Investment Incentives in Truthful Approximation Mechanisms by Akbarpour, Kominers, Li, Li and Milgrom

Computationally intractable optimization problems often allow approximate solutions that are 'close enough' to the optimal solution.  But these approximation algorithms can radically change the incentives to the participants, or not.  Here's a paper on frontier of market design and computer science, from the KIT — Paris — ZEW Workshop on Market Design from June 2022.

Investment Incentives in Truthful Approximation Mechanisms, by Mohammad Akbarpour, Scott Duke Kominers, Kevin Michael Li, Shengwu Li, and Paul Milgrom.   May 16, 2022

"Abstract: We study investment incentives in truthful mechanisms that allocate resources using approximation algorithms instead of exact optimization. In such mechanisms, the price a bidder pays to acquire resources is generally not equal to the change in other bidders’ welfare—and these externalities skew investment incentives. Some allocation algorithms are arbitrarily close to efficient, but create such perverse investment incentives that their worst-case welfare guarantees fall to zero when bidders can invest before participating in the mechanism. We show that an algorithm’s guarantees in the allocation and investment problems coincide if and only if that algorithm’s “confirming” negative externalities are sufficiently small. Algorithms that exclude confirming negative externalities entirely (XCONE algorithms) thus have the same worst-case performance for the allocation and investment problems."

 

A "confirming" negative externality is an investment that doesn't change the investor's allocation but imposes a negative externality on the market.

Crowd control of misinformation, by limiting fast forwarding, by Jackson, Malladi and McAdams in PNAS

 Here's a paper in PNAS about limiting the spread of misinformation by changing the network of information flows:

Learning through the grapevine and the impact of the breadth and depth of social networks by Matthew O. Jackson, Suraj Malladi, and David McAdams

"Abstract: We study how communication platforms can improve social learning without censoring or fact-checking messages, when they have members who deliberately and/or inadvertently distort information. Message fidelity depends on social network depth (how many times information can be relayed) and breadth (the number of others with whom a typical user shares information). We characterize how the expected number of true minus false messages depends on breadth and depth of the network and the noise structure. Message fidelity can be improved by capping depth or, if that is not possible, limiting breadth, e.g., by capping the number of people to whom someone can forward a given message. Although caps reduce total communication, they increase the fraction of received messages that have traveled shorter distances and have had less opportunity to be altered, thereby increasing the signal-to-noise ratio."

Matching in Dynamic Imbalanced Markets, by Ashlagi, Nikzad, and Strack

 Greedy is good in thick kidney exchange pools.

Matching in Dynamic Imbalanced Markets,  by Itai Ashlagi, Afshin Nikzad, Philipp Strack Aug 2022 (Early Access) | REVIEW OF ECONOMIC STUDIES  (ungated on arxiv, here.)

Abstract: We study dynamic matching in exchange markets with easy- and hard-to-match agents. A greedy policy, which attempts to match agents upon arrival, ignores the positive externality that waiting agents provide by facilitating future matchings. We prove that the trade-off between a “thicker” market and faster matching vanishes in large markets; the greedy policy leads to shorter waiting times and more agents matched than any other policy. We empirically confirm these findings in data from the National Kidney Registry. Greedy matching achieves as many transplants as commonly used policies (1.8% more than monthly batching) and shorter waiting times (16 days faster than monthly batching).

Patient preferences for taking an offered kidney versus waiting for a better one

 Here's a paper whose title announces in its first two words that it's unusual for the transplant literature: "Patient Preferences."   It sensibly asks about preferences for a transplant now versus a long future wait.  That's relevant, because the waiting list for a kidney is often years long.

Patient Preferences for Waiting Time and Kidney Quality, by Sanjay Mehrotra, Juan Marcos Gonzalez, Karolina Schantz, Jui-Chen Yang, John J. Friedewald and Richard Knight, CJASN Aug 2022, CJN.01480222; DOI: 10.2215/CJN.01480222

Visual Abstract

Abstract

"Background and objectives Approximately 20% of deceased donor kidneys are discarded each year in the United States. Some of these kidneys could benefit patients who are waitlisted. Understanding patient preferences regarding accepting marginal-quality kidneys could help more of the currently discarded kidneys be transplanted.

Design, setting, participants, & measurements This study uses a discrete choice experiment that presents a deceased donor kidney to patients who are waiting for, or have received, a kidney transplant. The choices involve trade-offs between accepting a kidney today or a future kidney. The options were designed experimentally to quantify the relative importance of kidney quality (expected graft survival and level of kidney function) and waiting time. Choices were analyzed using a random-parameters logit model and latent-class analysis.

Results In total, 605 participants completed the discrete choice experiment. Respondents made trade-offs between kidney quality and waiting time. The average respondent would accept a kidney today, with 6.5 years of expected graft survival (95% confidence interval, 5.9 to 7.0), to avoid waiting 2 additional years for a kidney, with 11 years of expected graft survival. Three patient-preference classes were identified. Class 1 was averse to additional waiting time, but still responsive to improvements in kidney quality. Class 2 was less willing to accept increases in waiting time for improvements in kidney quality. Class 3 was willing to accept increases in waiting time even for small improvements in kidney quality. Relative to class 1, respondents in class 3 were likely to be age ≤61 years and to be waitlisted before starting dialysis, and respondents in class 2 were more likely to be older, Black, not have a college degree, and have lower Karnofsky performance status.

Conclusions Participants preferred accepting a lower-quality kidney in return for shorter waiting time, particularly those who were older and had lower functional status."

