How retail drug markets in poor countries develop
Daniel Bennett, Wes Yin 14 August 2014
Many drugs sold in poor countries are counterfeit or substandard, endangering patients’ health and fostering drug resistance. Since drug quality is difficult to observe, pharmacies in weakly regulated markets may have little incentive to improve quality. However, larger markets allow firms to reorganise production and invest in technologies that reduce the marginal cost of quality. This column discusses how the entry of a new pharmacy chain in India led incumbents to both cut prices and raise drug quality.
Millions of people die each year from infectious diseases like malaria, TB, HIV, and diarrhoea, many of which have drug therapies. We need effective medicine to confront the alarming burden of infectious disease in the developing world. However, many of the drugs for sale in developing countries are of poor quality. Counterfeiters sell ineffective products that imitate the appearance of established brands, while small manufacturers make and distribute substandard versions of common generics.
Development Health economics Industrial organisation
competition, pharmaceuticals, India, quality, asymmetric information, economies of scale, healthcare, adverse selection, drugs, medicine, market for lemons, chains
Are banks too large?
Lev Ratnovski, Luc Laeven, Hui Tong 31 May 2014
Large banks have grown and become more involved in market-based activities since the late 1990s. This column presents evidence that large banks receive too-big-to-fail subsidies and create systemic risk, whereas economies of scale in banking are modest. Hence, some large banks may be ‘too large’ from a social perspective. Since the optimal bank size is unknown, the best policies are capital surcharges and better bank resolution and governance.
Large banks have grown significantly in size and become more involved in market-based activities since the late 1990s. Figure 1 shows how the balance-sheet size of the world’s largest banks increased two- to four-fold in the ten years prior to the crisis. Figure 2 illustrates how banks shifted from traditional lending towards market-oriented activities.
regulation, economies of scale, bank regulation, banking, Too big to fail, systemic risk, BASEL III, bank resolution, bank capital
Why large American gains from globalisation are plausible
Gary Clyde Hufbauer, Matthew Adler 24 July 2008
A popular headline figure quantifying the US payoff from globalisation at $1 trillion per year has been criticised by Dani Rodrik and other sceptics. Here is an explanation and defence of the Peterson Institute’s big number.
The Peterson Institute calculates that the US economy was approximately $1 trillion richer in 2003 due to past globalisation – the payoff both from technological innovation and from policy liberalisation – and could gain another $500 billion annually from future policy liberalisation (Bradford, Grieco, and Hufbauer 2005). Past gains amounted to about 9% of GDP in 2003, and potential future gains constitute another 4%.
Global economy International trade
globalisation, US economy, partial equilibrium, comparative advantage, monopolistic competition, economies of scale, productivity gains, safety net