can entry or exit event studies inform horizontal merger analysis evidence from grocery retailing this study estimates how prices change following the entry and exit of grocery retailers we estimate the effects of entry exit by comparing affected markets to a set of unaffected markets using both a difference in difference estimator and a synthetic control estimator we find that entry typically results in reduced prices more surprisingly we find that exit is frequently associated with falling prices our estimated effects of entry on grocery prices are similar in magnitude to estimates of merger price effects in the supermarket industry this finding suggests that entry event studies may be a useful tool for horizontal merger analysis jel l11 l4 l81

entry into pharmaceutical submarkets a bayesian panel probit analysis summary we study entry into pharmaceutical submarkets by using a dynamic panel probit model we develop a bayesian version of wooldridge s approach to dealing with unobserved heterogeneity we distinguish between greenfield entry entry with first product and undifferentiated entry which may take the form of introducing further products we extend the standard reduced form model to consider company size in the submarket and across all submarkets we find that greenfield and undifferentiated entries have different determinants that global and submarket size measures have different effects and that sunk costs often have positive effects on entry due to a commitment mechanism copyright 2012 john wiley sons ltd

authorized generic entry prior to patent expiry reassessing incentives for independent generic entry abstract originators seek to mitigate the loss of monopoly power by authorizing generic entry prior to patent expiry off patent competition may be adversely affected if authorized generic entry substantially lowers the attractiveness of subsequent generic entry this study assesses the impact of authorized generic entry on independent generic entry in recent cases of patent expiry in germany the results of a recursive bivariate probit regression accounting for the endogeneity of authorized generic entry show that authorized generic entry has no significant effect on the likelihood of generic entry business scope expansion and rent seeking motives drive authorized generic entry decisions

estimating the impact of the hajj religion and tolerance in islam s global gathering we estimate the impact on pilgrims of performing the hajj pilgrimage to mecca our method compares successful and unsuccessful applicants in a lottery used by pakistan to allocate hajj visas pilgrim accounts stress that the hajj leads to a feeling of unity with fellow muslims but outsiders have sometimes feared that this could be accompanied by antipathy toward non muslims we find that participation in the hajj increases observance of global islamic practices such as prayer and fasting while decreasing participation in localized practices and beliefs such as the use of amulets and dowry it increases belief in equality and harmony among ethnic groups and islamic sects and leads to more favorable attitudes toward women including greater acceptance of female education and employment increased unity within the islamic world is not accompanied by antipathy toward non muslims instead hajjis show increased belief in peace and in equality and harmony among adherents of different religions the evidence suggests that these changes are likely due to exposure to and interaction with hajjis from around the world rather than to a changed social role of pilgrims upon return

how to identify trust and reciprocity this paper uses a three games or triadic design to identify trusting and reciprocating behavior a large literature on single game trust and reciprocity experiments is based on the implicit assumption that subjects do not have altruistic or inequality averse other regarding preferences such experimental designs test compound hypotheses that include the hypothesis that other regarding preferences do not affect behavior in contrast experiments with the triadic design do discriminate between transfers resulting from trust or reciprocity and transfers resulting from other regarding preferences that are not conditional on the behavior of others decomposing trust from altruism and reciprocity from altruism or inequality aversion is critical to obtaining empirical information that can guide the process of constructing models that can increase the empirical validity of game theory

the price of innovation new estimates of drug development costs the research and development costs of 68 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms these data were used to estimate the average pre tax cost of new drug development the costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval the estimated average out of pocket cost per new drug is us 403 million 2000 dollars capitalizing out of pocket costs to the point of marketing approval at a real discount rate of 11 yields a total pre approval cost estimate of us 802 million 2000 dollars when compared to the results of an earlier study with a similar methodology total capitalized costs were shown to have increased at an annual rate of 7 4 above general price inflation 2003 elsevier science b v all rights reserved

the added worker effect the term added worker effect usually refers to a temporary increase in the labor supply of married women whose husbands have become unemployed this paper presents a new approach to the empirical study of the added worker effect which emphasizes the role of employment uncertainty and credit constraints in generating short run participation and employment patterns the estimates are based on employment transition probabilities rather than static measures of labor supply and are used in a dynamic simulation of changes in the employment and participation rates of wives following an exogenous increase in unemployment among their husbands the results show a small but significant added worker effect at least for white families and suggest that the apparent disagreement among previous studies may stem from different approaches to measuring responses to a transitory event such as an unemployment spell

a simple model of pharmaceutical price dynamics abstract branded pharmaceutical firms use price and promotional strategy to manage public knowledge about their drugs we propose a dynamic theory of pharmaceutical pricing and conduct an exploratory empirical analysis inspired by the theory our theory predicts a pattern of increasing prices and decreasing promotional activities over a drug s life cycle prices are kept low and advertising levels high early in the life cycle in order to build public knowledge about the drug as knowledge grows prices rise and advertising falls if the management of this stock is important enough this tendency of prices to rise can overwhelm the price decreasing effect of entry by generic competitors late in the drug life cycle we argue that our theory of price dynamics explains empirical regularities in this industry

