sticky prices and monetary policy evidence from disaggregated us data this paper disentangles fluctuations in disaggregated prices due to macroeconomic and sectoral conditions using a factor augmented vector autoregression estimated on a large data set on the basis of this estimation we establish eight facts 1 macroeconomic shocks explain only about 15 of sectoral inflation fluctuations 2 the persistence of sectoral inflation is driven by macroeconomic factors 3 while disaggregated prices respond quickly to sector specific shocks their responses to aggregate shocks are small on impact and larger thereafter 4 most prices respond with a significant delay to identified monetary policy shocks and show little evidence of a price puzzle contrary to existing studies based on traditional vars 5 categories in which consumer prices fall the most following a monetary policy shock tend to be those in which quantities consumed fall the least 6 the observed dispersion in the reaction of producer prices is relatively well explained by the degree of market power 7 prices in sectors with volatile idiosyncratic shocks react rapidly to aggregate monetary policy shocks 8 the sector specific components of prices and quantities move in opposite directions

on the simple economics of advertising marketing and product design we propose a framework for analyzing transformations of demand such transformations frequently stem from changes in the dispersion of consumers valuations which lead to rotations of the demand curve in many settings profits are a u shaped function of dispersion high dispersion is complemented by niche production and low dispersion is complemented by mass market supply we investigate numerous applications including product design advertising marketing and sales advice and the construction of quality differentiated product lines we also suggest a new taxonomy of advertising distinguishing between hype which shifts demand and real information which rotates demand

nash equilibria in models of fiscal competition abstract this paper analyzes nash equilibria in a simple model of an economy with jurisdictions engaging in fiscal competition small number nash equilibria in which tax rates are the strategic variables are shown not to coincide with nash equilibria in which public expenditure levels are the strategic variables

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

a theory of interregional tax competition a general equilibrium model is constructed to study tax competition where local governments compete for capital by holding down property tax rates and public expenditure levels an exact definition of tax competition is provided and both the existence and nonexistence of tax competition are shown to be theoretically possible it is argued however that tax competition must occur under empirically reasonable conditions inefficiency in public production is also explicitly modeled the amount of capital used to produce a given level of public service output is shown to be greater than that which is required to minimize costs evaluated at the prices facing private firms

tax competition nash equilibria and residential mobility abstract wildasin journal of public economics 35 241 249 1988 examines and compares the equilibrium policies of governments when they compete in the tax rate and when they compete in the government service he finds that the two equilibrium outcomes differ with governments having greater government expenditures when they compete in taxes wildasin however assumes that residents are immobile here i show that while these two equilibria will still generally differ when residents are mobile wildasin s conclusion that competition in the tax rate results in higher government service levels does not hold when the demand for housing is elastic and government policies are chosen to maximize land rent when governments maximize the utility of landowning residents the results are reversed competition in the tax rate results in higher government service levels when the demand for housing is elastic and lower service levels when the demand is inelastic

the role of relocation mobility in tax and subsidy competition abstract in this paper we analyse the role of relocation mobility in tax and subsidy competition our primary result is that increasing mobility of firms leads to increasing net tax revenues under plausible assumptions while enhanced relocation mobility intensifies tax competition it weakens subsidy competition the resulting fall in government subsidy payments can overcompensate the decline in tax revenues leading to a rise in net tax revenues interestingly the opportunity costs of subsidy competition can rise along with net tax revenues we derive these conclusions in a model in which two governments are first engaged in subsidy competition and thereafter in tax competition and firms locate and potentially relocate in response to successive policy choices on taxes and subsidies

pharmaceutical price controls and entry strategies abstract this paper finds that the use of price controls has a statistically and quantitatively important effect on the extent and timing of the launch of new drugs firms headquartered in countries that regulate price reach fewer markets than those in countries without price controls companies avoid price controlled markets and are less likely to introduce products in additional markets after entering a price controlled country launches into low price european countries are further delayed following legalization of parallel imports the results suggest that price regulation in one country affects entry into other countries and may affect the strategies of domestic firms

pharmaceutical r d spending and threats of price regulation do threats of pharmaceutical price regulation affect subsequent research and development r d spending this study uses the clinton administration s health security act hsa of 1993 as a natural experiment to study this issue we link events surrounding the hsa to pharmaceutical stock price changes and then examine the cross sectional relation between firms stock price changes and their subsequent unexpected r d spending changes re sults show that the hsa had significant negative effects on stock prices and firm level r d spending conservatively the hsa reduced r d spending by about 1 billion even though it never became law

