called “Green Revolution” significantly boosted agricultural output, allaying concerns about famine and food security. But it may have had some unanticipated consequences for long-term health outcomes. In a paper in the American Economic Journal: Applied Economics, authors Sheetal Sekhri and Gauri Kartini Shastry show that the areas where agricultural productivity accelerated the most also saw the highest rates of diabetes among men later in life. The authors argue that substantial changes to the diets of mothers and young children, in the form of higher levels of rice consumption, likely increased the risks of chronic diseases. The findings suggest that dietary diversification should accompany efforts to promote agricultural production. Sekhri recently spoke with Tyler Smith about how the Green Revolution changed diets in India and why it led to a rise in diet-related diseases like diabetes.

Qualitative accounts of anthropologists indicate that social structure plays an important role in how resources are shared in society. But quantitative evidence measuring the impacts of social organization on financial ties and transfers has been lacking. In a paper in the American Economic Review, authors Jacob Moscona and Awa Ambra Seck helped to fill that gap. They found that in East Africa, cash transfer policies had very different effects in cultures organized by kinship ties compared to cultures organized around age groups. The findings suggest that social organization has a deep impact on how resources spread through economies and ultimately shape inequality. Jacob Moscona recently spoke with Tyler Smith about the difference between kin-based societies and age-based societies and how they affect development policies.