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

allocation inflexibilities female labor supply and housing assets accumulation are women working to pay the mortgage this article uses data from the 1986 canadian family expenditures survey to estimate a life cycle consistent model of household labor supply and commodity demand that incorporates a mortgage qualification constraint based on earnings both the parametric and nonparametric implications of the model suggest that the labor supply of a nontrivial percentage of married women is constrained by mortgage commitments the results of generalized selectivity models of female labor force participation and labor supply show that the positive effect of a high debt service ratio exceeds the negative effect of young children

rising r d intensity and economic growth over the past decades private r d spending in the us and other developed countries has been growing faster than gdp at the same time the growth rates of per capita and aggregate output have been rather stable possibly declining slightly this paper proposes a growth model that can account for the observed phenomenon by explicitly describing competition among technological leaders and followers in individual markets in a way that is consistent with existing studies on firms motivation to invest in r d the model shows the possibility that the unsustainable trend of rising r d intensity persists for a very long time

consumer spending and the economic stimulus payments of 2008 abstract we measure the change in household spending caused by receipt of the economic stimulus payments of 2008 using questions added to the consumer expenditure survey and variation from the ran

in aid we trust hearts and minds and the pakistan earthquake of 2005 in 2005 an earthquake in northern pakistan led to a significant inflow of international relief groups four years later trust in europeans and americans was markedly higher among those exposed to the earthquake and the relief that followed these differences reflect the greater provision of foreign aid and foreigner presence in affected villages rather than preexisting population differences or a general impact of disasters on trust we thus demonstrate large scale durable attitudinal change in a representative muslim population trust in westerners among muslims is malleable and not a deeply rooted function of preferences or global as opposed to local policy and actions

child labor and schooling responses to anticipated income in south africa abstract forward looking unconstrained households make child labor and schooling decisions considering their permanent income and weighing the relative returns to child time in various potential activities the timing of anticipated changes in income should have no effect on child labor and schooling in a setting where households can borrow against permanent income however this study documents large increases in schooling attendance and declines in total hours worked when black south african families become eligible for fully anticipatable social pension income as an explanation the data are most consistent with liquidity constraints for black elder males forcing rural families into less schooling for boys than they would choose absent the constraint perhaps because of schooling costs

violence and risk preference experimental evidence from afghanistan we investigate the relationship between violence and economic risk preferences in afghanistan combining i a two part experimental procedure identifying risk preferences violations of expected utility and specific preferences for certainty ii controlled recollection of fear based on established methods from psychology and iii administrative violence data from precisely geocoded military records we document a specific preference for certainty in violation of expected utility the preference for certainty which we term a certainty premium is exacerbated by the combination of violent exposure and controlled fearful recollections the results have implications for risk taking and are potentially actionable for policymakers and marketers

family labor supply and the timing of cash transfers evidence from the earned income tax credit abstract this paper exploits the unique disbursement timing and benefit rules of the earned income tax credit eitc to provide new evidence on how families adjust their labor supply in response to receiving anticipated cash transfers i find that income seasonality caused by eitc receipt leads to changes in the intra year labor supply patterns of married women on average receiving a 1 000 payment significantly reduces the proportion of married women who work by 1 3 percentage points in the month when the eitc is received additionally this labor supply response is mainly driven by those who are secondary earners or liquidity constrained

a dynamic oligopoly structural model for the prescription drug market after patent expiration this article incorporates consumer learning and heterogeneity into a dynamic oligopoly model for the prescription drug market in the model both firms and patients need to learn the generic qualities via patients experiences generic firms entry decisions are endogenous but their entry timings depend on a random approval process i apply the model to examine the impact of shortening the expected generic approval time although this policy experiment brings generics to the market sooner it increases a potential entrant s likelihood of entering a crowded market and hence could reduce the total number of generic entrants and consumer welfare

information marketing and pricing in the u s antiulcer drug market introduced into the united states in 1977 tagamet was the pioneer product in the class of antiulcer drugs known as h2antagonists by promoting ulcer healing through inhibiting acid secretion tagamet was able to heal ulcers and treat pre ulcer conditions pharmacologically on an outpatient basis thereby substituting for more costly hospital admissions and surgeries in 1983 another h2 antagonist called zantac entered and by early 1987 u s zantac sales surpassed those of the pioneering tagamet today there are four h2 antagonists sold in the united states tagamet zantac pepcid and axid zantac is now the world s largest selling prescription drug having estimated worldwide sales in 1994 of about 4 billion each of the four h2 antagonists is among the top 100 in world drug sales although tagamet lost u s patent protection on may 17 1994 in this paper we examine empirically the role of information in facilitating and explaining growth of the overall antiulcer drug market as well as in shaping the changing market shares of the four patented products the dissemination of information is due largely to the use of marketing channels such as visits by manufacturers representatives to physicians called detailing advertising in medical journals and most recently by direct to consumer advertising we examine these and also explore pricing policies product differentiation and orderof entry effects