HT: Martha Gershun

Learning and competition in the lab, in France, and in India

 Three NBER working papers this week particularly caught my eye: a lab experiment, a natural experiment, and a field experiment.

The first is a reminder of why simple reinforcement learning models have as much predictive power as they do. It's an experiment that shows that even when others' experience is made clearly visible, there's a tendency to rely on 'own experience'.

Not Learning from Others by John J. Conlon, Malavika Mani, Gautam Rao, Matthew W. Ridley & Frank Schilbach  WORKING PAPER 30378 DOI 10.3386/w30378 August 2022

Abstract: We provide evidence of a powerful barrier to social learning: people are much less sensitive to information others discover compared to equally-relevant information they discover themselves. In a series of incentivized lab experiments, we ask participants to guess the color composition of balls in an urn after drawing balls with replacement. Participants' guesses are substantially less sensitive to draws made by another player compared to draws made themselves. This result holds when others' signals must be learned through discussion, when they are perfectly communicated by the experimenter, and even when participants see their teammate drawing balls from the urn with their own eyes. We find a crucial role for taking some action to generate one's `own' information, and rule out distrust, confusion, errors in probabilistic thinking, up-front inattention and imperfect recall as channels.

******

The second is a careful study of affirmative action for women in French chess tournaments: a requirement that teams include a woman had many effects, including improvement in the quality of play by French women.

Trickle-Down Effects of Affirmative Action: A Case Study in France by José De Sousa & Muriel Niederle, WORKING PAPER 30367 DOI 10.3386/w30367 August 2022

Abstract: "The introduction of a quota in the French chess Club Championship in 1990, an activity many players engage in next to playing in individual tournaments, provides a quite unique environment to study its effects on three levels. We find that women selected by the quota improve their performance. We show large spillover and trickle-down effects: There are more and better qualified women. International comparisons confirm that the results are unique to France and that there are no substantial adverse effects on French male players. We discuss the properties of this quota and how to implement it in other environments."

The concluding paragraph:

"We speculate that one reason for the success of the French chess quota was due to the fact that it was an “output” rather than a “pure representation” quota. At least one ninth of the performance of teams in the Club Championship was determined by the performance of female players. Such an “output” based quota provides organization with different incentives than a pure representation quota does. We use economic departments to discuss the different gender quotas and how each of them might be implemented. We hope that future work will provide theoretical properties of various quotas as well as find other areas where output quotas are already, or could be, implemented."

*********

The third is about the difficulty of inducing competition in close quarters.

Does the Invisible Hand Efficiently Guide Entry and Exit? Evidence from a Vegetable Market Experiment in India by Abhijit Banerjee, Greg Fischer, Dean Karlan, Matt Lowe & Benjamin N. Roth, WORKING PAPER 30360 DOI 10.3386/w30360, August 2022

Abstract: "What accounts for the ubiquity of small vendors operating side-by-side in the urban centers of developing countries? Why don’t competitive forces drive some vendors out of the market? We ran an experiment in Kolkata vegetable markets in which we induced (via subsidizing) some vendors to sell additional produce. The vendors earned higher profits, even when excluding the value of the subsidy. Nevertheless, after the subsidies ended vendors largely stopped selling the additional produce. Our results are consistent with collusion and inertial business practices suppressing competition and efficient market exit."

Returning to your place in the queue following a failed kidney transplant

 Here's a forthcoming paper that proposes that rejections of marginal kidneys could be reduced if recipients were guaranteed a shorter waiting time for a subsequent transplant if a marginal kidney that they accepted failed.

Tunç, Sait, Burhaneddin Sandıkçı, and Bekir Tanrıöver. "A Simple Incentive Mechanism to Alleviate the Burden of Organ Wastage in Transplantation." Management Science (2022).

Abstract: Despite efforts to increase the supply of donated organs for transplantation, organ shortages persist. We study the problem of organ wastage in a queueing-theoretic framework. We establish that self-interested individuals set their utilization levels more conservatively in equilibrium than the socially efficient level. To reduce the resulting gap, we offer an incentive mechanism that recompenses candidates returning to the waitlist for retransplantation, who have accepted a predefined set of organs, for giving up their position in the waitlist and show that it increases the equilibrium utilization of organs whilealso improving social welfare. Furthermore, the degree of improvement increases monotonically with the level of this nonmonetary compensation provided by the mechanism. In practice, this mechanism can be implemented by preserving some fraction of the waiting time previously accumulated by returning candidates. A detailed numerical study for the U.S. renal transplant system suggests that such an incentive helps significantly reduce the kidney discard rate (baseline: 17.4%). Depending on the strength of the population’s response to the mechanism, the discard rate can be as low as 6.2% (strong response), 12.4%(moderate response), or 15.1% (weak response), which translates to 1,630, 724, or 338 more  transplants per year, respectively. Although the average quality of transplanted kidneys deteriorates slightly, the resulting graft survival one-year post transplant remains stable around 94.8% versus 95.0% for the baseline. We find that the optimal Kidney Donor Profile Index score cutoff, defining the set of incentivized kidneys, is around 85%, which coincides with the generally accepted definition of marginal kidneys in the medical community."

Are sociology and economics coming closer together? Philippe Steiner in Acta Oeconomica

 Professor Philippe Steiner, of the Groupe d’Etudes des Méthodes de l’Analyse Sociologique de la Sorbonne, thinks that these days sociology and economics may be coming closer to each other than they have for some time.

