I’ve been the Managing Editor of the Journal of Financial Views for the reason that first concern in Summer time 1987. The JEP is revealed by the American Financial Affiliation, which determined again in 2011–to my delight–that the journal can be freely accessible on-line, from the present concern all the way in which again to the primary concern. You may obtain particular person articles or whole points, and it’s accessible in numerous e-reader codecs, too. Right here, I’ll begin with the Desk of Contents for the just-released Spring 2025 concern, which within the Taylor family is called concern #152. Under which are abstracts and direct hyperlinks for the entire papers. I plan to weblog extra particularly about a number of the papers within the few weeks, as nicely.
________
Symposium: Drug Pricing and Regulation
“Financial Markets and Pharmaceutical Innovation,” by Craig Garthwaite
Pharmaceutical improvements attain the market after a protracted and dangerous course of that requires giant, mounted, and sunk investments. Governments present incentives for companies to make these investments via numerous types of mental property safety that try to offer a return on capital for traders. Because of this, pharmaceutical innovation outcomes from an express intersection of public coverage and personal market incentives. Creating optimum coverage subsequently requires understanding market options comparable to how innovation is financed, how companies commercialize pharmaceutical merchandise, the affect of insurance coverage protection on consumption and spending, and the way competitors emerges after mental property safety ends.
“Patents, Innovation, and Competitors in Prescription drugs: The Hatch-Waxman Act after 40 Years,” by C. Scott Hemphill and Bhaven N. Sampat
A central coverage concern in prescription drugs is easy methods to stability the dynamic advantages of recent medication in opposition to the static advantages of low costs for current medication. In the USA, that stability is about by the Hatch-Waxman Act. We evaluation the Act’s origins and key options, then current proof on its results on competitors and innovation. On the competitors facet, we present how the Act creates incentives for manufacturers to build up patents and generics to problem them, with the consequence being a tough stalemate. We additionally focus on methods deployed by manufacturers to delay generic entry. On the innovation facet, we present that the Act’s patent extension provisions—which purpose to permit branded companies to make up for time misplaced throughout scientific trials and regulatory evaluation—are incomplete, leading to potential distortions. The online result’s a convoluted and costly strategy to balancing innovation and competitors.
“Classes for the USA from Pharmaceutical Regulation Overseas,” by Margaret Okay. Kyle
Pharmaceutical markets are characterised by obstacles to entry and knowledge issues. Many nations intervene within the pricing and reimbursement of medicine to a higher extent than the US authorities thus far. Continued strain from politicians and up to date laws are prone to change the marketplace for prescription drugs in the USA. This text discusses the approaches adopted in different developed nations and the implications of their use in the USA, which as a result of its measurement, has far higher affect over the speed and path of innovation. Different coverage selections and the challenges of their implementation are additionally reviewed.
“The Economics of Generic Drug Shortages: The Limits of Competitors,” Rena M. Conti and Marta E. Wosińska
We look at the economics of the US generic prescription drug market, which includes the vast majority of medicines offered. The market is well known for its advantages within the kind of top of the range and low costs for shoppers however can also be more and more challenged by shortages that will disrupt affected person care. Shortages within the generic drug market current an financial puzzle—within the face of a scarcity, costs ought to rise, encouraging entry, but we observe shortages growing in quantity and persistence. Furthermore, if shortages trigger affected person hurt, why don’t markets pay a premium for a dependable provide chain? We argue that the puzzle could be defined by the lack of generic drug costs to regulate simply as a result of regulatory and contracting frictions, and the coexisting presence of uneven data and company issues within the US market. We conclude with a dialogue of coverage interventions geared toward addressing these challenges to make sure resilient US generic drug provide.
Symposium: Revenue Inequality
“Measuring Revenue and Revenue Inequality,” by Conor Clarke and Wojciech Kopczuk
Revenue inequality is vital, however makes an attempt to measure it arrive at strikingly completely different conclusions. Why? We use current disputes over measuring United States earnings inequality to return to first ideas about each the earnings idea and inequality measurement. We emphasize two broad factors. First, no measure of the earnings distribution is actually complete, or might try to be complete with out making controversial selections. We doc the sensible and conceptual issues that the usual supreme—complete Haig-Simons earnings—raises. Second, a lot of the controversy on this space activates the various tradeoffs between beginning with particular person tax information versus extra expansive earnings ideas. Particular person tax information replicate solely a shrinking subset of a extra complete earnings idea–however they’re particular person information. Extra expansive options, alternatively, are tougher to allocate to people. We doc a number of the most vital and contestable assumptions that such an allocation requires.