deep impact geo simulations as a policy toolkit for natural disasters adverse post natural disaster outcomes in low income regions like elevated internal migration levels and low consumption levels are the result of market failures poor mechanisms for stabilizing income and missing insurance markets which force the affected population to respond and adapt to the shock they face in a spatial environment with multiple locations with independent but inter connected markets these transitions quickly become complex and highly non linear due to the feedback loops between the micro individual level decisions and the meso location wise market decisions to capture these continuously evolving micro meso interactions this paper presents a spatially explicit bottom up agent based model to analyze natural disaster like shocks to low income regions the aim of the model is to temporally and spatially track how population distributions income and consumption levels evolve in order to identify low income workers that are food insecure the model is applied to the 2005 earthquake in northern pakistan which faced catastrophic losses and high levels of displacement in a short time span and with market disruptions resulted in high levels of food insecurity the model is calibrated to pre crisis trends and shocked using distance based output and labor loss functions to replicate the earthquake impact model results show how various factors like existing income and saving levels distance from the fault line and connectivity to other locations can give insights into the spatial and temporal emergence of vulnerabilities the simulation framework presented here leaps beyond existing modeling efforts which usually deals with macro long term loss estimates and allows policy makers to come up with informed short term policies in an environment where data is non existent policy response is time dependent and resources are limited

generic drug industry dynamics both the economics literature and the business press suggest that a typical pattern for a new industry or what jovanovic and macdonald 1994 call an invention i s to have an initial phase in which a small number of firms each earn significant profits followed by a phase in which rapid entry of new firms leads to increased competition and dissipation of some of those profits often accompanied by a shakeout whereby only a few large firms remain especially if subsequent innovations increase the optimal scale although this pattern seems to characterize many industries the length of time during which early movers retain their profits how prices adjust during the entry process and the

the slave trade and the origins of mistrust in africa in a recent study nunn 2008 examines the long term impacts of africa s slave trade he finds that the slave trade which occurred over a period of more than 400 years had a significant negative effect on long term economic development although the article arguably identifies a negative causal relationship between the slave trade and income today the analysis is unable to establish the exact causal mechanisms underlying this reduced form relationship in this article we examine one of the channels through which the slave trade may affect economic development today combining contemporary individual level survey data with historical data on slave shipments by ethnic group we ask whether the slave trade caused a culture of mistrust to develop within africa initially slaves were captured primarily through state organized raids and warfare but as the trade progressed the environment of ubiquitous insecurity caused individuals to turn on others including friends and family members and to kidnap trick and sell each other into slavery sigismund wilhelm koelle 1854 p e h hair 1965 charles piot 1996 we hypothesize that in this environment a culture of mistrust may have evolved which may persist to this day we show that current differences in trust levels within africa can be traced back to the transatlantic and indian ocean slave trades combining contemporary individual level survey data with historical data on slave shipments by ethnic group we find that individuals whose ancestors were heavily raided during the slave trade are less trusting today evidence from a variety of identification strategies suggests that the relationship is causal examining causal mechanisms we show that most of the impact of the slave trade is through factors that are internal to the individual such as cultural norms beliefs and values jel j15 n57 z13

storm damage and risk preferences panel evidence from germany individuals risk preferences may change after experiencing external socio economic or natural shocks theoretical predictions and empirical studies suggest that risk taking may increase or decrease after experiencing shocks so far the empirical evidence is sparse especially when it comes to developed countries we contribute to this literature by investigating whether experiencing financial and health related damage caused by storms affects risk preferences of individuals in germany using unique panel data we find that household heads were more risk seeking after they experienced storm damage we do not find evidence of exposure to storm per se regardless of damage experience which suggests that household heads have to suffer damage for their risk preferences to be affected these results are robust across a battery of alternative model specifications and alternative storm damage measures magnitude of financial damage we rule out other potential explanations such as health related and economic shocks the self reported storm damage data is broadly confirmed by regional storm damage data provided by the insurance industry while we cannot identify the channels through which experiencing storm damage affects risk preferences from our data we suggest and discuss some potential channels the results may have important policy implications as risk preferences affect for instance individuals savings and investment behaviour adoption of self protection and self insurance strategies and technology adoption

inherited trust and growth this paper develops a new method to uncover the causal effect of trust on economic growth by focusing on the inherited component of trust and its time variation we show that inherited trust of descendants of us immigrants is sig nificantly influenced by the country of origin and the timing of arrival of their forebears we thus use the inherited trust of descendants of us immigrants as a time varying measure of inherited trust in their country of origin this strategy allows to identify the sizeable causal impact of inherited trust on worldwide growth during the twentieth century by controlling for country fixed effects jel n11 n12 n31 n32 o47 z13

competition in off patent drug markets issues regulation and evidence in recent years health insurers have placed a great deal of emphasis on the ability of generic medicines to deliver significant savings to overstretched health care budgets due to their lower cost and potential for a more efficient resource allocation in this paper we study market developments after patent expiry whether health insurance captures the financial benefits from cheaper generics and whether regulation and product differentiation among others have any power in explaining originator and generic price movements generic entry and diffusion we find that health insurance does not capitalize fully or fast enough on the cost advantage of generic medicines either because generic policies do not encourage their fast uptake or because generic drug prices are high and frequently tied directly or indirectly to originator drug prices we also find that reference pricing a particular form of reimbursement regulation encourages generic entry and reduces generic prices but only marginally finally in generic markets characterized by homogeneous products we find evidence of product differentiation which is impacting prices upwards rather than downwards if health insurance is to benefit fully from generic medicines it ought to encourage faster uptake and price competition and discourage price fixing regulation that ties generic prices to those of originator brands panos kanavos joan costa font and elizabeth seeley

