Month: November 2012

Coase: “Firms Never Calculate Marginal Costs”

Source of YouTube video:
http://www.youtube.com/watch?feature=player_embedded&v=ZAq06n79QIs#!

(p. 257) You can watch a 99 year-old Ronald Coase speaking in December 2009 for 25 minutes on the subjects of “Markets, Firms and Property Rights.” “One of the things that people don’t understand is that markets are creations. . . . In fact, it’s very difficult to imagine that firms act in the way that is described in the textbooks, where you maximize profits by equating marginal costs and marginal revenues. One of the reasons one can feel doubtful about this particular way of looking at things is that firms never calculate marginal costs . . . I think we ought to study directly how firms operate and develop our theory accordingly.” From the conference “Markets, Firms and Property Rights: A Celebration of the Research of Ronald Coase,” held at the University of Chicago Law School by the Information Economy Project at George Mason University School of Law. The webpage also includes video of seven panels of prominent speakers, along with PDF files of a dozen or so papers given at the conference. Available at 〈http://iep.gmu.edu/CoaseConference.php〉.

Source:
Taylor, Timothy. “Recommendations for Further Reading.” Journal of Economic Perspectives 24, no. 3 (Summer 2010): 251-58.
(Note: ellipses in original.)

Health Inefficiencies Free-Ride on “Home Run Innovations”

The article quoted below is a useful antidote to those economists who sometimes seem to argue that health gains fully justify the rise in health costs.

(p. 645) In the United States, health care technology has contributed to rising survival rates, yet health care spending relative to GDP has also grown more rapidly than in any other country. We develop a model of patient demand and supplier behavior to explain these parallel trends in technology growth and cost growth. We show that health care productivity depends on the heterogeneity of treatment effects across patients, the shape of the health production function, and the cost structure of procedures such as MRIs with high fixed costs and low marginal costs. The model implies a typology of medical technology productivity: (I) highly cost-effective “home run” innovations with little chance of overuse, such as anti-retroviral therapy for HIV, (II) treatments highly effective for some but not for all (e.g., stents), and (III) “gray area” treatments with uncertain clinical value such as ICU days among chronically ill patients. Not surprisingly, countries adopting Category I and effective Category II treatments gain the greatest health improvements, while countries adopting ineffective Category II and Category III treatments experience the most rapid cost growth. Ultimately, economic and political resistance in the United States to ever-rising tax rates will likely slow cost growth, with uncertain effects on technology growth.

Source of abstract:
Chandra, Amitabh, and Jonathan Skinner. “Technology Growth and Expenditure Growth in Health Care.” Journal of Economic Literature 50, no. 3 (Sept. 2012): 645-80.

When Trade Is a Matter of Life and Death (and the Progress of Knowledge)

BataviasGraveyardBK2012-11-01.jpg

Source of book image: http://www.mikedash.com/assets/images/Batavia-l.jpg

(p. 236) In Mike Dash’s book, Batavia’s Graveyard, the mutineers on the ship Batavia get stranded on a parched sand bar with the liquor and foodstuffs, but no fresh water. A few hundred watery yards away are the remnants of the loyal crew, stuck on another islet without liquor or provisions, but with plentiful fresh water. Trade proves impossible. The analog of this breakdown is the current relationship between history and the social sciences.

Source:
Clark, Gregory. “The Ends of Life: Roads to Fulfillment in Early Modern England.” Journal of Economic History 71, no. 1 (March 2011): 236-37.
(Note: italics in original.)

Dash’s book that Clark mentions:
Dash, Mike. Batavia’s Graveyard: The True Story of the Mad Heretic Who Led History’s Bloodiest Mutiny. New York: Crown, 2002.

When Bibliometrics Are a Matter of Life and Death

(p. 51) . . . it is essential, if at all possible, to have a go-to physician expert and authority when one has a newly diagnosed, serious condition, such as a brain or, neurologic conditions like multiple sclerosis and Parkinson’s disease, heart valve abnormality. How do you find that individual doctor?
In order to leverage the Internet and gain access to state-of-the-art expertise, you need to identify the physician who conducts the leading research in the field. Let’s pick pancreatic cancer as an example of a serious condition that often proves to be rapidly fatal. The first step is to go to Google Scholar and find the top-cited articles for that condition by typing in “pancreatic cancer.” They are generally listed in order by descending number of citations. Look for the senior, last author of the articles. The last author of the top-listed paper in the Journal of Clinical Oncology from 1997 is Daniel D. Von Hoff, with over 2,000 citations (“cited by … ” appears at the end of each hit). Now you may have identified an expert. Enter “Daniel Von Hoff” into PubMed (www.ncbi.nlm.nih.gov/sites/pubmed) to see how many papers he has published: 567. Most are related to pancreatic cancer or cancer research.
(p. 52) Now go back to Google Scholar and enter his name, and you’ll see over 24,000 hits–this number includes papers that cite his work. There are some problems with these websites, since getting citations by other peer-reviewed publications takes time; if a breakthrough paper is published, it will be years to accumulate hundreds, if not thousands, of citations. Thus, the lag time or incubation phase of citations may result in missing a rising star. If it is a common name, there may be admixture of citations of different researchers with the same name, albeit different topics, so it is useful to enter in all elements including the middle initial and to scan the topic list to alleviate that problem. For perspective, a paper that has been cited 1,000 times by others is rare and would be considered a classic. In this example, the top paper by Von Hoff in 1997 is a long time ago, and he is no longer at the University of Texas, San Antonio-he moved to Phoenix, Arizona. How would you find that out? Look for Daniel D. Von Hoff using a search engine such as Google or Bing, and look up his profile on Wikipedia. Without any help from any doctor, you will have found the country’s leading authority on pancreatic cancer. And you will have also identified some backups at Johns Hopkins using the same methodology.