“Macro Views on Revenue Inequality,” by Matthieu Gomez
Inequality has grow to be a defining problem for contemporary economies and a central focus of financial analysis over the previous twenty years. I start by revisiting the foundations of earnings measurement, exhibiting that normal definitions—taxable earnings, issue earnings, and Haig-Simons earnings—undergo from vital conceptual limitations. I distinction these earnings measures with the best notion of earnings from a welfare perspective—Hicksian earnings—which captures a person’s potential to eat or save for future consumption. I then look at the drivers of rising prime earnings inequality, with specific consideration to the surge in entrepreneurial incomes. I spotlight three key forces behind this phenomenon: increased returns on capital (technological components), decrease exterior financing prices (monetary components), and a lighter tax burden on enterprise homeowners (fiscal components).
“Public Finance Implications of Financial Inequality,” by Alan J. Auerbach
This paper considers questions concerning the implications of rising inequality for the idea and apply of public finance. It begins by addressing elementary explanation why the distribution of earnings or wealth on an annual foundation earlier than taxes and transfers provides inadequate data: (1) it doesn’t inform us what sources are literally accessible to households for consumption; and (2) in offering a snapshot of the sources accessible to people of various ages at a given second in time, with out controlling for life-cycle associated variations or earnings dynamics, it will possibly present a deceptive estimate of the underlying diploma of inequality. The paper then considers the implications of excessive and maybe rising financial inequality for the design of presidency coverage: prime marginal tax charges, phase-outs of presidency insurance policies for these with increased incomes, the political financial system of inequality, and different topics.
Symposium: Bond Markets
“A Hitchhiker’s Information to Federal Reserve Participation in Fastened Revenue Markets,” by Nina Boyarchenko and Or Shachar
We evaluation US dealer-intermediated mounted earnings markets, together with Treasuries, company mortgage-backed securities, company bonds, and municipal bonds. Via the lenses of major sellers’ positions, we present these markets’ evolution over the previous decade and the results of current episodes of abrupt deterioration in market functioning. We then overview how the Federal Reserve interacts with mounted earnings markets for the needs of financial coverage implementation and liquidity interventions. We conclude by discussing the shifting composition of traders in US mounted earnings markets, and what penalties such modifications within the investor base could have for financial coverage transmissions.
“How US Treasuries Can Stay the World’s Secure Haven,” by Darrell Duffie
Weaknesses within the design of the marketplace for US Treasuries have lowered the effectiveness of world’s favored safe-haven asset. For the reason that World Monetary Disaster, the market’s intermediation capability is much extra constrained by the stability sheets of supplier banks, which deal with just about all investor trades. Since 2007, the entire measurement of major supplier stability sheets per greenback of Treasuries excellent has shrunk by an element of 4. This development continues due to giant US fiscal deficits and post-GFC regulatory capital constraints, that are obligatory for monetary stability however restrict the supply of liquidity beneath stress. For US Treasuries to stay a strong secure haven, the intermediation capability of the market will have to be expanded and additional supported by official-sector backstops.
“US Company Bond Markets: Larger and (Possibly) Higher?” by Maureen O’Hara and Xing (Alex) Zhou
The US company bond market has expanded considerably, fueled by digital buying and selling, institutional innovation, and rising retail participation through mutual and exchange-traded funds. These developments have improved effectivity by lowering prices and enhancing transparency, but they’ve additionally launched new vulnerabilities. The market’s shift from relationship-based to transaction-based buying and selling has weakened its potential to soak up stress, particularly in periods of widespread promoting. We look at the structural modifications which have lowered supplier intermediation, the restricted liquidity advantages of digital platforms, and the destabilizing function of fund flows. The COVID-19 disaster uncovered these weaknesses, prompting the Federal Reserve to behave as a “market maker of final resort.” We argue that whereas the market is “higher” in some ways, enhancing resilience via transparency and long-term investor participation is important for future stability.
“Why Is the Fragmented Municipal Bond Market So Expensive to Traders and Issuers” by John M. Griffin, Nicholas Hirschey, and Samuel Kruger
The municipal bond market performs an important function in offering capital to US municipalities and features via a community of underwriters, municipal advisors, credit standing companies, insurers, particular person and institutional traders, and a number of regulators. Many of those market individuals have vital uneven data and conflicting incentive buildings, which may generally result in disparate and seemingly inefficient outcomes. Puzzles documented within the educational literature embody excessive underwriting prices, conflicting roles by municipal advisors, excessive and extensively various commerce markups, funding holdings which are typically not tax-efficient, inconsistent implied marginal tax charges, a heavy reliance on credit score scores, little profit however widespread use of insurance coverage, delayed use of name provisions, and inconsistent therapy of accounting data. We evaluation points within the municipal bond market and suggest implementable solutions that may hopefully permit for a extra aggressive and low-cost marketplace for each taxpayers and traders.