New economic sociology and economic theory by Philippe Steiner, Acta Oeconomica 72 (2022) S1, 23–40  DOI: 10.1556/032.2022.00017

"Abstract: The paper begins with a brief reminder of the origin of economic sociology. It then surveys research by economic sociologists from the 1980s to the present, with a focus on their relation to political economy, which ranges from close to arm's length. Finally, beyond any differences between economic theory and economic sociology, the paper considers how both approaches can be connected in the socio-historical and economic study of economic inequalities by Thomas Piketty, and the use of matching markets by Alvin Roth."

...

"In the final part the paper seeks to show that economists have developed approaches that permit a fruitful combination of sociology and political economy, even using some of the more technical aspects of modern economics.

...

"After the 1930s economic sociology lost its appeal for economists, as well as sociologists, and gave way to the “Parsonian peace” according to which economists deal with value, while sociologists deal with values (Stark 2009: 7).

...

"There was a revival of economic sociology during the 1970s on both sides of the Atlantic. In the United States, this began with Mark Granovetter’s work on the labor market (Granovetter 1974), and then with a new interpretation of the social embeddedness of the market (Granovetter 1985). This was something that Polanyi had stressed in his book, noting the catastrophic consequences that follow the management of humanity, nature and politics as if they were market goods (labor, land and money) regulated by “supply and demand” in their respective markets. In the same period, Viviana Zelizer (1979, 1985) brought the sociology of culture closer to the sociology of economic life. In Europe, Pierre Bourdieu proposed a new interpretation of the market for cultural goods (or symbolic goods), to explain the functioning of the art market (Bourdieu 1971).

"As regards the relation to economic theory, the new economic sociology unfolds along four axes: (i) Granovetter established a close and direct relationship between economic sociology and the neo-classical theory of job search, together with the theory of transaction costs; (ii) Zelizer distanced herself completely from economic theory, although her sociology of economic life deals with central economic phenomena such as insurance, money, and law; (iii) Neil Fligstein developed an economic sociology close to institutionalist political economy, focusing on key institutions of the market, notably those regulating competition; finally, (iv) Bourdieu employed an original conceptualization of fields in order to explain the functioning of the markets of symbolic goods (fashion, painting, literature), while at the same time developing a methodological criticism of economic theory.

...

"In the case of the creation of the life insurance market in the United States, Zelizer started from the following paradox: while changes in social structure – fewer landowners, less mutual aid between neighbors – made it increasingly rational to insure one’s life to avoid leaving one’s wife and children destitute in the event of premature death, the life insurance market remained sluggish during the 19th century compared to what it was in Great Britain and in France. How do we explain this apparent lack of self-interested behavior in American male breadwinners? Zelizer’s answer employed several cultural arguments, including one based on the relationship to religion. During this period there was a widespread idea that to insure oneself against premature death was to oppose the will of God, even to not trust his wisdom. This was the reason for the reluctance to accept this new market product, the life insurance contract. A strength of her argument is also that she is careful not to oppose social behavior and self-interested economic behavior head-on. In fact, two phenomena directly linked to religion intervene to modify this cultural relationship to life insurance. First, she points to the fact that the religious sects that sent pastors to frontier regions took out life insurance on them so that the sect would not have to take care of their families if they died – a financial interest played its part in religious institutions. Second, she notes a reversal in the religious discourse on life insurance. In the beginning of the 20th century not only preachers, but also the rhetoric of insurance salesmen emphasized that the good father is he who takes precautions against premature death, hence this good father must be insured. Both culture and the economy began to structure behaviors that promoted a developing insurance market.

...

"While economists continued to employ the hypothesis of rationality, this is no longer central to the discourse of economic sociologists; the idea that economists are remote from the historical and social dimension has also lost its intensity. Instead, other criticisms have emerged, especially associated with the idea of performativity. At present there is neither conflict, or mutual indifference. Indeed, in several fields there are signs of an explicit or implicit rapprochement. I would like to mention two in particular.

"First of all, given the capacity of modern computers to process large databases, economists can deploy econometric tools in ways that accurately account for historical and social facts, as Thomas Piketty (1998, 2013, 2019) does. Second, by pursuing the strategy of economic engineering proposed by Alvin Roth (2002), economists take up the practical work of constructing institutions of exchange, exemplified by design economics and matching markets economists, developing what sociological economists have called the economic performation of the economy by economics (Callon 1998; MacKenzie et al. 2007)"

**********

Earlier

Thursday, January 6, 2022

The design and performation of markets: a discussion, by Michel Callon and Alvin Roth in the AMS Review

MEDIEVAL MATCHING MARKETS by Lars Boerner and Daniel Quint

 As I'll explain below, here's a long-awaited paper that fully qualifies for that description:

MEDIEVAL MATCHING MARKETS by Lars Boerner and Daniel Quint, International Economic Review, First published: 15 July 2022 https://doi.org/10.1111/iere.12600

Abstract: We study the regulation of brokerage in wholesale markets in premodern Central Western Europe. Examining 1,804 sets of rules from 82 cities, we find brokerage was primarily a centralized matchmaking mechanism. Brokerage was more common in towns with larger populations, better access to sea ports and trade routes, and greater political autonomy. Brokers' fee structures varied systematically: price-based fees were more common for highly heterogeneous goods, quantity-based fees for more homogeneous goods. We show theoretically that this was broadly consistent with total surplus maximization, and that brokerage was more valuable in markets with unequal numbers of buyers and sellers.

...