household expenditure and the income tax rebates of 2001 using questions expressly added to the consumer expenditure survey we estimate the change in consumption expenditures caused by the 2001 federal income tax rebates and test the permanent income hypothesis we exploit the unique randomized timing of rebate receipt across households households spent 20 to 40 percent of their rebates on nondurable goods during the three month period in which their rebates arrived and roughly two thirds of their rebates cumulatively during this period and the subsequent three month period the implied effects on aggregate consumption demand are substantial consistent with liquidity constraints responses are larger for households with low liquid wealth or low income

worktime regulations and spousal labor supply we study interdependencies in spousal labor supply by exploiting the design of the french workweek reduction which introduced exogenous variation in one s spouse s labor supply at constant earnings treated employees work on average two hours less per week husbands of treated women respond by reducing their labor supply by about half an hour consistent with substantial leisure complementarity and specifically cut the non usual component of their workweek leaving usual hours unchanged women s response to their husband s treatment is instead weak and rarely statistically significant possibly due to heavier constraints in the organization of their workweek

changes in the labor supply behavior of married women 1980 2000 using march current population survey data we investigate married women s labor supply from 1980 to 2000 we find a large rightward shift in their labor supply function for annual hours in the 1980s with little shift in the 1990s these shifts account for most of the slowdown in the growth of labor supply during this period a major development was the dramatic decrease in the responsiveness of married women s labor supply to their own and husbands wages their own wage elasticity fell by 50 56 while their cross wage elasticity fell by 38 47 in absolute value

does unemployment insurance crowd out spousal labor supply previous research on unemployment insurance ui has emphasized the program s effect on individual search behavior this state contingent income may also reduce the labor supply of family members during the unemployment spell we investigate this question within the context of wives labor supply responses to their husbands unemployment spells we find strong crowdout of this form of family self insurance our estimates imply that for each dollar of ui receipt wives earn up to 73 cents less the reduction in spousal hours of work is over 40 as large as previous estimates of the effect of ui on search time of husbands

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

do consumers react to anticipated income changes evidence from the alaska permanent fund a central implication of the life cycle permanentincome hypothesis lc pih is that consumers should not respond to predictable changes in their income to test this hypothesis a number of recent papers have exploited natural experiments to identify anticipated income changes in particular recent work by parker 1999 uses the change in after tax income due to the cap on earnings subject to the social security tax and a related paper by souleles 1999 examines the response of consumption to income tax refunds surprisingly parker and souleles find that even when income is expected to change within the year expenditure is excessively sensitive to the timing of the income change while their results can be interpreted as evidence that our canonical model of consumption is inadequate an alternative explanation is that the anticipated income changes they exploit are small and irregular and that households will not bother to change their consumption paths when the computational costs involved are large relative to the utility gains in support of this interpretation browning and collado 2001 find that the seasonal consumption patterns of spanish households that work in sectors that provide regular bonus payments do not differ from those of households that do not receive bonus payments this paper adds to this evidence by exploiting a natural experiment provided by annual payments from the state of alaska s permanent fund to every resident in the state of alaska that should yield an unusually powerful test of the lc pih these payments are large and clearly anticipated by alaskan residents using the variation in the size of the payments over time and in the amount received by families of different sizes to identify the response of consumption to payments from the permanent fund i find no evidence that the consumption of alaskan households reacts to these payments in addition i find no evidence that the seasonal pattern of consumption in alaska differs from that in the other 49 states or that households in alaska are subject to fewer liquidity constraints engage in less buffer stock saving or spend a smaller fraction of their income on semidurable goods than households in the rest of the united states however although households in alaska do not overreact to payments from the permanent fund i find that the consumption of the very same households is excessively sensitive to their income tax refunds this evidence suggest that households will take anticipated income changes into account in their consumption decisions when the income changes are large regular and easy to predict but will not do so when they are small and irregular the paper proceeds as follows the next section of the paper presents details on the department of economics princeton university princeton nj 08544 and national bureau of economic research e mail chsieh princeton edu i am very grateful to the bureau of labor statistics bls for providing access to the data from the consumer expenditure survey and to its staff particularly steven henderson walter vandeheide and wolf weber for their generous assistance during my visits to the bls i also thank nanci jones for providing data and patiently answering questions on the operation of the alaska permanent fund anne case angus deaton jonathan parker and two referees provided useful comments the views expressed in this paper are personal and should not be attributed to the bls 1 i refer to the certainty equivalent version of the lc pih or one in which the expected variance of consumption is constant as is well known without these assumptions the lc pih only implies smoothing of marginal utility not necessarily of consumption 2 see christina h paxson 1992 john shea 1995 jonathan a parker 1999 nicholas s souleles 1999 martin browning and m dolores collado 2001 also see ronald a bodkin 1959 for an early example of the use of a natural experiment to test for excess sensitivity for comprehensive reviews of the large literature on empirical tests of the lc pih see angus deaton 1992 browning and annamaria lusardi 1996 and browning and thomas f crossley 2001 3 in 1998 for example the permanent fund paid 1 541 to every resident of the state of alaska

strategic pricing of new pharmaceuticals this paper provides empirical evidence on the leading factors affecting the prices of new pharmaceuticals both at introduction and after 4 6 and 8 years most important is the extent of therapeutic advance embodied in a new product for drugs which represent important therapeutic gains launch prices can be two or three times those of existing drugs used for the same purposes while drugs that largely duplicate the actions of currently available products are typically priced at comparable levels in addition the number of branded substitutes has a substantial negative effect on launch prices which reflects the importance of competitive pressures duplicate products thereby play an important economic role in pharmaceutical markets

