Why High Incentives Cause Repugnance, by Robert Stüber

 Here's a nice experiment in the EJ:

Robert Stüber,Why High Incentives Cause Repugnance: a Framed Field Experiment, The Economic Journal, 2024;, ueae018, https://doi-org.stanford.idm.oclc.org/10.1093/ej/ueae018 

"Abstract: Why are high monetary payments prohibited for certain goods, thereby causing shortages in their supply? I conduct (i) a framed field experiment with a general population sample and (ii) a survey experiment with this sample and with ethics committees. In the experiment, participants can prohibit others from being offered money to register as stem-cell donors. I document that, whereas the majority of participants do not respond to changes in the incentives (63%) or become more in favour of the offer with higher incentives (20%), a minority of 17% prohibit high incentives. I show that this minority wants to protect individuals who are persuaded by high incentives. I also show that a lottery scheme reduces their objections to high incentives. Finally, I document that the public is much more supportive of high incentives than are ethics committees."

"In the experiment, participants can prohibit a transaction that involves another person signing up as a potential stem-cell or bone-marrow donor for money.1 Participants initially make a decision for two distinct amounts of compensation: one low (€10) and one high (€500). The main outcome is participants’ willingness to pay for prohibiting or permitting the offer. I find that the majority of participants (63%) do not respond to changes in the incentives or become more in favour of the offer with higher payment (20%). A clear minority (17%) reveal a stronger preference for preventing the offer when the payment is €500 rather than €10. This finding is mirrored in a second outcome, in which separate participants make simple binary decisions to prohibit the offer or not.

"Why do some participants want to prevent high monetary incentives for signing up? I answer this question by randomly assigning participants to different treatments. In the main treatment, Reservation Price, participants again decide whether to permit an offer of €500 for becoming a stem-cell donor. However, they know that, even if they permit the offer, the offer will be made only if the individual potentially receiving the offer agrees to sign up as a donor for €10 in an independent decision made beforehand. If the individual is not willing to sign up for €10, no offer is made. Put differently, the treatment ensures that the €500 offer is made only to individuals with reservation prices of €10 or less. The offer therefore cannot attract individuals with high reservation prices. The treatment drastically reduces the resistance of individuals who prefer low incentives: the median person who was previously willing to pay €2.50 to prevent the €500 offer is now willing to pay €1.50 to permit it. "

How have real estate agents kept commissions high? More on steering, by Barry, Fried, and Hatfield,

 Here's a paper that offers one channel for how residential real estate commissions have been maintained at a more or less constant percentage of house prices, while those prices have risen and while information about houses for sale has become more readily available.

Barry, Jordan and Fried, Will and Hatfield, John William, Et Tu, Agent? Commission-Based Steering in Residential Real Estate (October 9, 2023). Available at SSRN: https://ssrn.com/abstract=4596391 or http://dx.doi.org/10.2139/ssrn.4596391

Abstract: "Real estate agents are required to serve their clients’ best interests. However, policymakers have long suspected that buyer agents steer their clients away from properties that offer low buyer agent commissions. They are particularly concerned that steering is a key reason why agent commissions have remained high in the internet era, even as commissions in other industries have plummeted. Analyzing a new dataset, we provide the first systematic, nationwide evidence that buyer agents do in fact steer clients away from properties that offer low buyer agent commissions.

"Buyer agents play an important role in helping their clients find homes. We hypothesize that buyer agents may skip over low-commission homes in favor of high-commission homes when choosing which listings to forward to their clients. If so, low-commission listings would tend to garner fewer page views on public real estate portals like Zillow and Redfin. To test this theory, we track the number of page views that individual listings receive on Redfin. All else being equal, we find that low-commission listings receive fewer page views. This effect is most pronounced for listings with the lowest commissions, but even listings with commissions that are slightly below the going rate receive significantly fewer page views.

"We also find evidence that this steering has meaningful economic consequences. Homes with lower buyer agent commissions take longer to sell and are less likely to sell at all. Again, these effects are largest for the listings with the lowest commissions, which take 33% longer to sell nationwide. In a typical geographic market, our best estimate is that these lowest-commission properties face a 75% greater risk of not selling at all. Here too, even commissions that are slightly below the going rate are associated with longer sale times and higher risk of a failed sale.

"We explore the implications of our findings with respect to both the $52 trillion U.S. housing market and the ongoing scholarly debates regarding agency costs and Collaborative Industries."

#########

Earlier:

Thursday, November 2, 2023

Jury Finds Realtors Conspired to Keep Commissions High

Pushback against high prices in academic publishing: open access fees and e-textbooks to libraries

 The Guardian has the story:

‘Too greedy’: mass walkout at global science journal over ‘unethical’ fees. Entire board resigns over actions of academic publisher whose profit margins outstrip even Google and Amazon  by Anna Fazackerley

"The entire academic board of the journal Neuroimage, including professors from Oxford University, King’s College London and Cardiff University resigned after Elsevier refused to reduce publication charges.