Options
“Retrospectives: Yair Mundlak and the Fastened Results Estimator,” by Marc F. Bellemare and Daniel L. Millimet
We focus on Yair Mundlak’s (1927–2015) contribution to econometrics via the lens of the mounted results estimator. We set the stage by discussing Mundlak’s life and his seminal 1961 article within the Journal of Farm Economics, exhibiting the way it was trying on the proper utility—the research of agricultural productiveness, which had hitherto been regarded as marred by the presence of administration bias—that led Mundlak to make use of the mounted results estimator. After discussing Mundlak’s contribution, we briefly focus on the historic financial and statistical contexts through which he made that contribution. We then spotlight the dialogue that befell between the proponents of mounted versus random results and focus on how Mundlak settled the controversy in his 1978 Econometrica article. We conclude by discussing how, between mounted and random results, the mounted results estimator gained the day, turning into the de facto estimator of selection amongst utilized economists due to the Credibility Revolution, culminating within the recognition these days of difference-in-differences designs and of two-way mounted results estimators.
“Suggestions for Additional Studying,” by Timothy Taylor
I’ve been the Managing Editor of the Journal of Financial Views for the reason that first concern in Summer time 1987. The JEP is revealed by the American Financial Affiliation, which determined again in 2011–to my delight–that the journal can be freely accessible on-line, from the present concern all the way in which again to the primary concern. You may obtain particular person articles or whole points, and it’s accessible in numerous e-reader codecs, too. Right here, I’ll begin with the Desk of Contents for the just-released Spring 2025 concern, which within the Taylor family is called concern #152. Under which are abstracts and direct hyperlinks for the entire papers. I plan to weblog extra particularly about a number of the papers within the few weeks, as nicely.
________
Symposium: Drug Pricing and Regulation
“Financial Markets and Pharmaceutical Innovation,” by Craig Garthwaite
Pharmaceutical improvements attain the market after a protracted and dangerous course of that requires giant, mounted, and sunk investments. Governments present incentives for companies to make these investments via numerous types of mental property safety that try to offer a return on capital for traders. Because of this, pharmaceutical innovation outcomes from an express intersection of public coverage and personal market incentives. Creating optimum coverage subsequently requires understanding market options comparable to how innovation is financed, how companies commercialize pharmaceutical merchandise, the affect of insurance coverage protection on consumption and spending, and the way competitors emerges after mental property safety ends.
“Patents, Innovation, and Competitors in Prescription drugs: The Hatch-Waxman Act after 40 Years,” by C. Scott Hemphill and Bhaven N. Sampat
A central coverage concern in prescription drugs is easy methods to stability the dynamic advantages of recent medication in opposition to the static advantages of low costs for current medication. In the USA, that stability is about by the Hatch-Waxman Act. We evaluation the Act’s origins and key options, then current proof on its results on competitors and innovation. On the competitors facet, we present how the Act creates incentives for manufacturers to build up patents and generics to problem them, with the consequence being a tough stalemate. We additionally focus on methods deployed by manufacturers to delay generic entry. On the innovation facet, we present that the Act’s patent extension provisions—which purpose to permit branded companies to make up for time misplaced throughout scientific trials and regulatory evaluation—are incomplete, leading to potential distortions. The online result’s a convoluted and costly strategy to balancing innovation and competitors.
“Classes for the USA from Pharmaceutical Regulation Overseas,” by Margaret Okay. Kyle
Pharmaceutical markets are characterised by obstacles to entry and knowledge issues. Many nations intervene within the pricing and reimbursement of medicine to a higher extent than the US authorities thus far. Continued strain from politicians and up to date laws are prone to change the marketplace for prescription drugs in the USA. This text discusses the approaches adopted in different developed nations and the implications of their use in the USA, which as a result of its measurement, has far higher affect over the speed and path of innovation. Different coverage selections and the challenges of their implementation are additionally reviewed.
“The Economics of Generic Drug Shortages: The Limits of Competitors,” Rena M. Conti and Marta E. Wosińska
We look at the economics of the US generic prescription drug market, which includes the vast majority of medicines offered. The market is well known for its advantages within the kind of top of the range and low costs for shoppers however can also be more and more challenged by shortages that will disrupt affected person care. Shortages within the generic drug market current an financial puzzle—within the face of a scarcity, costs ought to rise, encouraging entry, but we observe shortages growing in quantity and persistence. Furthermore, if shortages trigger affected person hurt, why don’t markets pay a premium for a dependable provide chain? We argue that the puzzle could be defined by the lack of generic drug costs to regulate simply as a result of regulatory and contracting frictions, and the coexisting presence of uneven data and company issues within the US market. We conclude with a dialogue of coverage interventions geared toward addressing these challenges to make sure resilient US generic drug provide.