"We investigate how societies organized markets and whether their market policies were well designed to have a positive effect on welfare. We look at one important type of regulated allocation process, the organization of intermediation in the form of brokerage, primarily in wholesale markets. Regulated intermediation first appeared in European towns during the second half of the 13th century. Early regulations can particularly be found in Italy and the Lower Countries (van Houtte, 1936; Rezzara, 1903). However, a comprehensive quantitative study on the origin, spread and development of the brokerage institution is missing so far. Origins of brokerage have been linked to the urbanization process of the 13th century (van Houtte, 1936); whether it can be related to preceding medieval Arabic merchant institutions or Roman law is an open debate (van Houtte, 1936; Lieber, 1968).

"We study 231 cities in Central and Western Europe, roughly in the area of the Holy Roman Empire north of the Alps, during the period from 1200 to 1700. This area and period are particularly appealing for empirical investigation because local municipalities were typically economically and politically autonomous. Thus, each city could implement its own types of regulations and allocation mechanisms, leading to potentially rich variation in detail.

"We identify cities with (and without) brokerage regulations and find in cities with regulations a dominant brokerage design with specific combinations of rules. The dominant design was a sort of centralized matchmaking mechanism: a few licensed brokers specializing in a particular product were given the exclusive right to offer a service pairing mainly foreign merchants with local buyers, and their behavior was strictly regulated. Brokers were not allowed to do any business on their own behalf and were restricted in what information they could disclose. The brokerage service was open to everybody, to the rich and poor, and to foreign and local merchants. Brokers received a predefined fee based on the transactions they generated—most commonly either a fixed fee per unit traded or a fixed fraction of the sales price."

**********

I normally don't blog about papers twice, i.e. if I've blogged about the working paper I don't blog again about the published paper.  But this one has changed since I first blogged about it, and it implicitly tells us something about the current (but still medieval) publication system in Economics, since that was more than a decade ago. Here's the earlier (2011) blog.

Wednesday, February 16, 2011

Medieval Matching Markets

Jobs and spouses in Denmark

 Matching is both consequential and difficult: it is how we sort into jobs and careers, and marriages and families.  Here's a paper that looks at the relationship between those two matching markets, taking advantage of the fact that Danish medical grads get random priorities, which determine their early-career job matches.

Causal Effects of Early Career Sorting on Labor and Marriage Market Choices: A Foundation for Gender Disparities and Norms  by Itzik Fadlon, Frederik Plesner Lyngse & Torben Heien Nielsen, NBER WORKING PAPER 28245, DOI 10.3386/w28245 ISSUE DATE December 2020, REVISION DATE July 2022

Abstract: "We study whether and how early labor market choices determine longer-run career versus family outcomes differentially for male and female professionals. We analyze the physician labor market by exploiting a randomized lottery that determines the sorting of Danish physicians into internships across local labor markets. Using administrative data spanning ten years after physicians’ graduations, we find causal effects of early-career sorting on a range of life cycle outcomes that cascade from labor market choices, including human capital accumulation and occupational choice, to marriage market choices, including matching and fertility. The persistent effects are entirely concentrated among women, whereas men experience only temporary career disruptions. The evidence points to differential family-career tradeoffs and the mentorship employers provide as channels underlying this gender divergence. Our findings have implications for policies aimed at gender equality in outcomes, as they reveal how persistent gaps can arise even in institutionally gender-neutral settings with early-stage equality of opportunity."

"placement into medical internships—i.e., physicians’ first jobs—is governed in Denmark by a purely randomized lottery ... As we verify, students with the best lottery ranks,who are the ones that choose  first,are  effectively  unrestricted in their  choices  and  are assigned  their  highest priorities,whereas students with the worst lottery ranks,who are the ones that choose last and well after their choice sets have narrowed, are assigned their lowest priorities.

...

"we exploit a novel dataset that combines the formal lottery data we have digitized with a range of administrative datasets on all medical doctors in Denmark. ... we can link households using spousal and parent-child linkages to investigate family formation and fertility. Together, the data allow us to study a wide range of lifecycle choices, in both the labor market and the marriage market, which provides us with the unique advantage of conducting a comprehensive analysis on the broad potential causal effects of early careerson work versus family tradeoffs. The data allow us to track our sample over a long period of up to ten years after the treatment.

...

"We show that the women who have more children due to the treatment also invest less in human capital, and that their location decisions reflect family considerations as they show increased propensity to live near grandparents. This is consistent with women crowding out long-run career goals for more family-oriented choices as  a  result  of  unfavorable early-career placements.  In  comparison,  men engage in career-oriented actions in response to unfavorable placements,which help them fend off potential adverse effects. .... the data are strongly inconsistent with differential preferences  over  entry-level  positions as  a  channel. Males  and  females  reveal  very  similar  aggregate preferences in their choices over entry-level markets and positions.

The Allocation of Food to Food Banks by Canice Prendergast in the JPE

 The Allocation of Food to Food Banks by Canice Prendergast, Journal of Political Economy 130, 8, 1993-2017.

Abstract: "Feeding America allocates donated food to over 200 food banks. In 2005, it transitioned from a queueing mechanism to one where food banks use a specialized currency to bid for food. Food banks chose very different food than they received before. Small food banks acquired 72% more pounds per client than large food banks at little nutritional cost. This reallocation of food is estimated to have increased its value by 21%, or $115 million per annum. Food banks also sourced food much closer, saving an additional $16 million per annum. Finally, donations of food rose by over 100 million pounds."

"The old assignment algorithm gave each food bank an equal number of (random) pounds of food per needy client. This was problematic for a variety of reasons, despite its perceived fairness. First, food banks differ in their needs. The [old assignment algorithm] allocated an average of 10% of food distributed to food banks, but Feeding America knew little about the other food. This was further complicated by food richness, where some food banks had better access to outside food donations and had different residual needs. Second, food was randomly assigned on the basis of geography, leading to high transportation costs. Third, the allocation system was slow and deterred some donations. 