Academics around the world have applauded what many hope is the start of a rebellion against the huge profit margins in academic publishing, which outstrip those made by Apple, Google and Amazon.

Neuroimage, the leading publication globally for brain-imaging research, is one of many journals that are now “open access” rather than sitting behind a subscription paywall. But its charges to authors reflect its prestige, and academics now pay over £2,700 for a research paper to be published. The former editors say this is “unethical” and bears no relation to the costs involved.

...

"Elsevier, a Dutch company that claims to publish 18% of the world’s scientific papers, reported a 10% increase in its revenue to £2.9bn last year. But it’s the profit margins, nearing 40%, according to its 2019 accounts, which anger academics most. The big scientific publishers keep costs low because academics write up their research – typically funded by charities and the public purse – for free. They “peer review” each other’s work to verify it is worth publishing for free, and academic editors collate it for free or for a small stipend. Academics are then often charged thousands of pounds to have their work published in open-access journals, or universities will pay very high subscription charges.

...

"Meanwhile, university libraries are angry about the cost of the online textbooks they say students now overwhelmingly want to read – often many times more expensive than their paper equivalent. Professor Chris Pressler, director of Manchester University Library, said: “We are facing a sustained onslaught of exploitative price models in both teaching and research.”

"According to a spreadsheet of costs quoted to university librarians, Manchester University gave a recent example of being quoted £75 for a popular plant biology textbook in print, but £975 for a three-user ebook licence. Meanwhile Learning to Read Mathematics in the Secondary School, a textbook for trainee teachers published by Routledge, was £35.99 in print and £560 for a single user ebook.

"A spokesperson for Taylor and Francis, which owns Routledge, said: “We strive to ensure that book prices are both affordable and a fair representation of their value.” He said a print book could be checked out for weeks at a time whereas ebooks could be checked in and out rapidly and had a much wider distribution."

Eliminating Hepatitis C, now that there's a cure (even though it's expensive)

 There's growing discussion about eliminating Hep C in the U.S., doing appropriate deals with the two drug companies whose patents still run for another six years.

Fleurence RL, Collins FS. A National Hepatitis C Elimination Program in the United States: A Historic Opportunity. JAMA. 2023;329(15):1251–1252. doi:10.1001/jama.2023.3692

"One of the most dramatic scientific achievements of the last few decades has been the development of direct-acting antivirals (DAAs) that can cure hepatitis C in more than 95% of people infected. But 9 years after the first such treatment was approved in the United States, the simple 8- to 12-week oral cure is not reaching a significant fraction of the more than 2.4 million US residents chronically infected with hepatitis C.1 More than 15 000 US residents die of hepatitis C every year unnecessarily. In its fiscal year 2024 budget proposal, the Biden-Harris administration has put forward a bold 5-year program to put the nation on course to eliminate hepatitis C in the United States.

"The consequences of untreated hepatitis C can be severe: cirrhosis, liver failure, hepatocellular cancer, and death. Curative treatment stops transmission, prevents liver cancer and liver failure, and saves lives. It is even likely to be cost-saving, by avoiding expensive medical treatments for liver failure and liver cancer. So why is this not a public health success story? One major reason is that many people with hepatitis C have poor access to health care and experience other chronic health and social inequities. Hepatitis C disproportionately affects individuals without insurance, American Indian and Alaska Native persons, non-Hispanic Black persons, justice-involved populations, and people who use illicit drugs.2

...

"Among those diagnosed, hepatitis C treatment coverage is far below what is needed to achieve elimination goals. Only about one-third of people diagnosed with hepatitis C who have private insurance, Medicare, or Medicaid get treated, and the proportion is probably even lower for those without insurance.4 This is in part due to current restrictions, such as requirements for patient sobriety, requirements to document evidence of liver fibrosis, and the restriction of access to treatment only to those seen by specialists, that have been put in place by public and private insurers in reaction to the high cost of DAAs ($90 000 per patient initially, still around $20 000). Low rates of treatment may also reflect the complexity of traversing the full cascade of care in our health care delivery system.

"Addressing this missed opportunity can save both lives and money. A national effort can build on lessons from programs launched by jurisdictions such as the states of Louisiana and Washington, the Cherokee Nation, the Veterans Health Administration, and the Federal Bureau of Prisons. For example, the Veterans Health Administration has treated more than 92 000 veterans with hepatitis C virus since 2014, with cure rates exceeding 90%.5 A key lesson from these initiatives is that success requires both managing the cost of the medications and developing a comprehensive public health effort to identify persons with hepatitis C and link them to care.

...