modelling pharmaceutical price changes in germany a function of competition and regulation in this article price changes for pharmaceuticals in germany are modelled as a function of regulation and competition changes in the regulatory environment and in the competitive environment of a product are taken into account to follow the hierarchical structure a four level random intercept model was constructed price changes were allowed to vary randomly between drug classes between different substances within a drug class and between different manufacturers of a substance this study provides evidence that two policy measures reference pricing and temporary price freezes succeeded in reducing prices in germany between january 2004 and june 2006 for off patent substances depending on the competition faced by a drug the effect of competition can be greater than the effect of regulation the study therefore not only demonstrates the importance of competition between and within drug classes it also provides evidence that generic entry has substantial effects on the prices of branded p

the effects of housing assistance on labor supply evidence from a voucher lottery this study estimates the effects of means tested housing programs on labor supply using data from a randomized housing voucher wait list lottery in chicago economic theory is ambiguous about the expected sign of any labor supply response we find that among working age able bodied adults housing voucher use reduces labor force participation by around 4 percentage points 6 percent and quarterly earnings by 329 10 percent and increases temporary assistance for needy families program participation by around 2 percentage points 15 percent we find no evidence that the housing specific mechanisms hypothesized to promote work such as neighborhood quality or residential stability are important empirically jel i38 j22 r23 r38

the long term effects of africa s slave trades can part of africa s current underdevelopment be explained by its slave trades to explore this question i use data from shipping records and historical documents reporting slave ethnicities to construct estimates of the number of slaves exported from each country during africa s slave trades i find a robust negative relationship between the number of slaves exported from a country and current economic performance to better understand if the relationship is causal i examine the historical evidence on selection into the slave trades and use instrumental variables together the evidence suggests that the slave trades have had an adverse effect on economic development

perverse reverse price competition average wholesale prices and medicaid pharmaceutical spending abstract generic drugs comprise an increasing share of total prescriptions dispensed in the u s rising from nearly 50 in 1999 to 75 in 2009 the generic drug market has typically been viewed at the wholesale level as a competitive market with price approaching marginal costs however the large presence of third party payers as final purchasers may distort prices at the retail level relative to what a standard model of price competition would predict in this paper we investigate how generic drug producers compete in the presence of the procurement rules of the medicaid program medicaid reimbursement to pharmacies like that of other payers is based on a benchmark price called the average wholesale price awp the awp is reported by generic producers themselves and until recently has been subject to essentially no independent verification as a result generic producers have had an incentive to compete for pharmacy market share by reporting awps that exceed actual average wholesale prices as this spread leads to larger pharmacy profits in 2000 after a federal government audit of actual wholesale prices of generic products states were advised to reduce medicaid reimbursement by as much as 95 for about 400 generic and off patent drug products we use variation induced by the timing of this policy along with its differential impact on drug products medicaid reimbursement to estimate the impact of this exogenous price change on the market share of targeted products our findings indicate that pharmacies did respond to the perverse incentives of the medicaid program by dispensing products with the highest awps overall the medicaid market share fell by about 45 for targeted drug products as a result of the policy

the dynamic spillovers of entry an application to the generic drug industry this paper examines whether experience from entry in one market can potentially enhance profitability at a future market opportunity for a related product we formulate and estimate a dynamic game of entry in which forward looking firms make decisions not just based on present benefits of past entry but also anticipating potential future benefits of current entry dynamic spillovers of entry are incorporated through a firm specific unobservable to the researcher cost that depends on past entry decisions the unobserved costs may also be serially persistent thus the model allows for firm specific unobserved heterogeneity that evolves based on firm actions the challenge of estimating a dynamic game with serially correlated unobserved state variables subject to endogenous feedback is overcome by embedding a particle filter based technique in a nested fixed point algorithm using an application to a stylized model of entry in the generic pharmaceutical industry we underscore the motivation for the model specification and the methodology developed our estimates imply positive spillover effects of entry moreover these spillovers suggest heterogeneity not just across firms but also within firms over time based on their history of entry decisions our results illustrate that entry may potentially provide firms with additional strategic advantage in later markets and that entry spillovers may be an important factor to consider in the equilibrium evolution of the generic drug industry the web appendix is available at https doi org 10 1287 mnsc 2016 2648 this paper was accepted by j miguel villas boas marketing

price regulation and relative delays in generic drug adoption abstract increasing the adoption of generic drugs has the potential to improve static efficiency in a health system without harming pharmaceutical innovation however very little is known about the timing of generic adoption and diffusion no prior study has empirically examined the differential launch times of generics across a comprehensive set of markets or more specifically the delays in country specific adoption of generics relative to the first country of generic adoption drawing on data containing significant country and product variation across a lengthy time period 1999 2008 we use duration analysis to examine relative delays across countries in the adoption of generic drugs our results suggest that price regulation has a significant effect on reducing the time to launch of generics with faster adoption in higher priced markets the latter result is dependent on the degree of competition and the expected market size

a closer look at the returns and risks of pharmaceutical r d this study assesses the profitability of researching and developing new chemical entities nces a 36 year investment horizon is projected based on a survey of r d costs and on extensive u s sales data analysis is after taxes the average nce produces a real internal rate of return of 6 1 and a net present value of 76 million in 1976 dollars break even with an opportunity investment in corporate bonds occurs on average after 12 years of sales risk is apparent in that after 24 years of sales some two thirds of nces return no more than the bonds do the median nce not recovering average r d costs produces a negative return alternative assumptions are tested results are highly sensitive to drug price increases and early replacement by generics

