Ep. 95: Diversifying college applications

Guidance counselors generally advise college applicants to diversify their applications across schools they believe to be safeties, matches, and reaches. Yet, prevailing economic theories of school choice suggest that such hedging strategies are suboptimal and that applicants should focus on applying to the best schools they have a chance of getting into. In a paper in the American Economic Review, authors S. Nageeb Ali and Ran I. Shorrer show how incorporating correlations among admissions decisions rationalizes the motive to hedge. Their findings highlight the tradeoffs applicants face under realistic assumptions and may offer insights into the optimal design of admission processes. Ali and Shorrer recently spoke with Tyler Smith about how the admissions process can be correlated and the implications for students.

Between 1997 and 2011, opioid dispensing in the United States more than tripled, fueling what would become the deadliest drug epidemic in American history. This surge in the supply of opioids was concentrated among a small subset of doctors: roughly 1 percent of the doctors who prescribed opioids accounted for almost 50 percent of all domestic opioid doses prescribed. In a paper in the American Economic Journal: Economic Policy, author Adam Soliman examined what happened when federal authorities cracked down on "rogue" doctors who overprescribed opioids.  He found that removing a single doctor from the opioid supply chain reduced county-level dispensing by 10 percent, with no negating increases in neighboring areas. Yet these interventions came with a trade-off—while overall drug mortality declined, heroin overdoses increased by 50 percent, likely as a result of existing users seeking alternatives.  Soliman recently spoke with Tyler Smith about how he untangled these complex enforcement effects and what his findings mean for combating drug epidemics that begin in the legal pharmaceutical market.

The launch of Sputnik by the Soviet Union in October 1957 led to a geopolitical crisis that reshaped American science policy. Within months, Congress established NASA, and by 1961, President Kennedy committed the nation to landing a man on the moon before the decade's end. The resulting investment was massive, and the program still serves as a model of government spending for advocates of public R&D.  In a paper in the American Economic Review, authors Shawn Kantor and Alexander Whalley question whether the space race program succeeded as an economic policy that boosted economic growth and productivity. To estimate the space program's effects on economic growth from 1947 to 1992, the authors used data on NASA contractor spending and a novel identification strategy based on declassified CIA documents that allowed them to determine which US industries in which counties specialized in space-relevant technologies before the space race began. Their findings complicate the conventional narrative about public R&D and provide important context for current proposals to replicate so-called "moonshot" models in other domains. Kantor and Whalley recently spoke with Tyler Smith about the local effects of space race spending and why they didn't translate into long-term productivity gains.

Most Americans agree that housing costs are too high, often blaming developers and landlords.  Many feel that the problem can be solved with price controls, development restrictions, and mandates on providing below-market-rate units. But these ideas are at odds with standard economic policy prescriptions, which suggest that the way to bring down costs is by increasing the housing supply. In a paper in the Journal of Economic Perspectives, authors Christopher S. Elmendorf, Clayton Nall, Stan Oklobdzija explore how the public thinks about housing markets through surveys of thousands of urban and suburban residents. They found that while people understand supply and demand in markets like cars and agriculture, they struggle to apply the same logic to housing. The authors' results may help efforts to shape better economic messaging geared toward the general public. Elmendorf recently spoke with Tyler Smith about how he and his coauthors measured public beliefs about housing markets and why these beliefs differ from economic consensus.

Despite decades of civil rights legislation, many Black and White Americans, as well as other minorities, continue to live in racially homogeneous neighborhoods, with significant implications for access to quality schools, jobs, healthcare, and economic opportunities. In a paper in the Journal of Economic Literature, authors Trevon D. Logan and John M. Parman examine the complexities of measuring residential segregation, what causes segregation to persist, and why it matters so much for economic outcomes. Their work challenges conventional narratives about US segregation and offers a framework for understanding how residential patterns continue to shape American inequality. Logan and Parman recently spoke with Tyler Smith about the patterns of segregation they uncovered, and what the key drivers might be.

For decades, the United States enjoyed what some called an exorbitant privilege—the ability to spend more than it earned without accumulating much debt to the rest of the world. But that privilege has ended. In a paper in the American Economic Review, authors Andrew Atkeson, Jonathan Heathcote, and Fabrizio Perri found that the United States started accumulating significant liabilities to foreigners after the Great Recession.  The researchers say that a surge in the value of US corporations relative to companies in other countries is the driver of this development. Due to large international capital flows in recent decades, foreign investors now own about 40 percent of US corporate equity, while US investors also hold a large amount of foreign companies in their portfolio. When American companies become more profitable and their stock prices soar, much of the gains flow overseas, without a corresponding flow to US investors from foreign companies, and this erodes the net foreign asset position of the United States. Atkeson recently spoke with Tyler Smith about how to interpret the US net foreign asset position and what its recent swings mean for American households.

US household income has grown significantly, but much of that growth seems to be at the very top of the distribution. Just how much inequality has increased and why it is growing is a topic of debate among economists. Part of the challenge lies in a seemingly basic question: what exactly counts as income? In a paper in the Journal of Economic Perspectives, author Matthieu Gomez disentangles the notions of income that economists frequently use and helps pinpoint what's really behind the rise in inequality.  Gomez recently spoke with Tyler Smith about defining income, recent patterns in income inequality, and the best tools for reducing inequality.

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.