"the program aims to provide broad access to curative hepatitis C medications. A key element will be a national subscription model to purchase DAAs for those who are particularly underserved today: Medicaid beneficiaries, justice-involved populations, people without insurance, and American Indian and Alaska Native individuals who are treated through the Indian Health Service. With this approach to drug purchasing pioneered in Louisiana,7 the federal government will negotiate with manufacturers to purchase as much treatment as needed for all individuals in the designated groups. The pharmaceutical industry can expect more revenue for DAAs for these populations than it is receiving today, but at a much lower per-patient cost. That’s a win-win. Beyond the subscription model, the program will seek to provide additional co-pay assistance to Medicare beneficiaries. Private insurers will also be strongly encouraged to increase coverage for hepatitis C testing and treatment and limit out-of-pocket costs where possible."

Bride price in China

 The NY Times has the story:

In China, Marriage Rates Are Down and ‘Bride Prices’ Are Up. China’s one-child policy has led to too few women. Grooms are now paying more money for wives, in a tradition that has faced growing resistance.  By Nicole Hong and Zixu Wang

"As China faces a shrinking population, officials are cracking down on an ancient tradition of betrothal gifts to try to promote marriages, which have been on the decline. Known in Mandarin as caili, the payments have skyrocketed across the country in recent years — averaging $20,000 in some provinces — making marriage increasingly unaffordable. The payments are typically paid by the groom’s parents.

"To curb the practice, local governments have rolled out propaganda campaigns such as the Daijiapu event, instructing unmarried women not to compete with one another in demanding the highest prices. Some town officials have imposed caps on caili or even directly intervened in private negotiations between families.

...

"Officials have acknowledged their limited ability to eliminate a custom that many families see as a marker of social status. In rural areas, neighbors may gossip about women who command low prices, questioning whether something is wrong with them, according to researchers who study the custom.

*************

Earlier:

Friday, September 28, 2018

Bride price in rural China

Junk Fees and Related Pricing Practices

 The White House is taking interest in hidden fees, both  because they interfere with competition on price (e.g. when Ticketmaster reveals fees only as someone tries to complete a purchase), and because they sometimes seem unconscionable.  Here's a White House statement.

The President’s Initiative on Junk Fees and Related Pricing Practices

"The Biden-Harris Administration is taking action on junk fees that hurt Americans’ pocketbooks and the economy."

"Exploitative or predatory fees. Excessive fees that target consumers who have limited alternative options – because they are locked into a product or service, or are otherwise economically vulnerable – can likewise impose a financial burden. As the CFPB explains, a sign of exploitative fees is that they “far exceed the marginal cost of the service they purport to cover.” Bank overdraft fees, which greatly exceed the bank’s cost of credit, and surprise “termination fees” are leading examples."

HT: Susan Athey

********

Regarding bank overdraft fees, my sense is that these drive lots of people away from the formal banking system and into the hands of high-interest-rate check cashing and payday loan services. Since we already regulate some debit card fees, I wonder if banks can't be encouraged to have some kind of debit-card-only "checking" accounts. Those would be able to prevent overdrafts, so they should be very cheap to administer, and would allow people to avoid paying very high fees and interest rates to non-bank financial services.

Ticketmaster and the secondary market for tickets, by Budish and Bhave

 Here's a still-timely paper that was a work in progress for quite a while.

Primary-Market Auctions for Event Tickets: Eliminating the Rents of “Bob the Broker”? By Eric Budish and Aditya Bhave, American Economic Journal: Microeconomics 2023, 15(1): 142–170 https://doi.org/10.1257/mic.20180230 

Abstract: "Economists have long been puzzled by event-ticket underpricing: underpricing reduces revenue for the performer and encourages socially wasteful rent-seeking by ticket brokers. What about using an auction? This paper studies the introduction of auctions into this market by Ticketmaster in the mid-2000s. By combining primary-market auction data from Ticketmaster with secondary-market resale value data from eBay, we show that Ticketmaster’s auctions “worked”: they substantially improved price discovery, roughly doubled performer revenues, and, on average, nearly eliminated the potential arbitrage profits associated with underpriced tickets. We conclude by discussing why, nevertheless, the auctions failed to take off."

From the conclusions:

"over the decade that has passed since the time of the data, rather than coming into more widespread use, primary-market auctions for event tickets instead disappeared. LexisNexis searches suggest that TM auctions were in use from their introduction in 2003 through around 2011, with a peak in around 2005–2008 but that with limited exceptions, they have not been used since.33

"We conclude by speculating as to why the auctions failed to take off. As discussed in the introduction, economic theory suggests that there are two basic choices for how to eliminate the rents of and rent-seeking by Bob the Broker: ban resale or set a market-clearing price. While auctions are no longer in use, what has at least partly taken off is using available data, including historical resale values, to set fixed prices in the primary market that more accurately approximate market clearing.