taxes and the labor market participation of married couples the earned income tax credit a distinguishing feature of recent changes to the us system of public assistance is its increasing focus on working families and reliance on the tax system to transfer dollars to needy families after a decade in near total obscurity the earned income tax credit eitc was expanded to become the largest cash transfer program for lower income families with children advocates of the eitc argue that unlike traditional welfare the credit helps promote both the values of family and work indeed empirical evidence consistent with economic theory suggests that the eitc promotes employment among eligible unmarried women with children to target benefits to lower income families however the eitc is based on family income leading to traditional welfare type disincentives for most eligible secondary earners in fact the eitc is likely to reduce overall family labor supply among married couples this paper examines the labor force participation response of married couples to eitc expansions between 1984 and 1996 the effect of the credit is estimated using both quasiexperimental and traditional reduced form labor supply models results from both models show the same qualitative conclusion that the eitc expansions reduced total family labor supply of married couples in all cases we find a decline in labor force participation by married women that more than offsets any rise in participation by their spouses while the labor force participation rate of married men increased by about 0 2 percentage points that of married women decreased by just over a full percentage point these aggregate effects mask substantial heterogeneity in the population women facing the strongest disincentives were more than 2 percentage points less likely to work after the expansions these findings imply that the eitc is effectively subsidizing married mothers to stay home and therefore have implications for the design of the program d 2003 elsevier b v all rights reserved

dynamic gains and static losses in oligopoly evidence from the beer industry i introduction more than 40 years ago arnold harberger 1954 estimated the welfare loss due to monopoly in the united states harberger s finding that the welfare loss caused by monopoly is surprisingly small sparked a lively debate that enriched the economic literature enormously the articles by david schwartzman 1960 david kamerschen 1966 frederick bell 1968 dean worcester 1973 and john siegfried and thomas tiemann 1974 constitute but a small sample out of the vast number of studies of this issue later keith cowling and dennis c mueller 1978 found some higher values of deadweight losses ten times as large as harberger s in a subsequent study i was able to lend support to harberger s results by analyzing the interactions between the minority of large firms in an industry that act as independent oligopolists and most of small firms that behave as price takers 1986 the exploration of the dynamic relationship between concentration and prices started with schumpeter 1949 who hailed the entrepreneur who can produce more cheaply make a profit that remains in his pocket until others who follow him copy his model the process eventually results in the annihilation of the surplus over costs when the new business form has become part of the circular flow 1949 133 in a related set of studies demsetz 1973 peltzman 1977 and lustgarten 1979 explored the relationship between concentration ratios and increased efficiencies in manufacturing industries and found them to be positively correlated i could lend support to this conclusion by postulating a dynamic process of cause and effect cast in a price leadership model 1984 in a recent study salinger 1990 concluded from a cross sectional study that large changes in concentration whether negative or positive are associated with price reductions the present paper builds on past research to demonstrate that while innovation may lead to increases in market share and market concentration the price increases that might be expected to follow from increased concentration are likely to be offset by the price decreases that bring the increased concentration into being 1 if so estimating deadweight losses by subtracting the static consumers losses from producers gains is misleading because it ignores intertemporal consumers gains the dynamic link among efficiency falling prices concentration and welfare losses suggests that a very useful method of evaluating an industry s contribution to welfare would be to study its economic history if today an industry is heavily concentrated an appropriate starting point for a historical study would be an earlier year when the industry was still relatively less concentrated this paper presents first a welfare theory of dynamic evolution of an industry that becomes progressively more concentrated over time second an empirical study based on the history of the beer industry that focuses on the calculus of dynamic social gains from technological change and third an examination of a small group of industries that became more heavily concentrated between 1963 and 1982 the last section sets forth the conclusions to be drawn from this research ii dynamic gains and static losses suppose a concentrated industry was unconcentrated 40 years ago the industry s firms were small but not atomistic and they sold their product in nearly perfectly competitive markets practically causing no deadweight losses the dynamic process begins when initially a group of pioneering firms invests in the development of a new technology that reduces costs and by lowering the price to consumers succeeds in increasing its market share the gain to consumers flows directly from this intertemporal decline in price the increase in the share of the innovating firms can initially mitigate the downward pressure on prices but in the long run reversing it is not likely

estimation of a model of entry in the airline industry this paper considers the effect of an airline s scale of operation at an airport on the profitability of routes flown out of that airport the empirical methodology uses the entry decisions of airlines as indicators of underlying profitability the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability these estimates imply that city pair profits increase in airport presence and decrease rapidly in the number of entering firms the literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms

the making of an oligopoly firm survival and technological change in the evolution of the u s tire industry the number of producers in the u s tire industry grew for 25 years and then declined sharply and the industry evolved to be an oligopoly the role of technological change in shaping the industry s market structure is explored a model of industry evolution featuring technological change is used to derive predictions that are tested using a novel data set on firm entry exit size location distribution networks and technological choices prior to the shakeout of producers consistent with the model earlier entering and larger firms survived longer principally because of the influence of age and size on technological change