"Instead of equal pounds per client, the Choice System gives food banks an equal number of shares per client. These are used to bid in first-price sealed bid auctions, run twice a day. Shares can be saved and borrowed, and any shares spent on a given day are recirculated back to food banks that night. Bids can be negative, a feature used to ease donor relations. Through this mechanism, shares allow a food bank to match its purchases to both its permanent and transitory needs and to the geographic location of the donor.

"Despite the benefits that choice allows, many of the practitioners involved in the redesign were initially skeptical of a market-based system. Their concerns were primarily focused on the fear that smaller or less sophisticated food banks would suffer. To ensure equity across food banks, a series of safeguards outlined below were used, among them access to credit and the ability to bid jointly with other food banks. 

"The Choice System went live on July 1, 2005. We consider a variety of outcomes from 2002 to 2011. A feature of the design is that any food bank can purchase its old allocation, assuming that food banks face common prices. As a result, all food banks are at least as well off as before. This assumes that transactions costs are low enough that all food banks engaged with Choice, and a concern raised was that smaller food banks may not do so. We show that food banks quickly engaged, bidding over 200 times a year and winning more than 70 times. Furthermore, small food banks bid more per client than do large ones. We also show that the safeguards implemented to encourage the participation of small food banks were used as intended. We then quantify how different outcomes were under Choice. "

**********

Earlier:

Tuesday, December 4, 2018

Feeding America: Podcast on HBS case study of Canice Prendergast and Feeding America

Friday, November 13, 2015

Canice Prendergast on The Allocation of Food to Food Banks

Drugs, drug regulation, and chemistry: the case of nicotine (following Rob Jackler)

 My Stanford colleague Dr. Rob Jackler has a longstanding interest in nicotine as an addictive drug that continues to be effectively marketed and ineffectively regulated.

Lately he's been concerned with novel delivery systems, such as the non-combustion vaping devices offered by sellers like Juul (which  has recently been on a regulatory roller coaster.)

You can find many of his papers at the Stanford Research into the Impact of Tobacco Advertising (SRITA) site.  The most recent of these papers concerns the fact that a lot of regulation is focused on "tobacco products," but that nicotine itself--the addictive chemical in tobacco--has been successfully synthesized in the lab, and so can be marketed as a "tobacco free" product.

Here's a recent NY Times article on his work:

The Loophole That’s Fueling a Return to Teenage Vaping. Sales are rising of flavored e-cigarettes using synthetic nicotine that evades regulatory oversight, a gap that lawmakers are now trying to close.  By Christina Jewett

And here's the paper:

Marketing of “Tobacco-Free” and “Synthetic Nicotine” Products. Ramamurthi D, Chau C, Lu Z, Rughoobur I, Sanaie K, Krishna P, Jackler RK. SRITA White Paper. March 8, 2022.

"Executive Summary:

• A 2009 US law assigned tobacco regulation to the FDA, created its Center for Tobacco Products, and defined a tobacco product as derived from any component of the tobacco plant.

• As the September 2020 deadline for submission of application to the for FDA authorization of novel tobacco products (PMTA) approached, major tobacco companies submitted application for their brands, but innumerable smaller companies lacked the resources needed to undertake the extensive studies required.

• In an effort to circumvent FDA tobacco regulations, and thus exempt their products from the PMTA process, numerous brands claimed to be formulated with tobacco-free and/or synthetic nicotine.

• Following the late 2021denial of their PMTA applications, some brands which were ordered off the market promptly relaunched claiming that they had been reformulated with tobacco-free or synthetic nicotine.

• Brands claiming to use non-tobacco derived nicotine are offered in a wide array of youth-appealing sweet & fruity flavors – which have been systematically denied market authorization during the ongoing FDA PMTA process.

• Synthetic nicotine is currently expensive, costing approximately 4x tobacco derived nicotine. 

• While residuals from tobacco leaf derived nicotine are well known, byproducts of the chemical synthesis of nicotine have not been characterized for potential human toxicity and carcinogenicity.

• Justified by concerns for unknown safety risk, the FDA should insist upon toxicity/carcinogenicity studies of synthetic nicotine products before they are marketed.

• The FDA should also consider systematic testing of products claiming to be tobacco-free as at least a portion of them may prove to have chemical signatures indicative of tobacco origin.

• Some brands marketed as “tobacco-free” or “tobacco leaf-free” use a purified form of tobacco derived nicotine and thus are legally tobacco products under US law and thus subject to the PMTA requirements.

• Terms describing nicotine products as “tobacco-free,” “non-tobacco,” and “zero tobacco” need regulation as consumers may perceive such products as having reduced addictive potential.

• Marketing claims such as “clean,” “pure,” and “free of carcinogens” should be disallowed absent modified risk designation by the FDA.

• “Tobacco-free” nicotine brands have been allowed to post paid advertisements, and are widely sold on major online stores (e.g., Amazon, eBay, Google Shopping), which prohibit sale of all tobacco products.

• Underage sales of “tobacco-free” nicotine products are common via major online stores.

• As it is a potently addictive substance, and harmful to the developing adolescent brain, there is no justification for nicotine, regardless of its source, to be exempt from regulation.