...

"We conjecture that the popularity of this practice relative to auctions partly reflects the simplicity and convenience for fans of posted prices relative to auctions, as has been documented more widely by Einav et al. (2018) and partly reflects a harder-to-model “repugnance” cost of ticket auctions (Roth 2007). 

...

"Setting market-clearing prices and banning resale are two ways to modify the primary market to eliminate Bob the Broker’s rents. TM has also aggressively expanded into the secondary market, acquiring TicketsNow for $265 million in 2008 (as well as UK-based Get Me In! for an undisclosed amount); entering into secondary-market partnerships with the National Basketball Association, National Hockey League, and National Football League (Major League Baseball has a partnership with StubHub); and most recently launching a secondary market within ticketmaster.com called Fan-to-Fan Resale that lists available primary-market tickets alongside secondary-market tickets.38 This business exploits TM’s unique ability, for events where it manages the primary market, to verify the authenticity of tickets in the secondary market. With transaction fees of about 30–40 percent in the largest secondary-market venues (Budish 2019)—of the full resale value, not of just the markup versus the fixed price—perhaps eliminating the rents of Bob the Broker is less profitable than taking a cut."

The market for large dinosaur fossils

Should fossils be regarded as national treasures, or as natural resources, or perhaps works of art? 

The NY Times has the story:

As Dinosaur Fossils Fetch Millions, There’s Many a Bone to Pick. Fossils are a multimillion-dollar business, bringing legal disputes, nondisclosure agreements and trademarks to the world of paleontology.  By Julia Jacobs and Zachary Small

"Fossil hunting has become a multimillion-dollar business, much to the chagrin of academic paleontologists who worry that specimens of scientific interest are being sold off to the highest bidders.

...

"Things were simpler at the beginning of his career, Larson said, when universities, museums and a smaller group of private collectors were the only ones who cared about buying pieces of natural history.

"It was not until 1997, with the sale of Sue, that dinosaurs started to be viewed as potential centerpieces of auctions.

...

"Many scientists are aghast at the growing commercial market, and increasingly anxious that scientifically important specimens will disappear into private mansions. Paleontologists are also concerned that the market could encourage illegal digging, and that American landowners — who, by law, generally own the fossils found on their land — would favor commercial fossil hunters over academic researchers.

“Ranchers who used to let you go and collect specimens are now wondering why they should let you have it for free,” said Jingmai O’Connor, a Field Museum paleontologist, “when a commercial collector would dig up the bones and split the profit.”

"Fossil diggers and dealers in the commercial sphere counter that if not for them, these specimens on private land would be left to erode further, never to be found.

"The United States is an outlier legally. Other dinosaur-rich nations, including Mongolia and Canada, have laws making fossils the property of the government. Thomas Carr, a paleontologist at Carthage College in Wisconsin, said he believed that the lack of protections for “natural heritage” puts scientists in the United States at a disadvantage."

Depreciated currency

I'm flying home today from Argentina, where I took part in the TTS2022 international transplant conference.   I had to change dollars to pesos, which is made more complicated by the fact that Argentina has experienced persistently very high inflation.  But I feel on much more solid ground than if I had been in Venezuela, where inflation has wreaked havoc.

 David Klinowski recently finished a postdoc at Stanford and moved to Pitt. As a souvenir, he gave us this peacock, made by an artist from depreciated Venezuelan currency, which happens to have pictures of birds.  Persistent inflation has made this one of the high value uses of these old bills.

Here's a snippet of inflation data from the IMF: 

Venezuela: Inflation rate from 2012 to 2022 (compared to the previous year)

********

In contrast to Venezuela, inflation in Argentina could be worse--it's less than 100% a year--double digits rather than 5 digits--although it's still among the highest in the world:

Argentina: Inflation rate from 2004 to 2027(compared to the previous year), with 2014-16 missing (and estimated going forward)

Pharmacy Benefit Managers--Alex Chan on NPR's Planet Money podcast

 Alex Chan is interviewed on the role of pharmacy benefit managers, their role in drug pricing, and some problems with the market design.

SCOTUS on dialysis and DaVita

 The Supreme Court delivered a number of decisions recently, and the news coverage has rightly focused on the decisions that will increase guns and decrease abortions.  

But another decision has implications for how dialysis is financed for patients with kidney failure. It's going to take some time for all the adjustments that will now start to be made to determine what this means for the financing of kidney care.

Briefly, all kidney failure patients are eligible for Medicare coverage for dialysis, but private insurers covered the first 30 months (and pay much more than Medicare rates).  The case concerns a health insurance program that sought not to pay those rates, and in the case of MARIETTA MEMORIAL HOSPITAL EMPLOYEE HEALTH BENEFIT PLAN ET AL. v. DAVITA INC. ET AL.  the Supreme Court ruled in favor of the health plan.