Symposium: Revenue Inequality
“Measuring Revenue and Revenue Inequality,” by Conor Clarke and Wojciech Kopczuk
Revenue inequality is vital, however makes an attempt to measure it arrive at strikingly completely different conclusions. Why? We use current disputes over measuring United States earnings inequality to return to first ideas about each the earnings idea and inequality measurement. We emphasize two broad factors. First, no measure of the earnings distribution is actually complete, or might try to be complete with out making controversial selections. We doc the sensible and conceptual issues that the usual supreme—complete Haig-Simons earnings—raises. Second, a lot of the controversy on this space activates the various tradeoffs between beginning with particular person tax information versus extra expansive earnings ideas. Particular person tax information replicate solely a shrinking subset of a extra complete earnings idea–however they’re particular person information. Extra expansive options, alternatively, are tougher to allocate to people. We doc a number of the most vital and contestable assumptions that such an allocation requires.
“Macro Views on Revenue Inequality,” by Matthieu Gomez
Inequality has grow to be a defining problem for contemporary economies and a central focus of financial analysis over the previous twenty years. I start by revisiting the foundations of earnings measurement, exhibiting that normal definitions—taxable earnings, issue earnings, and Haig-Simons earnings—undergo from vital conceptual limitations. I distinction these earnings measures with the best notion of earnings from a welfare perspective—Hicksian earnings—which captures a person’s potential to eat or save for future consumption. I then look at the drivers of rising prime earnings inequality, with specific consideration to the surge in entrepreneurial incomes. I spotlight three key forces behind this phenomenon: increased returns on capital (technological components), decrease exterior financing prices (monetary components), and a lighter tax burden on enterprise homeowners (fiscal components).
“Public Finance Implications of Financial Inequality,” by Alan J. Auerbach
This paper considers questions concerning the implications of rising inequality for the idea and apply of public finance. It begins by addressing elementary explanation why the distribution of earnings or wealth on an annual foundation earlier than taxes and transfers provides inadequate data: (1) it doesn’t inform us what sources are literally accessible to households for consumption; and (2) in offering a snapshot of the sources accessible to people of various ages at a given second in time, with out controlling for life-cycle associated variations or earnings dynamics, it will possibly present a deceptive estimate of the underlying diploma of inequality. The paper then considers the implications of excessive and maybe rising financial inequality for the design of presidency coverage: prime marginal tax charges, phase-outs of presidency insurance policies for these with increased incomes, the political financial system of inequality, and different topics.
Symposium: Bond Markets
“A Hitchhiker’s Information to Federal Reserve Participation in Fastened Revenue Markets,” by Nina Boyarchenko and Or Shachar
We evaluation US dealer-intermediated mounted earnings markets, together with Treasuries, company mortgage-backed securities, company bonds, and municipal bonds. Via the lenses of major sellers’ positions, we present these markets’ evolution over the previous decade and the results of current episodes of abrupt deterioration in market functioning. We then overview how the Federal Reserve interacts with mounted earnings markets for the needs of financial coverage implementation and liquidity interventions. We conclude by discussing the shifting composition of traders in US mounted earnings markets, and what penalties such modifications within the investor base could have for financial coverage transmissions.
“How US Treasuries Can Stay the World’s Secure Haven,” by Darrell Duffie
Weaknesses within the design of the marketplace for US Treasuries have lowered the effectiveness of world’s favored safe-haven asset. For the reason that World Monetary Disaster, the market’s intermediation capability is much extra constrained by the stability sheets of supplier banks, which deal with just about all investor trades. Since 2007, the entire measurement of major supplier stability sheets per greenback of Treasuries excellent has shrunk by an element of 4. This development continues due to giant US fiscal deficits and post-GFC regulatory capital constraints, that are obligatory for monetary stability however restrict the supply of liquidity beneath stress. For US Treasuries to stay a strong secure haven, the intermediation capability of the market will have to be expanded and additional supported by official-sector backstops.
“US Company Bond Markets: Larger and (Possibly) Higher?” by Maureen O’Hara and Xing (Alex) Zhou
The US company bond market has expanded considerably, fueled by digital buying and selling, institutional innovation, and rising retail participation through mutual and exchange-traded funds. These developments have improved effectivity by lowering prices and enhancing transparency, but they’ve additionally launched new vulnerabilities. The market’s shift from relationship-based to transaction-based buying and selling has weakened its potential to soak up stress, particularly in periods of widespread promoting. We look at the structural modifications which have lowered supplier intermediation, the restricted liquidity advantages of digital platforms, and the destabilizing function of fund flows. The COVID-19 disaster uncovered these weaknesses, prompting the Federal Reserve to behave as a “market maker of final resort.” We argue that whereas the market is “higher” in some ways, enhancing resilience via transparency and long-term investor participation is important for future stability.