• The synthetic nicotine regulatory loophole should be closed by designating such products as unauthorized drugs requiring pre-market authorization. "

********

Congress closed the synthetic nicotine loophole in March, and since July 2022 synthetic nicotine products can only be on the market if they have been authorized by the FDA – none have been so yet.   Here's the story from the Washington Post:

Congress moves to give FDA new powers over synthetic nicotine products including a youth favorite — Puff Bar e-cigarettes By Laurie McGinley, March 8, 2022

**********

There have also been bans on flavored nicotine, aimed at children as well as adults. These may be doomed to be at least partly ineffective. Menthol flavored cigarettes are likely to be banned in the U.S., and have already been banned in Britain and elsewhere. But just as cocktail mixes can be sold separately from alcohol (but ready to mix), so apparently can flavorings for cigarettes and e-cigarettes... e.g. search for "menthol flavour cards for cigarettes" or "menthol crush balls" to see how to add menthol back into your smokes in England.

Here's a recent NBER working paper comparing menthol smokers to non-menthol smokers:

Are Menthol Smokers Different? An Economic Perspective, by Yu-Chun Cheng, Donald S. Kenkel, Alan D. Mathios & Hua Wang, WORKING PAPER 30286, DOI 10.3386/w30286, July 2022

 **********

And here's an old NYT story in which Rob describes himself as “an accidental tourist in the world of advertising.”

When Doctors, and Even Santa, Endorsed Tobacco, By Stuart Elliott, Oct. 6, 2008

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earlier: 

Sunday, January 30, 2022

Chemistry is replacing agriculture in the supply of black market drugs

Sunday, May 2, 2021

Repugnance as paternalism: bans on flavored tobacco products

Tuesday, February 12, 2019

The new market for (and marketing of) nicotine--Robert Jackler (followed by the CDC)

The (local) labor markets for terrorists and drug traffickers

 It's so hard to hire good help nowadays, but two papers in the latest Econometrica give us some insight into how that problem is solved in the labor markets for terrorists, and for narcotics.

First terrorism, which turns out to have a local financing element, suggesting frictions in moving money and terrorists...

TERRORISM FINANCING, RECRUITMENT, AND ATTACKS, by NICOLA LIMODIO, Econometrica, Vol. 90, No. 4 (July, 2022), 1711–1742

Abstract: This  paper  investigates  the  effect  of  terrorism  financing  and  recruitment  on  attacks. I exploit a Sharia-compliant institution in Pakistan, which induces unintended and quasi-experimental variation in the funding of terrorist groups through their religious affiliation. The results indicate that higher terrorism financing, in a given location and period, generate more attacks in the same location and period. Financing exhibits a complementarity in producing attacks with terrorist recruitment, measured through data from Jihadist-friendly online fora and machine learning. A higher supply of terror is responsible for the increase in attacks and is identified by studying groups with different affiliations operating in multiple cities. These findings are consistent with terrorist organizations facing financial frictions to their internal capital market.

"I study two aspects of the relationship between terrorism financing and attacks: (1) the correlation between the timing of financing and attacks; (2) the relation between financing and recruitment in generating attacks. To investigate the first point, I follow 1750 cities over 588 months between 1970 and 2018 containing the universe of terrorist attacks (e.g.,more than 14,000 events). I also build a panel with 29 terrorist groups operating in the same number of cities and the same period. To study the second point, I combine data from multiple online fora active in Pakistan disseminating Jihadist-friendly material with the work of two judges and a machine-learning algorithm, leveraging novel techniques from the computer science literature.

"The  natural  experiment  affects  a  specific  form  of  charitable  donation  and  terrorism financing through an Islamic institution: the Zakat. During Ramadan, Muslim individuals offer this Sharia-compliant contribution to philanthropic causes. While the amount is a personal choice, the Pakistani government collects a mandatory payment through a levy on bank deposits applied immediately before Ramadan.1When the tax hits fewer people due to its unique design, there is an increase in donations. This expansion in charitable donations boosts the probability that funds reach terrorist organizations due to multiple extremist groups having a legal charity branch.2 This unintended channel through which the design of the Zakat levy promotes terrorism financing has also been acknowledged by Pakistani government officials in the past.#"

# (cited newspaper article):"Information Minister Pervaiz Rashid has advised people to pay Zakat and charity to institutions which save lives and not to those producing suicide bombers."

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And then there's narcotics production and narco-terrorism, which to some extent runs in families.  The paper begins with this quote:

"The only way to survive, to buy food, was to grow poppy and marijuana, and from the age of 15, I began to grow, harvest, and sell.– Joaquin “El Chapo” Guzman, when asked how he became the leader of the Sinaloa drug cartel"

Making a Narco: Childhood Exposure to Illegal Labor Markets and Criminal Life Paths, by Maria Micaela Sviatschi, https://doi.org/10.3982/ECTA17082, ECONOMETRICA: JUL 2022, VOLUME 90, ISSUE 4, p. 1835-1878

Abstract: This paper provides evidence that exposure to illegal labor markets during childhood leads to the formation of industry‐specific human capital at an early age, putting children on a criminal life path. Using the timing of U.S. antidrug policies, I show that when the return to illegal activities increases in coca suitable areas in Peru, parents increase the use of child labor for coca farming, putting children on a criminal life path. Using administrative records, I show that affected children are about 30% more likely to be incarcerated for violent and drug‐related crimes as adults. No effect in criminality is found for individuals that grow up working in places where the coca produced goes primarily to the legal sector, suggesting that it is the accumulation of human capital specific to the illegal industry that fosters criminal careers. However, the rollout of a conditional cash transfer program that encourages schooling mitigates the effects of exposure to illegal industries, providing further evidence on the mechanisms.