Here's the story from Reuters:

U.S. Supreme Court rules against DaVita over dialysis coverage  By Nate Raymon

"June 21 (Reuters) - The U.S. Supreme Court on Tuesday rejected dialysis provider DaVita Inc's (DVA.N) claims that an Ohio hospital's employee health plan discriminates against patients with end-stage kidney disease by reimbursing them at low rates in hopes they would switch to Medicare.

"In a 7-2 decision authored by conservative Justice Brett Kavanaugh, the court ruled that Marietta Memorial Hospital's employee health plan did not violate federal law by limiting benefits for outpatient dialysis because it did so without regard to whether patients had end-stage renal disease. A lower court had ruled in favor of Denver-based DaVita.Following the ruling, shares of DaVita, one of the nation's two largest dialysis providers, closed 15% lower. Shares of German rival Fresenius Medical Care (FMEG.DE) dropped 9%."

********

Here's a blog from the law firm that won the case, Vorys, Sater, Seymour and Pease LLP :

6/21/22 Vorys Wins 7-2 at U.S. Supreme Court in Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc 

"On June 21, 2022, the U.S. Supreme Court released its decision in Marietta Memorial Hospital Employee Health Benefit Plan v. DaVita Inc. siding with petitioners (our side) and our client Marietta Memorial Hospital, its employee group health plan and health plan third-party administrator, for which Vorys argued the case.  The Court found that the group health plan does not impermissibly “‘differentiate in the benefits it provides’ to individuals with end-stage renal disease or ‘take into account’ whether an individual is entitled to or eligible for Medicare.”  The Supreme Court decision overturned a split decision by the U. S. Court of Appeals for the Sixth Circuit.

...

"The case began on December 19, 2018, when DaVita, a commercial dialysis provider, sued Marietta Memorial Hospital, a small community hospital located in Marietta, Ohio; the Hospital’s medical plan, the Marietta Memorial Hospital Employee Health Benefit Plan; and the Hospital’s third-party administrator, Medical Benefits Mutual Life Insurance Company, in the United States District Court for the Southern District of Ohio.  DaVita, a large, for-profit dialysis provider, alleged violations of the Medicare Secondary Payer Act (MSPA) and Employee Retirement Income Security Act (ERISA).  The Defendants, represented by Vorys, filed a motion to dismiss, which the District Court granted. 

"DaVita appealed to the United States Court of Appeals for the Sixth Circuit, which disagreed with the District Court decision.  Marietta appealed the district court decision to the U.S. Supreme Court. 

"On November 5, 2021, the U.S. Supreme Court granted a writ of certiorari, agreeing to hear the case.   In recognition of the importance of the case, the office of the Solicitor General of the United States filed an amicus brief, joined in the oral argument and urged the U.S. Supreme Court to rule in favor of the Marietta Memorial Hospital, its group health plan and the third-party administrator.  Oral arguments took place on March 1, 2022."

Price gouging laws are unpopular with economists

 Chicago Booth's Initiative on Global Markets recently polled their panel of academic economists in the U.S. on whether a new law banning price gouging would be useful. Almost no one thought that would be a good idea:

High prices and moral outrage, by Elias, Lacetera, and Macis

 Is Uber-style surge pricing immoral, or efficient?  How about price rises during a pandemic? Does discussion of the economic consequences change the assessments of morality? Here's a new NBER paper:

Is the Price Right? The Role of Morals, Ideology, and Tradeoff Thinking in Explaining Reactions to Price Surges  by Julio J. Elias, Nicola Lacetera & Mario Macis, NBER WORKING PAPER 29963, DOI 10.3386/w29963, April 2022

Abstract: "Price surges often generate social disapproval and requests for regulation and price controls, but these interventions may cause inefficiencies and shortages. To study how individuals perceive and reason about sudden price increases for different products under different policy regimes, we conduct a survey experiment with Canadian and U.S. residents. Econometric and textual analyses indicate that prices are not seen just as signals of scarcity; they cause widespread opposition and strong and polarized moral reactions. However, acceptance of unregulated prices is higher when potential economic tradeoffs between unregulated and controlled prices are salient and when higher production costs contribute to the price increases. The salience of tradeoffs also reduces the polarization of moral judgments between supporters and opponents of unregulated pricing. In part, the acceptance of free price adjustments is driven by people’s overall attitudes about the function of markets and the government in society. These findings are corroborated by a donation experiment, and they suggest that awareness of the causes and potential consequences of price increases may induce less extreme views about the role of market institutions in governing the economy."

