• everyday economics and safety regulation

    An Unintended Consequence of Football Helmets

    Jun 22 • Behavioral Economics, Economic Growth, Economic History, Economic Thinkers, Government, Health Care, Lifestyle, Regulation, Thinking Economically • 126 Views

    Ban helmets?

    The BBC reports that the chairman of the National Football League’s health and safety advisory committee said it might be healthier for the players not to wear their helmets.

    Where are we going? To the unintended consequences of regulation.

    Football Helmet History

    The history of the football helmet starts in the early 1900s with helmets increasingly providing more protection as the 20th century unfolded. First made of leather, then hard plastic, equipped with face masks and extra cushioning, helmets minimized catastrophic spinal and skull injuries.

    Concussions though were another story.

    NFL Concussions by position, 2013…

    Unintended consequences from helmet safety

    From: PBS Frontline

    Meanwhile, among high school football players, the concussion rate has increased:

    Unintended consequences from helmets for high school football players

    From: Bloomberg

    You can see that the data indicate concussions remain a huge concern although helmet safety has improved. Helmets with a five-star Virginia Tech rating have the best impact absorption and–theoretically–the best concussion protection.

    That takes us to the Peltzman Effect.

    Our Bottom Line: Unintended Consequences

    Called the Peltzman Effect, safety regulations can create new incentives that offset their purpose. Because seat belts lower the cost of risky behavior, we might drive more dangerously. A recent article in SFGate noted that after a new Golden Gate bridge safety barrier was installed, the number of minor accidents increased. Similarly, when flood insurance is available, people build waterfront homes and when financial institutions have federal guarantees, they have more of an incentive to engage in risky behavior.

    Perhaps football helmets also create the Peltzman Effect.

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  • everyday economics and calculating drug prices by value

    A New Way to Calculate Drug Prices

    Jun 21 • Behavioral Economics, Businesses, Demand, Supply, and Markets, Economic Debates, fiscal policy, Government, Health Care, Households, Regulation, Thinking Economically • 97 Views

    One bottle of Merck’s cancer drug Keytruda can cost $2,500 and Novartis’s Gleevec, $9,000. Sloan Kettering physician Peter Bach says cancer drugs are so expensive because their price mechanism is wrong.

    Where are we going? To deciding when to ignore the market.

    A Value Pricing Method

    At abacus.org, a Sloan Kettering Cancer Center website, we are told that we should replace “the price a company charges” by a price “based on value” that you and I determine. Their value variables include the following:

    Market system and the vaue method for pricing drugs

    From abacus.org

    This is how they calculate price:

    Using value pricing to avoid the market system

    From: abacus.org

    The Market Method

    Described in Adam Smith’s Wealth of Nations (1776), the market needs to be left alone for supply and demand to function productively. On the supply side we have an upward sloping curve that is shaped by cost. Implying more cash and perhaps more profit, a higher price provides the incentive to produce more. Meanwhile, on the demand side, we have a downward sloping curve through which quantity declines as price rises.

    As you can see below, when we have less supply, normally the movement on the demand curve elevates price and diminishes quantity demanded.
    Market system supply and demand

    But not with drugs.

    In drug markets, the demand curve is almost vertical. An almost vertical line says that a change in price has little impact. Called inelastic demand, it just shows that certain drugs are necessities.

    Market system and inelastic demand for drugs

    Ands therein lies our dilemma. No real market to depend on but how then to price drugs?

    Our Bottom Line: Supply and Demand

    In an Adam Smith world, there were many small and relatively powerless sellers and buyers interacting to determine an equilibrium price. By contrast, for cancer drugs, there are few sellers or even just one for each cancer drug. Meanwhile the demand side is dominated by Medicare, private large insurers, and Medicaid.

    Consequently, the supply and demand side incentives that create an equilibrium price in a market are distorted by big groups of sellers and buyers who have pricing power.

    So yes, we have a distorted marketplace for expensive drugs like those for cancer.


    I doubt that the solution is to use demand side opinions on value as a pricing mechanism.