innovation in the pharmaceutical industry new estimates of r d costs the research and development costs of 106 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 and biologics 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 approved new compound is 1395 million 2013 dollars capitalizing out of pocket costs to the point of marketing approval at a real discount rate of 10 5 yields a total pre approval cost estimate of 2558 million 2013 dollars when compared to the results of the previous study in this series total capitalized costs were shown to have increased at an annual rate of 8 5 above general price inflation adding an estimate of post approval r d costs increases the cost estimate to 2870 million 2013 dollars

two moment decision models and expected utility maximization two moment decision models are consistent with expected utility maximization only if the choice set or the agent s preferences are restricted this paper identifies a restriction which is sufficient to ensure this consistency and confirms that it holds in many economic models the implications for economic analysis are then derived two different approaches to representing an agent s preferences over strategies yielding random payoffs are in wide use under the mean standard deviation ms approach the agent is assumed to rank the alternatives according to the value of some function defined over the first two moments of the random payoff while the expected utility eu criterion assumes that the expected value of some utility function defined over payoffs is used instead the fact that there are these two competing approaches has generated a considerable literature some authors are concerned with the advantages and disadvantages of each while others deal with conditions under which the potentially different approaches would yield the same results or at least approximately so space does not

a spatial model of tax competition with multiple tax instruments abstract this paper presents a model of tax competition with two local jurisdictions in each metropolitan area located along a line segment and many metropolitan areas in the world economy the residents in each local jurisdiction are allowed to commute at a constant cost per mile to work in the other jurisdiction if a lump sum tax can be used then other taxes are not used if source based wage and business capital taxes can both be used then only the former is used in this case or if only a business capital tax can be used the local public good is underprovided

consumer credit liquidity and the transmission mechanism of monetary policy i introduction despite calls for its obsolescence the lending channel of the monetary transmission mechanism continues to generate interest among monetary economists recently den haan sumner and yamashiro 2007 find the loan supply effect is evident for consumer lending and real estate loans in data up to 2004 the loan supply effect or lending channel arises in the transmission mechanism if tight monetary policy forces banks to contract the supply of loans independent of a direct interest rate effect i e the liquidity effect and such a contraction has real effects for bank dependent borrowers although some such as perez 1998 and ashcraft 2006 have emphasized the lending channel s lack of relevance for the monetary transmission mechanism den haan sumner and yamashiro s 2007 results support a number of recent papers that offer detailed and disaggregated reasons why the channel is alive and well for certain lenders and borrowers for recent examples see nilsen 2004 and peek rosengren and tootell 2003 den haan sumner and yamashiro s 2007 findings suggest that the role of the consumer in the lending channel may be deserving of more attention 1 this paper asks whether consumer lending is or has become a significant component of the lending channel even if it was not thought crucial in lending channel studies published in the 1990s specifically i take a closer look at the statistical and possible economic significance of the consumer loan supply effect with disaggregated monthly consumer credit data from both commercial bank and nonbank sources and for the nonrevolving and revolving components of consumer credit from each source with this array of data i test the assumptions of the channel by considering whether households are forced to use more expensive nonbank credit as bank credit declines or that a household might switch into more costly revolving credit as installment loans decline to examine the consumer lending channel i estimate impulse response functions for the disaggregated consumer loan components mentioned above with the monthly data spanning 1968 2006 the sources of which are discussed later this strategy follows the examples of numerous lending channel studies that analyze the responses of disaggregated data to a monetary policy shock to discern evidence of the loan supply effect den haan sumner and yamashiro 2007 e g compare the behavior of commercial and industrial loans with real estate and consumer loans i follow the methods of previous studies in order to compare as closely as possible the results of this paper with the rich body of lending channel literature for robustness this paper estimates the impulse response functions from both a typical vector autoregression var model and using jorda s 2005 linear projection technique the latter method provides impulse response functions less prone to misspecification than in a var along with conditional standard errors to aid in the statistical inference of the responses see also jorda 2009 and further discussion in section iii finally for additional robustness i employ den haan sumner and yamashiro s 2007 identification strategy for isolating the loan supply effect in preview of the results ultimately the consumer credit data analyzed in this paper suggest that both the statistical and by extension the economic significance of the consumer loan supply effect is weak in the least the effect has weakened over time although monthly consumer credit data from commercial banks from 1968 through 2006 substantiate previous research on consumer lending matching the decline documented by gertler and gilchrist 1993 and den haan sumner and yamashiro 2007 after 1984 the responses of both nonrevolving and revolving consumer bank credit are not consistent with the lending channel instead both series increase similar to the result found by den haan sumner and yamashiro 2007 for commercial lending in fact total nonrevolving and revolving consumer credit increase for 2 yr after the monetary shock