From the conclusions:

"Our findings support the claim that people do not perceive prices as only signals of relative scarcity, but they attribute moral valence to them. Consistent with prior studies, price spikes in response to demand increases receive widespread opposition and generates moral aversion, mainly out of concerns for fairness toward and exploitation of consumers. Moreover, underlying ideological positions about the role of the market (and the government) in society significantly affect the perceptions and acceptance of price surges. However, when made explicit, economic or tradeoff considerations substantially increase the public’s acceptance of price increases in response to demand surges. The reaction to these economic considerations also concerns moral judgments; tradeoff salience increases people’s acceptance of price surges and changes their moral reactions to these increases. When individuals are prompted to consider the economic consequences of freely adjusting prices versus price controls, their moral judgments are less radical and less different from one another. 

...

"Despite the large positive impact of explicit cost-benefit considerations on the acceptance of the free price mechanism to organize markets, most respondents, even when assigned to scenarios with salient tradeoffs, did not support a “laissez faire” solution to price surges. This suggests that this opposition is rooted in strong beliefs and norms whose violation could represent a cost to society. Policy choices and organizational practices that reduce the likelihood of price spikes may therefore be supported by the public."

Black market marijuana coexists with legal marijuana in Oregon, and competes with it in California

In a growing number of U.S. states, it is legal to grow and sell marijuana. But the price remains highest in the states where it is illegal, and so black markets persist alongside legal markets. 

Politico has the story:

‘Talk About Clusterf---’: Why Legal Weed Didn’t Kill Oregon’s Black Market. Legalization was supposed to take care of the black market. It hasn’t worked out that way.  By NATALIE FERTIG

"Over the last two years, there’s been such an influx of outlaw farmers that southern Oregon now rivals California’s notorious Emerald Triangle as a national center of illegal weed cultivation. Even though marijuana cultivation has been legal in Oregon since 2014, Jackson County Sheriff Nate Sickler says there could be up to 1,000 illegal operations in a region of more than 4,000 square miles. The Oregon Liquor and Cannabis Commission, which oversees the state’s $1.2 billion legal cannabis industry, estimates the number of illicit operations is double that.

...

"What is happening in the woods of the southern Oregon represents one of the most confounding paradoxes of the legalized marijuana movement: States with some of the largest legal markets are also dealing with rampant illegal production — and the problem is getting worse. Oklahoma, where licenses to cultivate medical marijuana are some of the easiest to get in the nation, has conducted more than five dozen raids on illicit grows since last April. In California, meanwhile, most of the state continues to purchase cannabis from unlicensed sources — straining legal operators already struggling with the state’s high taxes and fees.

...

"One of the underlying promises for legalizing cannabis was that legalization would make the illegal drug trade, with all its attendant problems of violent crime and money laundering, disappear. But 25 years into the legalization movement, as 36 states have adopted some form of legalized marijuana, the black market is booming across the country. Legal states such as Oregon and California — which have been supplying the nation for nigh on 60 years — are still furnishing the majority of America’s illegal weed.

...

"Oregon’s weed is some of the cheapest in the nation, and Oregonians predominantly purchase weed from licensed dispensaries. Economist Beau Whitney estimates that 80-85 percent of the state’s demand is met by the legal market. But most of the illicit weed grown in southern Oregon is leaving the state, heading to places where legal weed is still not available for purchase such as New York or Pennsylvania — or where the legal price is still very high, like Chicago and Los Angeles. In Illinois, which legalized medical marijuana in 2013, only about a third of the demand for cannabis is satisfied by legal dispensaries, according to Whitney. Differences in tax rate and regulations plays the major role in differences from state to state, Whitney explains.

*************

And in California it appears that high taxes on the legal market allow the black market to exist alongside. NBC has the story:

Craft cannabis industry in California is 'on the brink of collapse,' advocates say. Small cannabis growers and operators say the state's hefty taxes are shutting them out despite promises to expand the industry and make it more inclusive.  By Alicia Victoria Lozano

"Last month, marijuana companies warned Newsom in a letter that immediate tax cuts and a rapid expansion of retail outlets were needed to steady an increasingly unstable marketplace shaken by illicit dealers and growers.

"More than two dozen cannabis executives and legalization advocates signed the letter after years of complaints that the heavily taxed industry is unable to compete with the widespread illegal economy, which offers far lower consumer prices and has double or triple the sales of the legal market."

Participating in a Covid challenge trial: a participant's experience

 The WSJ's Jenny Strasburg has another story on British challenge trials of Covid-19:

Researchers Infect Volunteers With Coronavirus, Hoping to Conquer Covid-19. So-called challenge trials have long been used to study infections, but so far only the U.K. is doing them for Covid-19   By Jenny Strasburg

"On March 8, 23-year-old Jacob Hopkins, a U.K. university student, watched researchers enter his quarantine room’s airlocked entrance at London’s Royal Free Hospital. They wheeled a cart carrying a big red box, like a picnic cooler, labeled “biohazard.”

...