generic entry price competition and market segmentation in the prescription drug market abstract this paper studies the effects of generic entry on post patent price competition for 18 prescription drugs recently exposed to competition an independent validating test of the generic competition paradox is conducted using a newly created data set each generic entrant is associated with an average 1 increase in the branded price the one way error component model accounts for intermolecular competition market segmentation and endogeneity of entry and finds branded prices increasing by 2 alternative definitions of entry suggest that price competition is confined to the generic market the unique payer type feature of the data offers empirical evidence supporting market segmentation

the effect of marginal tax rates on income a panel study of bracket creep this paper uses a panel of individual tax returns and the bracket creep as source of tax rate variation to construct instrumental variables estimates of the sensitivity of income to changes in tax rates from 1979 to 1981 the us income tax schedule was fixed in nominal terms while inflation was high around 10 this produced a real change in tax rate schedules taxpayers near the top end of a tax bracket were more likely to creep to a higher bracket and thus experience a rise in marginal rates the following year than the other taxpayers compensated elasticities can be estimated by comparing the differences in changes in income between taxpayers close to the top end of a tax bracket to the other taxpayers these estimates based on comparisons between very similar groups are robust to underlying changes in the income distribution such as a rise in inequality the elasticities of taxable income and adjusted gross income are around 0 4 and significant but the elasticities of wage income are in general insignificant and close to zero 2002 elsevier science b v all rights reserved

do negative random shocks affect trust and trustworthiness we report data from a variation of the trust game aimed at determining whether and how inequality and random shocks that affect wealth influence the levels of trust and trustworthiness to tease apart the effect of the shock and the inequality we compare behavior in a trust game where the inequality is initially given and one where it is the result of a random shock that reduces the second mover s endowment we find that first movers send less to second movers but only when the inequality results from a random shock as for the amount returned second movers return less when they are endowed less than first movers regardless of whether the difference in endowments was initially given or occurred after a random shock

child cash benefits and family expenditures evidence from the national child benefit income may improve child outcomes through two mechanisms as a direct input into health and education or indirectly by reducing household financial stress we exploit policy induced changes in refundable tax benefit income in canada to study these two potential mechanisms our findings suggest that additional income may improve outcomes through both mechanisms some benefit income is spent on direct education inputs while some is spent on everyday items likely to improve the general conditions children face additionally some families reduce spending on risky behaviour items spending responses to benefit generosity appear to vary by income and by child age prestations pour enfants en especes et depenses des familles ce que revele la prestation nationale pour enfants le revenu permet d ameliorer le developpement d un enfant gr ce a deux mecanismes en contribuant directement a l education et a la sante et en reduisant indirectement les difficultes financieres au sein du foyer afin d etudier ces deux mecanismes nous nous appuyons sur les modifications politiques apportees au credit d impot remboursable de type prestation fiscale pour revenu de travail au canada nos resultats suggerent que par l entremise de ces deux mecanismes la situation peut s ameliorer gr ce a un revenu additionnel une partie de ces prestations est depensee directement pour l education tandis qu une autre est utilisee pour les biens quotidiens susceptibles d ameliorer les conditions de vie generales de l enfant de plus certaines familles reduisent les depenses d articles pouvant induire des comportements a risque les types de depenses lies aux prestations sociales semblent varier en fonction des revenus et de l ge des enfants

liquidity constraints and imperfect information in subprime lending ditions for precisely the population that is most likely to have a difficult time obtaining credit those with low incomes and poor credit histories these consumers who typically cannot qualify for regular bank loans comprise the so called subprime market because the company we study originates subprime loans its loan applications and transaction records provide an unusual win dow into the consumption and borrowing behavior of households that are rationed in primary credit markets moreover we track loan repayments allowing us to analyze the difficulties in lending to the subprime population we begin by documenting the importance of short term liquidity constraints for individuals in our sample we present two pieces of evidence both are based on purchasing behavior and indicate a high sensitivity to cash on hand first we document a dramatic degree of demand seasonality associated with tax rebates overall demand is almost 50 percent higher during tax rebate season than during other parts of the year this seasonal effect varies with household

the market for news we investigate the market for news under two assumptions that readers hold beliefs which they like to see confirmed and that newspapers can slant stories toward these beliefs we show that on the topics where readers share common beliefs one should not expect accuracy even from competitive media competition results in lower prices but common slanting toward reader biases on topics where reader beliefs diverge such as politically divisive issues however newspapers segment the market and slant toward extreme positions yet in the aggregate a reader with access to all news sources could get an unbiased perspective generally speaking reader heterogeneity is more important for accuracy in media than competition per se

returns to r d on new drug introductions in the 1980s abstract this study finds that the mean irr for 1980 1984 u s new drug introductions is 11 1 and the mean npv is 22 million 1990 dollars the distribution of returns is highly skewed the results are robust to plausible changes in the baseline assumptions our work is also compared with a 1993 study by the ota despite some important differences in assumptions both studies imply that returns for the average nce are within one percentage point of the industry s cost of capital this is much less than what is typically observed in analyses based on accounting data

aid effectiveness opening the black box this paper examines the causality chain linking aid flows to development outcomes it argues that many of the questions policymakers and economists would like data to answer simply cannot be answered due to the complexity and noise along links in the chain and the problem of attribution it then examines what is known about aid effectiveness along different links in the causality chain finally it turns to recent trends in the way aid is delivered and the new model that appears to be emerging