"To establish these results, I take advantage of drug enforcement policies in Colombia that shifted coca leaf production to Peru, where 90% of coca production is used to produce cocaine. In particular, in 1999, Colombia, then the world’s largest cocaine producer, implemented Plan Colombia, a U.S.-supported military-based interdiction intervention.One of the main components was the aerial spraying of coca crops in Colombia. This intervention resulted in higher prices and expanded coca production in Peru, where production doubled in districts with the optimal agroecological conditions.2 By 2012, Peru had become the largest producer of cocaine in the world.3 

"This setting yields three useful sources of variation: (i) geographic variation in coca growing  in  Peru,  (ii)  over  time  variation  in  coca  prices  induced  by  Colombian  shocks, and (iii) variation in the age of exposure, exploiting the fact that in Peru children are more  likely  to  drop  out  from  school  in  the  transition  between  primary  and  secondary education at the ages 11–14. I thus define age-specific shocks by interacting coca suitability measures and prices. Differential exposure by age arises since children within a district or village experience the changes in coca prices at different ages and due to variation in coca suitability across districts, villages, and schools."

Efficient school choice when schools are not players: Phil Reny in the AER

 In some school choice systems, such as in New York City, the schools (represented e.g. by the school principals) as well as the students and families are strategic players. I think the weight of the evidence in those cases clearly points to the importance of having stable matchings, to forestall various forms of strategic behavior by blocking pairs.  

But in many school choice systems the individual schools (although not necessarily the school district) are not strategic players. In those, the school choice problem can usefully be viewed as a problem of allocating objects, namely school places, and only the students and their families are participants for whom we should have incentive and welfare concerns. In these cases, pairwise stability of the matching may be a fairness consideration, but not one with critical strategic or welfare implications.  A Pareto improvement in this case is one that improves matches according to student preferences--the priorities that schools have over students are part of the mechanism, but they don't have welfare consequences.

Here's a nice recent paper by Phil Reny which considers that latter situation, and investigates an outcome that improves student welfare compared to stable matchings, while still making a substantial bow to fairness of the sort captured by stability.  His results give new insight into the mechanism proposed by Onur Kestin in his famous 2010 paper in the QJE*.

Reny, Philip J. "Efficient Matching in the School Choice Problem." American Economic Review 112, no. 6 (2022): 2025-43.

Abstract: "Stable matchings in school choice needn’t be Pareto efficient and can leave thousands of students worse off than necessary. Call a matching μ priority-neutral if no matching can make any student whose priority is violated by μ better off without violating the priority of some student who is made worse off. Call a matching priority-efficient if it is priority-neutral and Pareto efficient. We show that there is a unique priority-efficient matching and that it dominates every priority-neutral matching and every stable matching. for every student in the mechanism that selects the priority-efficient matching"

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*Kesten, Onur. "School choice with consent." The Quarterly Journal of Economics 125, no. 3 (2010): 1297-1348.

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So I think we're now seeing a dialog between two approaches to improving student welfare in school choice environments in which pairwise stability (avoiding blocking pairs consisting of schools and students/families) doesn't seem critical to success (i.e. environments in which schools aren't able to participate in blocking pairs).  Reny and Kesten present a path towards doing that while paying a lot of respect to the priorities that schools have for students. (The success of the deferred acceptance algorithm even in these environments may have a lot to do with the fact that school administrators are often quite invested in the priorities that schools are specified to have over students, since these are intended to shape who goes to which schools.)

The alternative approach looks at an efficient and strategy-proof mechanism like top trading cycles  (TTC) that pays some respect to those priorities, but not at the expense of strategy-proofness, i.e. while keeping it completely safe for students/families to state their true preferences straightforwardly.

For that discussion, see this previous post:

Wednesday, December 9, 2020

Top trading cycles (and recollections of New Orleans), in AER:Insights, by Abdulkadiroğlu, Che, Pathak, Roth and Tercieux

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Update: Péter Biró alerts me to this recent paper that also relates to my concluding comments above.

Biró, P. and Gudmundsson, J., 2021. Complexity of finding Pareto-efficient allocations of highest welfare. European Journal of Operational Research, 291(2), pp.614-628.

Abstract: We allocate objects to agents as exemplified primarily by school choice. Welfare judgments of the object-allocating agency are encoded as edge weights in the acceptability graph. The welfare of an allocation is the sum of its edge weights. We introduce the constrained welfare-maximizing solution, which is the allocation of highest welfare among the Pareto-efficient allocations. We identify conditions under which this solution is easily determined from a computational point of view. For the unrestricted case, we formulate an integer program and find this to be viable in practice as it quickly solves a real-world instance of kindergarten allocation and large-scale simulated instances. Incentives to report preferences truthfully are discussed briefly.

School choice in Amsterdam: a counterfactual analysis

 Forthcoming in the JPE (It looks like the refereeing process worked its magic on this paper, whose first version was distributed in 2015...):

Haan, Monique De, Pieter Gautier, Hessel Oosterbeek, and Bas Van der Klaauw. "The performance of school assignment mechanisms in practice." 

This is the author’s accepted manuscript without copyediting, formatting, or final corrections. It will be published in its final form in an upcoming issue of Journal of Political Economy, published by The University of Chicago Press. Include the DOI when citing or quoting: https://doi.org/10.1086/721230  Copyright 2022 The University of Chicago Press.

Abstract: "We use a unique combination of register and survey data from Amsterdam to investigate the performance of school assignment mechanisms in practice. We find that Deferred Acceptance (DA) results in higher mean welfare than the adaptive Boston mechanism. This is due to students making strategic mistakes. The welfare gain o fa switch from actual Boston to DA is over 90 percent of the welfare difference be-tween actual Boston and optimal (proxy) Boston. Disadvantaged and lower ability students would benefit most from such a switch."

