May 17, 2018

Innovation is a primary source of economic growth, and is accordingly the target of substantial academic and government attention. Grants are a key tool in the government’s arsenal of tools to promote innovation, but legal academic studies of that arsenal have given them short shrift. While patents, prizes, and regulator-enforced exclusivity are each the subject of a substantial literature, grants are typically addressed briefly, if at all. According to the conventional story, grants may be the only feasible tool to drive basic research, as opposed to applied research, but they are a blunt tool for that task.

Three critiques of grants underlie this narrative: grants are allocated by government bureaucrats who lack much of the relevant information for optimal decision-making; grants are purely ex ante funding mechanisms and therefore lack accountability; and grants misallocate risk by saddling the government all the downside risk and giving the innovator all the upside. These critiques are largely wrong. Focusing on grants awarded by the National Institutes of Health, the largest public funder of biomedical research, this Article delves deeply into how grants actually work. It shows that grants are awarded not by uninformed bureaucrats, but by panels of knowledgeable peer scientists with the benefit of extensive disclosures from applicants. It finds that grants provide accountability through repeated interactions over time. And it argues that the upside of grant-investments to the government is much greater than the lack of direct profits would suggest.

Grants also have two marked comparative strengths as innovation levers: they can support innovation where social value exceeds appropriable market value, and they can directly support innovation enablers — the people, institutions, processes, and infrastructure that shape and generate innovation. Where markets undervalue some socially important innovations, like cures for diseases of the poor, grants can help. Grants can also enable innovation by supporting its inputs: young or exceptional scientists, new institutions, research networks, and large datasets. Taken as a whole, grants do not form a monolithic, blunt innovation lever; instead, they provide a varied and nuanced set of policy options, and we should recognize and develop their usefulness in promoting major social goals.

via Grants by W. Nicholson Price :: SSRN

Competition Law and the Welfare State

May 9, 2018

In social market economies, specific goods, such as education and health-care, are taken out of the marketplace and provided to all citizens on a strictly egalitarian basis. The provision of goods or services outwith the market context might suggest competition law has no role, since a pre-requisite to the application of competition law is market activity. The purpose of this paper is to explain why competition law applies, and ought to apply, in the context of welfare provision. It argues that competition law has relevance not only in relation to “markets” properly so called but extends to cover all systems in which there is an “incentive to improve.” The main challenge then becomes to develop and adapt competition law and its enforcement for contexts in which all the features of a market properly so called are not present.

via Competition Law and the Welfare State by Okeoghene Odudu :: SSRN

The Enduring Link between Demography and Inflation

May 5, 2018

Demographic shifts, such as population ageing, have been suggested as possible explanations for the recent decade-long spell of low inflation. We identify age structure effects on inflation from cross-country variation in a panel of 22 countries from 1870 to 2016 that includes standard monetary factors. We document a robust relationship that is in line with the lifecycle hypothesis: a larger share of dependent population is inflationary, whereas a larger share of working age population is disinflationary. This relationship accounts for the bulk of trend inflation, for instance, about 7 percentage points of US disinflation since the 1980s. It predicts rising inflation over the coming decades.

via The Enduring Link between Demography and Inflation by Mikael Juselius, Előd Takáts :: SSRN

Do State Lines Make Public Health Emergencies Worse? Federal Versus State Control of Quarantine

May 5, 2018

This Article explores the origins and limits of the federal government’s interstate quarantine power. In the event of a public health emergency, state and local political boundaries may generate self-interested measures that risk substantial harm to neighboring states. To more effectively stem a national epidemic and to better protect the interests of regional populations, should the federal government step in to override a state’s protective quarantine? Neither current statutory authority nor how we have thought about it in the past prevents a greater national role. This Article shows how to expand our view of the federal government’s interstate quarantine authority as an important tool to respond to public health threats affecting more than one state.

via Do State Lines Make Public Health Emergencies Worse? Federal Versus State Control of Quarantine by Polly J. Price :: SSRN