the bank lending channel a favar analysis we examine the bank lending channel blc of monetary transmission in a factor augmented vector autoregression favar a favar exploits large numbers of macro economic indicators and allows us to consider an alternative identification of monetary shocks and analyze the lending response of banks at the aggregate and individual levels we find that the existence of the blc is more prevalent than previously thought using aggregated lending data while the lending response of individual banks are driven more by specific innovations than monetary shocks nonetheless the average individual bank response to a monetary shock is consistent with the existence of a blc

international tax coordination regionalism versus globalism tax competition for mobile capital can undermine the attempts of governments to redistribute income from rich to poor i study whether international tax coordination can alleviate this problem using a general equilibrium model synthesizing recent contributions to the tax competition literature the model highlights the crucial distinction between global tax coordination and regional coordination with high capital mobility between the tax union and the rest of the world the welfare gain from regional capital income tax coordination is only a small fraction of the gain from global coordination even if the tax union is large relative to the world economy

asymmetric tax competition abstract the paper analyzes nash equilibrium when two jurisdictions set tax rates on a tax base which is mobile between them population differences imply tax differences the smaller jurisdiction levies a lower tax rate in equilibrium and its residents are better off than those in the larger jurisdiction the nash equilibrium is inefficient if the two jurisdictions merged the resulting allocation would be efficient however if differences in population are great enough residents of the small jurisdiction would be made worse off by such a merger

capital market integration and fiscal sustainability abstract by constructing a two country endogenous growth model with a debt financing government this paper studies the relationship between the sustainability of public finance and increases in inter regional factor mobility to this end it identifies the minimum tax rate that ensures fiscal sustainability against the backdrop of capital tax competition and studies whether competition for mobile capital lowers or improves fiscal sustainability the main findings are as follows i when countries are symmetric increasing capital flows promotes economic growth through the expansion of romer type knowledge spillovers resulting in increased fiscal sustainability in all countries and ii when a marked difference exists between countries tax competition caused by capital movements might lower fiscal sustainability in a country with abundant capital and large outstanding debt

a markov perfect equilibrium model of the impacts of price controls on the performance of the pharmaceutical industry i introduce a computable dynamic equilibrium model of the pharmaceutical industry parameterize it using industry facts and use it to predict what happens if the united states adopts price controls or one or more non u s countries abandon their controls the model generates implications for firm value research and development r d the flow of new drugs and consumer welfare i highlight the sensitivity of the results to alternative assumptions about r d costs market size technological opportunities consumer heterogeneity the extent to which choices internalize prices barriers to entry in r d the extent to which r d outcomes are correlated and the nature of the controls

evaluating pharmaceutical r d under technical and economic uncertainty this study sets up a compound option approach for evaluating pharmaceutical r d investment projects in the presence of technical and economic uncertainties technical uncertainty is modeled as a poisson jump that allows for failure and thus abandonment of the drug development economic uncertainty is modeled as a standard diffusion process which incorporates both up and downward shocks practical application of this method is emphasized through a case analysis we show that both uncertainties have a positive impact on the r d option value moreover from the sensitivity analysis we find that the sensitivity of the option with respect to economic uncertainty and market introduction cost decreases when technical uncertainty increases

pigou tiebout property taxation and the underprovision of local public goods abstract pigou s proposition that the use of distorting taxes rather than neutral head taxes reduces public service levels is examined in this paper a simple model with a national system of competing local governments is utilized to demonstrate that the use of a distorting property tax on mobile capital decreases the level of residential public services the case where public services are an intermediate producer good is also considered

how large are the welfare costs of tax competition abstract competition among regional governments may lead to suboptimal levels of capital taxation as governments ignore the external benefits of capital flight to other regions however there have been few attempts to quantify the magnitude of the resulting efficiency losses this paper presents extensive calculations of the efficiency costs over a wide range of parameter scenarios and assumptions about government behavior using various generalizations of wildasin journal of urban economics 25 1989 193 213 the efficiency costs tend to be fairly moderate under most though not all scenarios and particularly when allowance is made for the possibility of leviathan and non competitive government behavior

tax competition with imperfectly mobile capital abstract this paper considers interjurisdictional tax competition in a two period model with imperfectly mobile capital in the first period capital is perfectly mobile in the second period however capital cannot move perfectly because of transactions costs once employed in a jurisdiction in the first period this imperfect mobility of capital may lead to the overprovision rather than the underprovision of public goods in the second period and may make jurisdictions compete more aggressively for capital in the first period