“Why Is the Fragmented Municipal Bond Market So Expensive to Traders and Issuers” by John M. Griffin, Nicholas Hirschey, and Samuel Kruger
The municipal bond market performs an important function in offering capital to US municipalities and features via a community of underwriters, municipal advisors, credit standing companies, insurers, particular person and institutional traders, and a number of regulators. Many of those market individuals have vital uneven data and conflicting incentive buildings, which may generally result in disparate and seemingly inefficient outcomes. Puzzles documented within the educational literature embody excessive underwriting prices, conflicting roles by municipal advisors, excessive and extensively various commerce markups, funding holdings which are typically not tax-efficient, inconsistent implied marginal tax charges, a heavy reliance on credit score scores, little profit however widespread use of insurance coverage, delayed use of name provisions, and inconsistent therapy of accounting data. We evaluation points within the municipal bond market and suggest implementable solutions that may hopefully permit for a extra aggressive and low-cost marketplace for each taxpayers and traders.
Options
“Retrospectives: Yair Mundlak and the Fastened Results Estimator,” by Marc F. Bellemare and Daniel L. Millimet
We focus on Yair Mundlak’s (1927–2015) contribution to econometrics via the lens of the mounted results estimator. We set the stage by discussing Mundlak’s life and his seminal 1961 article within the Journal of Farm Economics, exhibiting the way it was trying on the proper utility—the research of agricultural productiveness, which had hitherto been regarded as marred by the presence of administration bias—that led Mundlak to make use of the mounted results estimator. After discussing Mundlak’s contribution, we briefly focus on the historic financial and statistical contexts through which he made that contribution. We then spotlight the dialogue that befell between the proponents of mounted versus random results and focus on how Mundlak settled the controversy in his 1978 Econometrica article. We conclude by discussing how, between mounted and random results, the mounted results estimator gained the day, turning into the de facto estimator of selection amongst utilized economists due to the Credibility Revolution, culminating within the recognition these days of difference-in-differences designs and of two-way mounted results estimators.
“Suggestions for Additional Studying,” by Timothy Taylor
I’ve been the Managing Editor of the Journal of Financial Views for the reason that first concern in Summer time 1987. The JEP is revealed by the American Financial Affiliation, which determined again in 2011–to my delight–that the journal can be freely accessible on-line, from the present concern all the way in which again to the primary concern. You may obtain particular person articles or whole points, and it’s accessible in numerous e-reader codecs, too. Right here, I’ll begin with the Desk of Contents for the just-released Spring 2025 concern, which within the Taylor family is called concern #152. Under which are abstracts and direct hyperlinks for the entire papers. I plan to weblog extra particularly about a number of the papers within the few weeks, as nicely.
________
Symposium: Drug Pricing and Regulation
“Financial Markets and Pharmaceutical Innovation,” by Craig Garthwaite
Pharmaceutical improvements attain the market after a protracted and dangerous course of that requires giant, mounted, and sunk investments. Governments present incentives for companies to make these investments via numerous types of mental property safety that try to offer a return on capital for traders. Because of this, pharmaceutical innovation outcomes from an express intersection of public coverage and personal market incentives. Creating optimum coverage subsequently requires understanding market options comparable to how innovation is financed, how companies commercialize pharmaceutical merchandise, the affect of insurance coverage protection on consumption and spending, and the way competitors emerges after mental property safety ends.
“Patents, Innovation, and Competitors in Prescription drugs: The Hatch-Waxman Act after 40 Years,” by C. Scott Hemphill and Bhaven N. Sampat
A central coverage concern in prescription drugs is easy methods to stability the dynamic advantages of recent medication in opposition to the static advantages of low costs for current medication. In the USA, that stability is about by the Hatch-Waxman Act. We evaluation the Act’s origins and key options, then current proof on its results on competitors and innovation. On the competitors facet, we present how the Act creates incentives for manufacturers to build up patents and generics to problem them, with the consequence being a tough stalemate. We additionally focus on methods deployed by manufacturers to delay generic entry. On the innovation facet, we present that the Act’s patent extension provisions—which purpose to permit branded companies to make up for time misplaced throughout scientific trials and regulatory evaluation—are incomplete, leading to potential distortions. The online result’s a convoluted and costly strategy to balancing innovation and competitors.
“Classes for the USA from Pharmaceutical Regulation Overseas,” by Margaret Okay. Kyle
Pharmaceutical markets are characterised by obstacles to entry and knowledge issues. Many nations intervene within the pricing and reimbursement of medicine to a higher extent than the US authorities thus far. Continued strain from politicians and up to date laws are prone to change the marketplace for prescription drugs in the USA. This text discusses the approaches adopted in different developed nations and the implications of their use in the USA, which as a result of its measurement, has far higher affect over the speed and path of innovation. Different coverage selections and the challenges of their implementation are additionally reviewed.