"A few days after the virus was dripped into his nose, he was shivering with a mild case of Covid-19, with the antiviral remdesivir pumped through a thin tube inserted into his arm. He spent 19 days in quarantine and said he felt fully recuperated a month later. He will ultimately be paid about £6,000, equivalent to $8,300, for that time, a year of follow-up tests and phone calls, and a parallel study he agreed to. Trial payments are based on U.K. living wages and go through ethical review."

...

"All volunteers are 18 to 30 years old and screened for known risk factors. They are isolated in quarantine suites with full-time medical care and specialized air systems to contain the virus. Researchers hope to publish peer-reviewed initial findings from the first phase of the challenge trials by this autumn.

...

"Researchers hope trial data will shed light on the durability of immune protection and how Covid-19 affects breathing, heart function, smell and concentration even before symptoms show. They say the model could test new vaccines and treatments head-to-head, eliminating weaker candidates before expensive, large-scale trials. Transmission data could help authorities prioritize who gets booster doses.

************

As an observer of repugnant/controversial transactions, I've been following the challenge trial discussion, including in particular about appropriate payments for participants.  There's a part of the medical ethics literature that worries that payments to volunteers might be 'coercive,' particularly to poor volunteers, and that payments should therefore be as small as possible, e.g. minimum wage payments for time spent, and that some things (such as risk) should not be compensated. My colleagues and I have been among those pointing out that there can also be ethical (as well as practical) issues involved in paying too little (or in providing too little post-trial medical care and insurance).

Here are some earlier posts focusing on articles I've coauthored about compensation for participation in challenge trials:

Thursday, October 29, 2020

Paying participants in challenge trials of Covid-19 vaccines, by Ambuehl, Ockenfels, and Roth

"we note that increasing hourly pay by a risk-compensation percentage as proposed in the target article provides compensation proportional to risk only if the risk increases proportionally with the number of hours worked. (Some risky tasks take little time; imagine challenge trials to test bulletproof vests.) "

Sunday, November 1, 2020

What do we know about the effects of payments to participants in challenge trials for vaccines, and other public spirited activities?

Monday, February 22, 2021

Ethical Payment in Human Infection Challenge Studies in the American Journal of Bioethics

Monday, March 1, 2021

Compensating challenge vaccine trial participants: further discussion in the American Journal of Bioethics

Eduardo Laguna Müggenburg explores the repugnance of price gouging, and defends his dissertation

 Eduardo Laguna successfully defended his Ph.D. dissertation last month. One of the papers he presented  (with Justin Holz and Rafael Jiménez-Duran) was an online experiment in which Amazon sellers of face masks and sanitizer at high prices were sampled, and subjects in the experiment were offered the opportunity to pay to have items be purchased from those sellers and donated to hospitals, and also to pay to have those sellers reported as price gougers to the  Department of Justice National Center for Disaster Fraud.  Some subjects were willing to buy, some were willing to pay to report, and some were willing to pay to avoid having sellers reported.

Here's the paper 

Quantifying repugnance to price gouging with an incentivized reporting experiment 

by Justin Holz, Rafael Jiménez-Duran and Eduardo Laguna-Müggenburg

Abstract: "Anti-price gouging laws are ubiquitous and people take costly actions to report violators to law-enforcement agencies, which suggests that they value punishing price increases during emergencies. We argue with a model that consumer reports contain information about repugnance to price gouging, or willingness to prevent third-party transactions (Roth, 2007). We conduct a field experiment during the first wave of COVID-19 to measure individuals’ willingness to pay to report sellers who increase prices of personal protective equipment. The willingness to pay to report is non-negligible, polarized, and responsive to the seller's price. We also find that repugnance is partly due to distaste for seller profits, depending on the product."

Remarkably, "Half of subjects who are willing to pay to report sellers are also willing to forgo the $5 gift card to have us donate PPE from a price-gouging seller."

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That is, there are substantial numbers of participants who are willing to pay to report the seller, but are also willing to pay for the experimenters to purchase from the seller and donate the PPE to a hospital.  

We often think of repugnance as partitioning the population—there are people who want to transact, and others who think the transaction shouldn’t happen.  The fact that some individuals can simultaneously have both these feelings is, I think,  one of the most striking results of this experiment—it shows just how complex repugnance can be. These are people who recognize that buying goods at inflated prices (and donating them to hospitals) may be efficient, and worth doing given the shortage,  but would still like to see the sellers fined or jailed.  

I'm reminded of this (third hand) story about a N. Carolina hurricane, in which people waiting in line to buy ice at high prices nevertheless applauded when police arrived to arrest the sellers for price gouging... They Clapped: Can Price-Gouging Laws Prohibit Scarcity?

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    Here's a picture from Eduardo's dissertation defense, conducted over Zoom:

Top: Matt Jackson, Eduardo Laguna, Al Roth

   Bottom: Larry Goulder, Chenzi Xu, Melanie Morten

Welcome to the club, Eduardo.