cost effectiveness analysis and innovation while cost effectiveness ce analysis has provided a guide to allocating often scarce resources spent on medical technologies less emphasis has been placed on the effect of such criteria on the behavior of innovators who make health care technologies available in the first place a better understanding of the link between innovation and cost effectiveness analysis is particularly important given the large role of technological change in the growth in health care spending and the growing interest of explicit use of ce thresholds in leading technology adoption in several westernized countries we analyze ce analysis in a standard market context and stress that a technology s cost effectiveness is closely related to the consumer surplus it generates improved ce therefore often clashes with interventions to stimulate producer surplus such as patents we derive the inconsistency between technology adoption based on ce analysis and economic efficiency indeed static efficiency dynamic efficiency and improved patient health may all be induced by the cost effectiveness of the technology being at its worst level as producer appropriation of the social surplus of an innovation is central to the dynamic efficiency that should guide ce adoption criteria we exemplify how appropriation can be inferred from existing ce estimates for an illustrative sample of technologies considered we find that the median technology has an appropriation of about 15 to the extent that such incentives are deemed either too low or too high compared to dynamically efficient levels ce thresholds may be appropriately raised or lowered to improve dynamic efficiency

causal ordering and the bank lending channel the bank lending channel implies the federal reserve can influence real income by controlling the level of intermediated loans using the notion of causality developed by simon 1953 and the causal order methodology developed by hoover 1990 i test for an operative bank lending channel in the transmission mechanism of monetary policy i find loans did cause real income there is evidence that a bank lending channel did exist in the 1960s the data appears to show however that by the early 1990s the bank lending channel was no longer operative 1998 john wiley sons ltd

bargaining with commitment choice of techniques and direct foreign investment abstract once a firm has installed a plant in a host country the country will have an incentive to reopen negotiations concerning tax rates this paper examines the incentives for the country to commit to not reopening negotiations a commitment deters the firm from inefficiently reducing the capital intensity of its investment but apparently surrenders tax revenues by not exploiting the country s post entry bargaining power we show that commitment will be optimal as long as the tax system does not place too distortionary a burden on capital and the country has access to capital markets

on the implications of introducing cross border loss offset in the european union abstract this article investigates a tax competition model where countries compete for capital and profits of multinational enterprises mnes through statutory tax rates and cross border loss offset provisions which allow a transfer of foreign subsidiaries losses to the parent company a joint implementation of full cross border loss relief is welfare maximizing because it ensures production efficiency and no profit shifting in equilibrium local governments choose zero level of the loss relief in a noncooperative equilibrium if only capital is mobile and relax the loss offset when mnes engage in profit shifting therefore allowing multinationals to undertake international tax planning activities may be welfare improving in our model

late stage pharmaceutical r d and pricing policies under two stage regulation 2016 elsevier b v we present a model combining the two regulatory stages relevant to the approval of a new health technology the authorisation of its commercialisation and the insurer s decision about whether to reimburse its cost we show that the degree of uncertainty concerning the true value of the insurer s maximum willingness to pay for a unit increase in effectiveness has a non monotonic impact on the optimal price of the innovation the firm s expected profit and the optimal sample size of the clinical trial a key result is that there exists a range of values of the uncertainty parameter over which a reduction in uncertainty benefits the firm the insurer and patients we consider how different policy parameters may be used as incentive mechanisms and the incentives to invest in r d for marginal projects such as those targeting rare diseases the model is calibrated using data on a new treatment for cystic fibrosis

a note on tax competition attachment to home and underprovision of public goods abstract this paper analyzes efficiency in the provision of public goods when there is tax competition but investors have attachment to home i e a biased preference for investing in the region where they live investors are assumed to be heterogeneous in the costs to invest outside the home region as a result in comparison with the no attachment case the capital outflow response to an increase in the tax rate is reduced because only investors facing small mobility costs will move capital out in a symmetric equilibrium tax rates are increased and the extent of the underprovision of public goods caused by tax competition is lessened

mobile labor multiple tax instruments and tax competition abstract the tax competition literature shows that local governments keep property tax rates inefficiently low to prevent capital outflows thereby underproviding local public goods this paper adds mobile labor and an alternative tax instrument to the model jurisdictions have access to a property tax levied on land and capital plus either a head tax or a labor tax scale economies in public good provision create incentives to use the property tax but these incentives are not accompanied by increased incentives to underprovide public goods in contrast underprovision is associated with the use of a distortionary labor tax

a tiebout tax competition model abstract this paper analyzes a tiebout tax competition model where heterogeneity of consumer preferences is introduced into a standard tax competition framework following the modern tiebout tradition consumer sorting in the model is achieved through the activities of profit maximizing community developers once sorting is achieved the equilibrium is equivalent to that in a standard tax competition model with immobile but heterogeneous consumers a principal lesson of the analysis is that under capital taxation consumers with high public good demands are worse off than under a head tax regime in pursuit of high levels of public spending high demand communities impose high tax rates which drive away capital the analysis also establishes a number of other results