Educational Test Scores, Education Spending, and Productivity in Public Education: National Trends and Evidence Across States and Over Time, 1990 – 2015

May 5, 2018

We examine national trends in educational funding, test score outcomes, and productivity as well as variations in funding and test scores over time and across states to assess how changes in educational spending are (or are not) related to changes in educational test score outcomes for states. National trends show small increases in test scores, large increases in educational funding (until the last recession), and a continued fall in educational productivity. The cross-state, over time analysis indicates a statistically significant but very small association of state funding to test scores; so small that large changes in funding have little effect on scores. This is consistent with the continued decline in educational productivity. We also find similar results for black students, implying that the increased funding has not served to reduce racial inequality. We suggest that the continued decline in productivity of public schools adds further reason to question the ability of non-competitive, public organizations to improve educational performance and to look for alternatives that embrace or emulate private-sector, competitive organizations.

via Educational Test Scores, Education Spending, and Productivity in Public Education: National Trends and Evidence Across States and Over Time, 1990 – 2015 by John E. Garen, Rex Bray :: SSRN

Childbearing Postponement, its Option Value, and the Biological Clock

May 5, 2018

Having children is like investing in a risky project. Postponing birth is like delaying an irreversible investment. It has an option value, which depends on its costs and benefits, and in particular on the additional risks motherhood brings. We develop a parsimonious theory of childbearing postponement along these lines. We derive its implications for asset accumulation, income, optimal age at first birth, and childlessness. The structural parameters are estimated by matching the predictions of the model to data from the National Longitudinal Survey of Youth NLSY79. The uncertainty surrounding income growth is shown to increase with childbearing, and this increase is stronger for more educated people. This effect alone can explain why the age at first birth and the childlessness rate both increase with education. We use the model to simulate two hypothetical policies. Providing free medically assisted reproduction technology does not affect the age at first birth much, but lowers the childlessness rate. Insuring mothers against income risk is powerful in lowering the age at first birth.

via Childbearing Postponement, its Option Value, and the Biological Clock by David de la Croix, Aude Pommeret :: SSRN

Atlas Nods: The Libertarian Case for a Basic Income

December 18, 2017

Proposals for a universal basic income are generating interest across the globe, with pilot experiments underway or in the works in California, Canada, Finland, Italy, Kenya, and Uganda. Surprisingly, many of the most outspoken supporters of a universal basic income have been self-described libertarians — even though libertarians are generally considered to be antagonistic toward redistribution and a universal basic income is, at its core, a program of income redistribution. What explains such strong libertarian support for a policy that seems so contrary to libertarian ideals?

This Article seeks to answer that question. We first show that a basic safety net is not only consistent with, but likely required by, several strands of libertarian thought. We then explain why libertarians committed to limited redistribution and limited government might support a system of unconditional cash transfers paid periodically. Delivering benefits in cash, rather than in-kind, furthers autonomy by recognizing that all citizens — even poor ones — are the best judges of their needs. Decoupling such transfers from a work requirement acknowledges that the state lacks the ability to distinguish between work-capable and work-incapable individuals. Providing payments periodically, rather than through a once-in-a-lifetime lump sum grant, ensures that all individuals can receive a minimum level of support over lifespans of variable lengths, while also allowing individuals to adjust payment flows through financial market transactions.

Although our main objective is to assess the fit between libertarian theory and a universal basic income, we also address various design choices inherent in any basic income scheme: who should receive it?; how large should it be?; which programs might it replace?; and should it phase out as market income rises? Lastly, we consider the relationship between a basic income and the political economy of redistribution. We find that the case for a basic income as a libertarian “second-best” is surprisingly shaky: libertarians who oppose all redistribution but grudgingly accept a basic income as the least-worst form of redistribution should reconsider both aspects of their position. We conclude by drawing out lessons from our analysis for non-libertarians, regardless of whether they are supportive or skeptical of basic income arguments.

via Atlas Nods: The Libertarian Case for a Basic Income by Miranda Fleischer, Daniel Hemel :: SSRN