"We contribute to the existing literature by complementing register data of the actual choices of secondary-school students in Amsterdam with survey information from the same students. Students’ actual choices reveal their behavior under the Amsterdam version of the Boston mechanism, where students apply in the first round to one school and ties are broken by lotteries. The survey asks students to rank schools according to their true preferences. For each of the ranked schools, the survey asks students to give preference points that reflect the valuation of these schools relative to the valuation of their most-preferred school. The data enable us to (i) quantify the welfare differences between Boston and DA without making strong assumptions about beliefs and choice behavior,(ii) identify the students who are revealed-strategic under the manipulable mechanism,(iii) identify which students make mistakes in their application choices, separately for students who are revealed-strategic and those who are not, (iv) investigate what type of students are hurt (the most) by making suboptimal choices under the Boston mechanism, and (v) quantify the welfare gain of Boston without mistakes (optimal Boston) relative to actual Boston and DA."

Why kidney exchange needs to be available globally

 The situation of children with kidney failure in low and middle income countries is particularly dire.  Most transplants in LMICs are from living donors. Here's a recent paper  on that, with a case report that makes clear the need for kidney exchange, and for a relaxation of the policies that limit access to transplantation generally. 

Pais, Priya, and Aaron Wightman. "Addressing the Ethical Challenges of Providing Kidney Failure Care for Children: A Global Stance." Frontiers in Pediatrics 10 (2022).

"Case 2: An 11 year old boy with kidney failure due to FSGS* has been on the deceased donor wait-list for 5 years without receiving a transplant. He has no compatible living donors and paired exchange, or ABO incompatible transplants are not accessible. National transplant policies do not allow unrelated living organ donation. The deceased donor transplant rates in the country are very low ..."

HT: Martha Gershun

*Focal segmental glomerulosclerosis

Reducing the costs of preparing for high stakes exams by reporting scores coarsely

 In many countries, national exams serve as the gateway to college admissions and other prizes, and many applicants incur great costs in time and treasure preparing for these exams.  Here's a recent NBER working paper that suggests that reporting the grades in intervals rather than by individual scores has the potential to reduce the costs devoted to exam prep sufficiently to be a Pareto improvement for students, i.e. to make them all better off, even those who obtain the highest grades, if the cost of doing so is sufficiently high.

Pareto Improvements in the Contest for College Admissions by Kala Krishna, Sergey Lychagin, Wojciech Olszewski, Ron Siegel & Chloe Tergiman, NBER WORKING PAPER 30220, DOI 10.3386/w30220, July 2022

Abstract: "College admissions in many countries are based on a centrally administered test. Applicants invest a great deal of resources to improve their performance on the test, and there is growing concern about the large costs associated with these activities. We consider modifying such tests by introducing performance-disclosure policies that pool intervals of performance rankings, and investigate how such policies can improve students’ welfare in a Pareto sense. Pooling affects the equilibrium allocation of studentso colleges, which hurts some students and benefits others, but also affects the effort students exert. We characterize the Pareto frontier of Pareto improving policies, and also identify improvements that are robust to the distribution of college seats.

"We illustrate the potential applicability of our results with an empirical estimation that uses data on college admissions in Turkey. We find that a policy that pools a large fraction of the lowest performing students leads to a Pareto improvement in a contest based on the estimated parameters. We then conduct a laboratory experiment based on the estimated parameters to examine the effect of such pooling on subjects’ behavior. The findings generally support our theoretical predictions. Our work suggests that identifying and introducing Pareto improving performance-disclosure policies may be a feasible and practical way to improve college admissions based on centralized tests."

The paper notes that:

" In many Asian countries, including China, Japan, South Korea, and Taiwan, students attend specialized “cram schools,”1 which focus on improving students’ performance on the tests. This often consists of rote learning, solving a large number of practice problems, and practicing test-taking strategies tailored to the specific test. In other countries, students hire tutors, buy books, and take specialized courses, all geared entirely toward improving their test scores. These activities likely improve students’ performance on the test, but are far less likely to generate substantial long-term improvements in students’ productive human capital. These activities do, however, carry significant costs in terms of time, money, and effort. In South Korea, for example, it is not uncommon for high school students to spend several hours a day in cram schools, and the high stakes competition for college admissions is seen as one of the main causes for the high rates of unhappiness and suicide among teenagers.2 Similar concerns have also been raised in the United States.3"

The paper explains that:

"We are interested in performance-disclosure policies that benefit all students, and refer to such policies as Pareto improving. In particular, we do not need to consider welfare tradeoffs across students. A key finding of our analysis is that Pareto improving policies often exist. This may seem surprising, since a fixed set of college seats implies that a student can be admitted to a better college only if another student is admitted to a worse college. The crucial element that makes Pareto improvements possible is that test preparation is costly. The costs students incur, as well as the resulting college assignment, are determined in equilibrium, and the equilibrium is affected by the performance-disclosure policy. Relative to the baseline contest with no coarsening, introducing a performance-disclosure policy leads to some students being admitted to better colleges; this makes them better off even if they incur higher costs, as long as the cost increase is not too large. Other students are admitted to worse colleges; if they also incur lower costs they are made better off as long as the reduction in the costs is large enough."

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I'm reminded of a paper that suggests that the very best students may not pay the highest costs for exam prep:

Feltovich, Nick, Richmond Harbaugh, and Ted To. "Too cool for school? Signalling and countersignalling." RAND Journal of Economics (2002): 630-649.