Source:
Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.
(Note: initial ellipsis added; parenthetical ellipsis in original.)

“Richly Researched” Study of “Ironies of Antitrust Policy” in Retailing

(p. 819) Levinson’s book opens up a crucial discussion on the role of integrated retailer-distributors in shaping the twentieth-century U.S. economy. As he rightly notes in the book’s conclusion, A&P was in many ways the Walmart of its day: it used its buying power to squeeze inefficiencies out of supply chains, it was widely reviled for upending small-town business patterns and bitterly fighting union organizers, and yet it drew waves of customers who appreciated its low prices. While we have many business histories of mass-production industries, we have only a handful of richly researched studies of the mass retailers that have, in the words of historian Nelson Lichtenstein (2009), “become the key players in the worldwide marketplace of our time.” Levinson has produced a valuable book for business and economic historians interested in retailing, supply chains, and the ironies of antitrust policy. As a former editor for The Economist, furthermore, Levinson is particularly effective at translating challenging economic concepts into language that lay audiences and undergraduate students can grasp.

For the full review, see:
Hamilton, Shane. “The Great A&P and the Struggle for Small Business in America.” Journal of Economic Literature 50, no. 3 (Sept. 2012): 818-19.
(Note: italics in original.)

The book under review is:
Levinson, Marc. The Great A&P and the Struggle for Small Business in America. New York: Hill and Wang, 2011.

The Lichtenstein book mentioned is:
Lichtenstein, Nelson. The Retail Revolution: How Wal-Mart Created a Brave New World of Business. hb ed. New York: Metropolitan Books, 2009.

A Rising Tax Gathers No Rolling Stone

life-keith-richardsBK2012-10-31.jpg

Source of book image: http://1.bp.blogspot.com/-Nhhn-YcP9IY/TjkQHfGGEeI/AAAAAAAAAVA/_jKMGRBm9Ac/s1600/life-keith-richards.jpg

(p. 289) The tax rate in the early ’70s on the highest earners was 83 percent, and that went up to 98 percent for investments and so-called unearned income. So that’s the same as being told to leave the country. … The last thing I think the powers that be expected when they hit us with the super-super tax is that we’d say, fine, we’ll leave. We’ll be another one not paying tax to you. They just didn’t factor that in. It made us bigger than ever, and it produced Exile on Main St., which was maybe the best thing we did. They didn’t believe we’d be able to continue as we were if we didn’t live in England. And in all honesty, we were very doubtful too. We didn’t know if we would make it, but if we didn’t try, what would we do? Sit in England and they’d give us a penny out of every pound we earned? We had no desire to be closed down. And so we upped and went to France.

Source:
Richards, Keith. Life. New York: Little, Brown and Company, 2010.
(Note: I first saw the quote on the back cover of: Journal of Political Economy 119, no. 1 (Feb. 2011).)
(Note: ellipsis added.)

FDA and ACS Wrongly Endorsed Sunscreen with Retinyl Palmitate

Some consumers let their guard down on medical issues, assuming that the government Food and Drug Administration (FDA), and large incumbent bureaucratic non-profits, like the American Cancer Society (ACS), will protect them—it ain’t necessarily so. Caveat emptor should remain the rule for consumers.

(p. 39) Of note, one of the reasons for the lack of updating the rules and acknowledging UVA rays has been heavy pressure from sunscreen manufacturers, which include Johnson and Johnson (Neutrogena), Merck-Schering Plough (Coppertone), Proctor and Gamble (Olay), and L’Oreal. Interestingly, in Europe products that provide solid UVA protection have been available for years. The concerns run even deeper because many of the products (41 percent in the United States) contain a form of vitamin A known as retinyl palmitate, which has been associated with increased likelihood of skin cancer. There are, however, no randomized studies, but biological plausibility and the observational findings of a rising incidence of basal cell (p. 40) carcinoma and melanoma, despite the widespread use of sunscreens. In mid-2011, the FDA finally unveiled some new rules about sunscreen claims.

This issue really hit home when my wife brought out a tube of Neutrogena Ultra Sheer Dry-Tough SPF 30 Sunblock. It claims “Broad Spectrum UVNUVB Protection” despite repeatedly failing UVA tests. But the real eye-opener is to find the American Cancer Society logo on the front of the tube with the message “Help Block Out Skin Cancer.” Now what is the American Cancer Society logo doing on the tube of Neutrogena? The fine print on the bottom reads: “The American Cancer Society (ACS) and Neutrogena, working together to help prevent skin cancer, support the use of sunscreen. The ACS does not endorse any specific product. Neutrogena pays a royalty to the ACS for the use of its logo.”

Source:
Topol, Eric. The Creative Destruction of Medicine: How the Digital Revolution Will Create Better Health Care. New York: Basic Books, 2012.