Microeconomic regulation

Ana-Maria Fuertes, Elena Kalotychou, Orkun Saka, 26 March 2015

Recent debt crises have brought the fragility of the Eurozone into focus. It has been argued that members are vulnerable to sudden changes in market sentiment. This column examines how debt markets reacted to an ECB announcement that it would serve as a lender of last resort, finding that recent debt crises have strong self-fulfilling dynamics.

Rena M. Conti, Ernst Berndt, David H. Howard, 25 March 2015

Total US prescription drug spending rose 13% in 2014, the biggest increase in a decade. Driving this trend is spending on branded specialty drugs, which rose an unprecedented 31%. This column discusses recent research into the relationship between inflation-adjusted launch prices and survival benefits and approval year for 58 anticancer drugs approved in the US between 1995 and 2013. The authors find that launch prices are going up by $8,500 per year, approximately 12% year over year.

Andrew W. Lo, Richard T. Thakor, 24 March 2015

R&D-intensive firms such as biopharmaceutical companies operate in a competitive and risky environment. This column presents new evidence on how competition affects the investment decision of R&D-intensive firms. An increase in competition will make the firm increase the R&D investment, and as a response the firm will carry more cash and reduce its debt. Also, more competition will increase the idiosyncratic risk of R&D-intensive firms.

Jeffrey R. Brown, Chichun Fang, Francisco Gomes, 23 March 2015

College-educated workers are less likely to experience unemployment, but their lifetime earnings are also much more uncertain. This column estimates the risk-adjusted value of college education to be between $225,000 and almost $600,000, corresponding to risk-adjusted increases in total present-value lifetime wealth of 35% to 48%. Increased earnings volatility actually decreased the risk-adjusted value of college between 1968–1980 and 1991–2011 by almost $50,000, even though expected lifetime income increased by about $150,000. Nevertheless, even the most conservative estimates of the value of college education are still positive.

Alberto Alesina, Traviss Cassidy, Ugo Troiano, 22 March 2015

Different characteristics of a politician could affect policy. Whereas existing studies analyse gender and education, this column discusses the effect of a politician’s age on governance and re-election. Younger mayors are more likely to strategically increase expenditures and attract more transfers from the higher levels of government right before the election. These fiscal cycles are positively correlated with re-election and, hence, potentially explain why younger mayors are more likely to be re-elected. 

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