price competition in pharmaceuticals the case of anti infectives a fundamental question in industrial organization regards the relationship between price and the number of sellers this relationship has been particularly important in the pharmaceutical industry where legislative changes were specifically designed to foster competition previous research on the pharmaceutical industry has shown generic entry has a mixed impact generic prices fall rapidly with generic entry whereas branded prices tend to increase or decrease only slightly using more complete data focused on one segment of the pharmaceutical industry anti infectives we find that the relationship between pharmaceutical prices and the number of sellers is more like that found in other industries jel l11 l65 d4

the response of household consumption to income tax refunds a central implication of the life cycle or permanent income theory is that consumption should not respond to predictable fluctuations in income tests of this implication have yielded mixed results especially on micro data angus deaton 1992 martin browning and annamaria lusardi 1996 in large part this might be due to the difficulties of isolating the predictable component of income at the micro level most tests proceed by instrumenting for income but since the available instruments are typically poor such tests might be prejudiced against finding significant excess sensitivity of consumption to income john shea 1995 also it is not clear how closely the resulting econometric predictions of income coincide with agents actual expectations of income to avoid these difficulties this paper examines the response of household consumption to a particular type of income that is both predictable and transitory income tax refunds since a refund depends on events in the previous calendar year it is predictable income as regards consumption in the year of its receipt consequently under the life cycle theory consumption should not increase on receipt of a refund 2 in addition to testing the canonical model of consumption this paper provides estimates interpretable as the marginal propensity to consume mpc out of refunds since federal tax refunds now amount to over 80 billion per year averaging well over 1 000 per refund these estimates are of interest in themselves more generally they bear on the impact of even preannounced and temporary changes in fiscal policy the paper begins by surveying related studies in section i section ii describes the data the consumer expenditure survey cex which of the leading u s micro data sets has the most comprehensive coverage of expenditure the empirical specification is set out in section hi section iv reports the results and section v concludes

gender identity and relative income within households band s income we argue that this pattern is best explained by gender identity norms which induce an aversion to a situation where the wife earns more than her husband we present evidence that this aversion also impacts marriage formation the wife s labor force participation the wife s income conditional on working marriage satisfaction likelihood of divorce and the division of home production within marriage markets when a randomly chosen woman becomes more likely to earn more than a randomly chosen man marriage rates decline in couples where the wife s potential income is likely to exceed the husband s the wife is less likely to be in the labor force and earns less than her potential if she does work in couples where the wife earns more than the husband the wife spends more time on household chores moreover those couples are less satisfied with their marriage and are more likely to divorce these patterns hold both cross sectionally and within couples over time

the life cycle of a competitive industry firm numbers first rise then later fall as an industry evolves this nonmonotonicity is explained using a competitive model in which innovation opportunities fuel entry and relative failure to innovate prompts exit equilibrium time paths for price and quantity also share features of the data the model is estimated using data from the u s automobile tire industry a particularly dramatic example of the nonmonotonicity in firm numbers

the incredible shrinking elasticities married female labor supply 1978 2002 this paper demonstrates the extent to which married women s labor supply elasticities have changed over the past quarter century estimates from march current population survey data suggest that these elasticities have decreased substantially by 60 percent for the hours wage elasticity from 0 36 to 0 14 70 percent for the hours income elasticity from 0 053 to 0 015 95 percent for the participation wage elasticity from 0 66 to 0 03 and 60 percent for the participation income elasticity from 0 13 to 0 05 changing demographic characteristics explain little of the drop in these elasticities suggesting that preferences toward work have changed across birth cohorts

physician agency and adoption of generic pharmaceuticals i examine physician agency in health care services in the context of the choice between brand name and generic pharmaceuticals i examine micro panel data from japan where physicians can legally make profits by prescribing and dispensing drugs the results indicate that physicians often fail to internalize patient costs explaining why cheaper generics are infrequently adopted doctors respond to markup differentials between the two versions indicating another agency problem however generics markup advantages are short lived which limits their impact on increasing generic adoption additionally state dependence and heterogeneous doctor preferences affected generics adoption policy makers can target these factors to improve static efficiency

3rd of tha month do social security recipients smooth consumption between checks this paper examines the response of consumption expenditures to the monthly receipt of social security checks since the amount and arrival date of these checks are known to the recipients the basic life cycle permanent income hypothesis lcpih predicts that consumption should not respond to the receipt of these checks using daily diary data from the consumer expenditure survey this paper finds evidence that both the dollar amount and probability of expenditures increase immediately following the receipt of this check most relevant to testing the lcpih categories of instantaneous consumption expenditure such as food away from home increase on the check arrival date the response is found primarily amongst households for whom social security is the primary source of income however the magnitude of the estimated responses are relatively small and do not suggest that the utility losses are large from this non smoothing behavior this abstract was borrowed from another version of this item

welfare the earned income tax credit and the labor supply of single mothers during 1984 1996 welfare and tax policy were changed to encourage work by single mothers the earned income tax credit was expanded welfare benets were cut welfare time limits were added and welfare cases were terminated medicaid for the working poor was expanded as were training programs and child care during this same time period there were unprecedented increases in the employment and hours of single mothers we show that a large share of the increase in work by single mothers can be attributed to the eitc and other tax changes with smaller shares for welfare benet cuts welfare waivers training programs and child care programs