“The Economics of Generic Drug Shortages: The Limits of Competitors,” Rena M. Conti and Marta E. Wosińska
We look at the economics of the US generic prescription drug market, which includes the vast majority of medicines offered. The market is well known for its advantages within the kind of top of the range and low costs for shoppers however can also be more and more challenged by shortages that will disrupt affected person care. Shortages within the generic drug market current an financial puzzle—within the face of a scarcity, costs ought to rise, encouraging entry, but we observe shortages growing in quantity and persistence. Furthermore, if shortages trigger affected person hurt, why don’t markets pay a premium for a dependable provide chain? We argue that the puzzle could be defined by the lack of generic drug costs to regulate simply as a result of regulatory and contracting frictions, and the coexisting presence of uneven data and company issues within the US market. We conclude with a dialogue of coverage interventions geared toward addressing these challenges to make sure resilient US generic drug provide.
Symposium: Revenue Inequality
“Measuring Revenue and Revenue Inequality,” by Conor Clarke and Wojciech Kopczuk
Revenue inequality is vital, however makes an attempt to measure it arrive at strikingly completely different conclusions. Why? We use current disputes over measuring United States earnings inequality to return to first ideas about each the earnings idea and inequality measurement. We emphasize two broad factors. First, no measure of the earnings distribution is actually complete, or might try to be complete with out making controversial selections. We doc the sensible and conceptual issues that the usual supreme—complete Haig-Simons earnings—raises. Second, a lot of the controversy on this space activates the various tradeoffs between beginning with particular person tax information versus extra expansive earnings ideas. Particular person tax information replicate solely a shrinking subset of a extra complete earnings idea–however they’re particular person information. Extra expansive options, alternatively, are tougher to allocate to people. We doc a number of the most vital and contestable assumptions that such an allocation requires.
“Macro Views on Revenue Inequality,” by Matthieu Gomez
Inequality has grow to be a defining problem for contemporary economies and a central focus of financial analysis over the previous twenty years. I start by revisiting the foundations of earnings measurement, exhibiting that normal definitions—taxable earnings, issue earnings, and Haig-Simons earnings—undergo from vital conceptual limitations. I distinction these earnings measures with the best notion of earnings from a welfare perspective—Hicksian earnings—which captures a person’s potential to eat or save for future consumption. I then look at the drivers of rising prime earnings inequality, with specific consideration to the surge in entrepreneurial incomes. I spotlight three key forces behind this phenomenon: increased returns on capital (technological components), decrease exterior financing prices (monetary components), and a lighter tax burden on enterprise homeowners (fiscal components).
“Public Finance Implications of Financial Inequality,” by Alan J. Auerbach
This paper considers questions concerning the implications of rising inequality for the idea and apply of public finance. It begins by addressing elementary explanation why the distribution of earnings or wealth on an annual foundation earlier than taxes and transfers provides inadequate data: (1) it doesn’t inform us what sources are literally accessible to households for consumption; and (2) in offering a snapshot of the sources accessible to people of various ages at a given second in time, with out controlling for life-cycle associated variations or earnings dynamics, it will possibly present a deceptive estimate of the underlying diploma of inequality. The paper then considers the implications of excessive and maybe rising financial inequality for the design of presidency coverage: prime marginal tax charges, phase-outs of presidency insurance policies for these with increased incomes, the political financial system of inequality, and different topics.
Symposium: Bond Markets
“A Hitchhiker’s Information to Federal Reserve Participation in Fastened Revenue Markets,” by Nina Boyarchenko and Or Shachar
We evaluation US dealer-intermediated mounted earnings markets, together with Treasuries, company mortgage-backed securities, company bonds, and municipal bonds. Via the lenses of major sellers’ positions, we present these markets’ evolution over the previous decade and the results of current episodes of abrupt deterioration in market functioning. We then overview how the Federal Reserve interacts with mounted earnings markets for the needs of financial coverage implementation and liquidity interventions. We conclude by discussing the shifting composition of traders in US mounted earnings markets, and what penalties such modifications within the investor base could have for financial coverage transmissions.
“How US Treasuries Can Stay the World’s Secure Haven,” by Darrell Duffie
Weaknesses within the design of the marketplace for US Treasuries have lowered the effectiveness of world’s favored safe-haven asset. For the reason that World Monetary Disaster, the market’s intermediation capability is much extra constrained by the stability sheets of supplier banks, which deal with just about all investor trades. Since 2007, the entire measurement of major supplier stability sheets per greenback of Treasuries excellent has shrunk by an element of 4. This development continues due to giant US fiscal deficits and post-GFC regulatory capital constraints, that are obligatory for monetary stability however restrict the supply of liquidity beneath stress. For US Treasuries to stay a strong secure haven, the intermediation capability of the market will have to be expanded and additional supported by official-sector backstops.