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  • The econlife.com Weekly Roundup

    Weekly Roundup: From More Money to Fewer Restrooms

    Jun 20 • Behavioral Economics, Businesses, Developing Economies, Economic History, Economic Humor, Economic Thinkers, Financial Markets, fiscal policy, Gender Issues, Government, Lifestyle, Macroeconomic Measurement, Money and Monetary Policy, Regulation, Thinking Economically • 88 Views

    Our Posts Roundup

    Everyday economics and cost of crime Sunday 6.14.15

    The most expensive crimes…more

    Everyday economics and choice fatigue. Monday 6.15.15

    Why we get choice fatigue at malls…more

    Everyday economics and hyperinflation Tuesday 6.16.15

    How to become a trillionaire…more

    Everyday economics and U.S. GDP Wednesday 6.17.15

    Why Texas is really Canada…more

    Everyday economics and restroom gender issues Thursday 6.18.15

    How restrooms relate to power… more


    Where African development is constrained because of problems with electrification. Friday 6.19.15

    The world from a NASA satellite… more

    Ideas Roundup

    • cost
    • scarcity
    • tradeoffs
    • municipal spending
    • behavioral economics
    • decision making
    • opportunity cost
    • sustainability
    • hyperinflation
    • fiscal policy
    • monetary policy
    • GDP
    • gender issues
    • negative externalities
    • African development
    • human capital

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  • Where African development is constrained because of problems with electrification.

    Electrification Insight From a Stunning NASA Map

    Jun 19 • Businesses, Developing Economies, Economic Growth, fiscal policy, Innovation, International Trade and Finance, Labor, Lifestyle, Macroeconomic Measurement, Thinking Economically • 115 Views

    Called “City Lights of Africa, Europe and the Middle East,” this dazzling NASA image of the earth is a composite formed from data collected by a satellite during 22 days and 312 orbits of the earth in 2012.

    Productivity satellite night picture

    From: NASA Earth Observatory

    You can see that most of Africa is dark.  By contrast, Europe’s major cities like Paris, London and and Copenhagen are brightly lit.

    Where are we going? To the impact of electrification.

    Electrification in Africa

    Confirming the NASA image, the most recent data indicates sub-Saharan Africa is the least lit area of the world:

    Productivity sub-Saharan electrification

    More specifically:

    Productivity impact of sparse electrification

    From: Quartz

    I also thought this map–the same area as the NASA image–could come in handy.

    Productivity African map

    From: CIA World Fact Book

    Our Bottom Line: Productivity

    Light can be all about productivity. In one of his farm journals from 1813, Thomas Jefferson points out that one-half more wool was spun during July than in January because extra daylight hours extended the length of the workday.

    Thomas Jefferson’s Farm Book, 1813:

    Productivity and Thmas Jefferson


    So, when we think about where the earth lights up at night, we can also imagine more productive economic activity.


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  • Everyday economics and restroom gender issues

    The Significance of Potty Parity

    Jun 18 • Behavioral Economics, Businesses, Economic History, Gender Issues, Government, Labor, Lifestyle, Sports, Thinking Economically • 105 Views

    During the 1950s, some faculty members at Harvard Law School were said to have opposed admitting women because they had inadequate female restroom facilities.

    Where are we going? To the negative externalities created by unequal restroom access.

    Some Restroom History

    Although women had been in the U.S. House of Representatives since 1917, it took 94 years for them to get their first restroom near the House floor. Until then Congresswomen were exceeding recess time and missing votes because the dash to the bathroom included a five minute run in each direction. Meanwhile, equipped with amenities that included an attendant, a fireplace and televised floor proceedings, the restroom for the men was next to the House floor.

    More evidence of bathroom inequity is apparent at entertainment and sports venues. With women lined up at restrooms but not the men, women are again experiencing more time and inconvenience when they and the children who accompany them use a public restroom.

    Restrooms and Power

    Scholars have pointed out that public restroom access and power are connected.  For female blue collar workers, unequal access to restroom facilities has been cited as a form of discrimination. In a white collar business and political world, the absence of women’s restrooms reinforces female exclusion and male domination. But perhaps most importantly, when restroom facilities are lacking for any group, it is an architectural reflection of the imbalance of power.

    The first state to recognize the problem legislatively was California. In a 1989 “restroom equity act,” California mandated a certain number of toilets per women at all new and remodeled public and private sports facilities.

    Our Bottom Line: Negative Externalities

    Seemingly insignificant, equal restroom access has concrete and abstract externalities. The practical part involves time and all that individuals sacrifice at work and during leisure when a restroom is not a speedy experience. Then more broadly, thinking about power, I wonder whether restroom inequity is the source and the reinforcement of a message.

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