Price gouging during the pandemic: NY law revised and enforced

 Here's the press release from the office of the Attorney General of New York:

Attorney General James Stops Three Amazon Sellers from Price Gouging Hand Sanitizer and Recoups Funds for New Yorkers:  Sellers to Pay More Than $52,000 in Penalties and Nearly $23,000 in Consumer Restitution--AG James Reminds Sellers Price Gouging is Unlawful During Pandemic

"New York Attorney General Letitia James today announced that she has stopped three Amazon sellers from price gouging hand sanitizer during the coronavirus disease 2019 (COVID-19) public health crisis, and that she will help deliver tens of thousands of dollars back into the pockets of defrauded New Yorkers. Three sellers — Yvette Chaya d/b/a Northwest-Lux (Northwest-Lux), Mobile Rush, Inc. d/b/a Best_Deals_27 (Mobile Rush), and EMC Group, Inc. d/b/a Supreme Suppliers (EMC) — will pay the state of New York more than $52,000 in penalties and reimburse consumers almost $23,000 for overcharging for hand sanitizer during the pandemic.

“Price gouging on necessary consumer supplies during an unprecedented public health emergency is absolutely unconscionable and will not be tolerated,” said Attorney General James. “Instead of ensuring individuals could protect themselves from the coronavirus, these businesses operated with dirty hands by charging exorbitant prices on hand sanitizer and other cleansing products. My office will continue to clean up this unlawful practice by using all of the tools at our disposal to prevent price gouging during this pandemic.

...

"The OAG has already issued more than 1,800 cease-and-desist orders to businesses that stand accused of violating New York’s price gouging law. 

...

"Sellers should be aware that New York revised its price gouging statute, effective June 6, 2020, to impose increased penalties against those who price gouge essential items during a pandemic."

Peter Cramton on the retail electricity market in California

 Peter Cramton* is an astute observer of electricity markets.  Here's his op-ed in the San Diego Union-Tribune:

Commentary: My monthly electric bill in Texas would be $250. In California, it is $1,000. Here’s why.

Here's the first paragraph:

"Rolling outages may appear to be a symptom of climate change. Extreme heat and intermittent renewables certainly challenge electricity markets. But these challenges can be met with good market design. The California market has flaws that make California electricity more expensive and less reliable than it should be. Fixing these flaws should be a priority."

and here's the final paragraph:

"California illustrates that good intentions do not necessarily produce good policy. Good policy is designed from what we know about markets and human behavior. Good policy is the only way to provide reliable electricity at least cost"

*"Cramton is a professor of economics at the University of Cologne and the University of Maryland, is an independent board member of ERCOT, the electricity operator in Texas. The views here are his own and not those of ERCOT or ERCOT’s board."

Tools to allocate medical supplies in a crisis: Cramton, Ockenfels, Roth and Wilson in Nature

Publishing a commentary in Nature is a dizzying process for anyone accustomed to the stately dance of publishing in Economics.  It's fast (in this case the commentary below appeared one month after submission), and the editors play an active role.

Borrow crisis tactics to get COVID-19 supplies to where they are needed
Emergency procedures that keep electricity running and food banks stocked can also keep health workers in protective equipment.
Peter Cramton, Axel Ockenfels, Alvin E. Roth and Robert B. Wilson
Nature 582, 334-336, 11 JUNE 2020 doi: 10.1038/d41586-020-01750-6

We began thinking about what market designers know about addressing shortages in an emergency.  We considered the experience in electricity markets and food banks as potentially relevant.
Here are some of our early notes:

• Selling to the highest bidder isn’t always acceptable in an emergency (repugnance)
• But prices matter, because they help generate new supply and reduce excessive  precautionary demand
• And prices can do some of their work even if just in specialized accounting money, so that we’re not just sending supplies to the wealthiest institutions
• Coordination is needed; centralized clearinghouses can help.
• It would have been useful to have had a sufficiently centralized clearinghouse operating as an ordinary market exchange in normal times, that could go into emergency mode when required (so that new suppliers and demanders would have had an address to go to to take part in newly formed supply chains...)
• Our experience in this regard now (after wave 1 of COVID-19) should inform how we think about these markets in the near future (wave 2, next winter, etc.) and the further future (future pandemic diseases...)
• In some respects Germany may be better poised to take steps towards a centralized clearinghouse than we are in the decentralized U.S., especially given our current political disarray. (But Germany has politics of its own...)
• It will be worthwhile to think more about the design of markets that are robust against emergencies –  so they can transition gracefully from normal to emergency states, and back.

Should emergency medical supplies go to the highest bidders? (That isn't necessarily what economists think...)

Should prices clear markets for emergency medical supplies? Many economists don't think so:

Prices of Medical Supplies

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