“US Company Bond Markets: Larger and (Possibly) Higher?” by Maureen O’Hara and Xing (Alex) Zhou
The US company bond market has expanded considerably, fueled by digital buying and selling, institutional innovation, and rising retail participation through mutual and exchange-traded funds. These developments have improved effectivity by lowering prices and enhancing transparency, but they’ve additionally launched new vulnerabilities. The market’s shift from relationship-based to transaction-based buying and selling has weakened its potential to soak up stress, particularly in periods of widespread promoting. We look at the structural modifications which have lowered supplier intermediation, the restricted liquidity advantages of digital platforms, and the destabilizing function of fund flows. The COVID-19 disaster uncovered these weaknesses, prompting the Federal Reserve to behave as a “market maker of final resort.” We argue that whereas the market is “higher” in some ways, enhancing resilience via transparency and long-term investor participation is important for future stability.
“Why Is the Fragmented Municipal Bond Market So Expensive to Traders and Issuers” by John M. Griffin, Nicholas Hirschey, and Samuel Kruger
The municipal bond market performs an important function in offering capital to US municipalities and features via a community of underwriters, municipal advisors, credit standing companies, insurers, particular person and institutional traders, and a number of regulators. Many of those market individuals have vital uneven data and conflicting incentive buildings, which may generally result in disparate and seemingly inefficient outcomes. Puzzles documented within the educational literature embody excessive underwriting prices, conflicting roles by municipal advisors, excessive and extensively various commerce markups, funding holdings which are typically not tax-efficient, inconsistent implied marginal tax charges, a heavy reliance on credit score scores, little profit however widespread use of insurance coverage, delayed use of name provisions, and inconsistent therapy of accounting data. We evaluation points within the municipal bond market and suggest implementable solutions that may hopefully permit for a extra aggressive and low-cost marketplace for each taxpayers and traders.
Options
“Retrospectives: Yair Mundlak and the Fastened Results Estimator,” by Marc F. Bellemare and Daniel L. Millimet
We focus on Yair Mundlak’s (1927–2015) contribution to econometrics via the lens of the mounted results estimator. We set the stage by discussing Mundlak’s life and his seminal 1961 article within the Journal of Farm Economics, exhibiting the way it was trying on the proper utility—the research of agricultural productiveness, which had hitherto been regarded as marred by the presence of administration bias—that led Mundlak to make use of the mounted results estimator. After discussing Mundlak’s contribution, we briefly focus on the historic financial and statistical contexts through which he made that contribution. We then spotlight the dialogue that befell between the proponents of mounted versus random results and focus on how Mundlak settled the controversy in his 1978 Econometrica article. We conclude by discussing how, between mounted and random results, the mounted results estimator gained the day, turning into the de facto estimator of selection amongst utilized economists due to the Credibility Revolution, culminating within the recognition these days of difference-in-differences designs and of two-way mounted results estimators.
“Suggestions for Additional Studying,” by Timothy Taylor
I’ve been the Managing Editor of the Journal of Financial Views for the reason that first concern in Summer time 1987. The JEP is revealed by the American Financial Affiliation, which determined again in 2011–to my delight–that the journal can be freely accessible on-line, from the present concern all the way in which again to the primary concern. You may obtain particular person articles or whole points, and it’s accessible in numerous e-reader codecs, too. Right here, I’ll begin with the Desk of Contents for the just-released Spring 2025 concern, which within the Taylor family is called concern #152. Under which are abstracts and direct hyperlinks for the entire papers. I plan to weblog extra particularly about a number of the papers within the few weeks, as nicely.
________
Symposium: Drug Pricing and Regulation
“Financial Markets and Pharmaceutical Innovation,” by Craig Garthwaite
Pharmaceutical improvements attain the market after a protracted and dangerous course of that requires giant, mounted, and sunk investments. Governments present incentives for companies to make these investments via numerous types of mental property safety that try to offer a return on capital for traders. Because of this, pharmaceutical innovation outcomes from an express intersection of public coverage and personal market incentives. Creating optimum coverage subsequently requires understanding market options comparable to how innovation is financed, how companies commercialize pharmaceutical merchandise, the affect of insurance coverage protection on consumption and spending, and the way competitors emerges after mental property safety ends.
“Patents, Innovation, and Competitors in Prescription drugs: The Hatch-Waxman Act after 40 Years,” by C. Scott Hemphill and Bhaven N. Sampat
A central coverage concern in prescription drugs is easy methods to stability the dynamic advantages of recent medication in opposition to the static advantages of low costs for current medication. In the USA, that stability is about by the Hatch-Waxman Act. We evaluation the Act’s origins and key options, then current proof on its results on competitors and innovation. On the competitors facet, we present how the Act creates incentives for manufacturers to build up patents and generics to problem them, with the consequence being a tough stalemate. We additionally focus on methods deployed by manufacturers to delay generic entry. On the innovation facet, we present that the Act’s patent extension provisions—which purpose to permit branded companies to make up for time misplaced throughout scientific trials and regulatory evaluation—are incomplete, leading to potential distortions. The online result’s a convoluted and costly strategy to balancing innovation and competitors.
“Classes for the USA from Pharmaceutical Regulation Overseas,” by Margaret Okay. Kyle
Pharmaceutical markets are characterised by obstacles to entry and knowledge issues. Many nations intervene within the pricing and reimbursement of medicine to a higher extent than the US authorities thus far. Continued strain from politicians and up to date laws are prone to change the marketplace for prescription drugs in the USA. This text discusses the approaches adopted in different developed nations and the implications of their use in the USA, which as a result of its measurement, has far higher affect over the speed and path of innovation. Different coverage selections and the challenges of their implementation are additionally reviewed.
“The Economics of Generic Drug Shortages: The Limits of Competitors,” Rena M. Conti and Marta E. Wosińska
We look at the economics of the US generic prescription drug market, which includes the vast majority of medicines offered. The market is well known for its advantages within the kind of top of the range and low costs for shoppers however can also be more and more challenged by shortages that will disrupt affected person care. Shortages within the generic drug market current an financial puzzle—within the face of a scarcity, costs ought to rise, encouraging entry, but we observe shortages growing in quantity and persistence. Furthermore, if shortages trigger affected person hurt, why don’t markets pay a premium for a dependable provide chain? We argue that the puzzle could be defined by the lack of generic drug costs to regulate simply as a result of regulatory and contracting frictions, and the coexisting presence of uneven data and company issues within the US market. We conclude with a dialogue of coverage interventions geared toward addressing these challenges to make sure resilient US generic drug provide.
Symposium: Revenue Inequality
“Measuring Revenue and Revenue Inequality,” by Conor Clarke and Wojciech Kopczuk
Revenue inequality is vital, however makes an attempt to measure it arrive at strikingly completely different conclusions. Why? We use current disputes over measuring United States earnings inequality to return to first ideas about each the earnings idea and inequality measurement. We emphasize two broad factors. First, no measure of the earnings distribution is actually complete, or might try to be complete with out making controversial selections. We doc the sensible and conceptual issues that the usual supreme—complete Haig-Simons earnings—raises. Second, a lot of the controversy on this space activates the various tradeoffs between beginning with particular person tax information versus extra expansive earnings ideas. Particular person tax information replicate solely a shrinking subset of a extra complete earnings idea–however they’re particular person information. Extra expansive options, alternatively, are tougher to allocate to people. We doc a number of the most vital and contestable assumptions that such an allocation requires.
“Macro Views on Revenue Inequality,” by Matthieu Gomez
Inequality has grow to be a defining problem for contemporary economies and a central focus of financial analysis over the previous twenty years. I start by revisiting the foundations of earnings measurement, exhibiting that normal definitions—taxable earnings, issue earnings, and Haig-Simons earnings—undergo from vital conceptual limitations. I distinction these earnings measures with the best notion of earnings from a welfare perspective—Hicksian earnings—which captures a person’s potential to eat or save for future consumption. I then look at the drivers of rising prime earnings inequality, with specific consideration to the surge in entrepreneurial incomes. I spotlight three key forces behind this phenomenon: increased returns on capital (technological components), decrease exterior financing prices (monetary components), and a lighter tax burden on enterprise homeowners (fiscal components).
“Public Finance Implications of Financial Inequality,” by Alan J. Auerbach
This paper considers questions concerning the implications of rising inequality for the idea and apply of public finance. It begins by addressing elementary explanation why the distribution of earnings or wealth on an annual foundation earlier than taxes and transfers provides inadequate data: (1) it doesn’t inform us what sources are literally accessible to households for consumption; and (2) in offering a snapshot of the sources accessible to people of various ages at a given second in time, with out controlling for life-cycle associated variations or earnings dynamics, it will possibly present a deceptive estimate of the underlying diploma of inequality. The paper then considers the implications of excessive and maybe rising financial inequality for the design of presidency coverage: prime marginal tax charges, phase-outs of presidency insurance policies for these with increased incomes, the political financial system of inequality, and different topics.
Symposium: Bond Markets
“A Hitchhiker’s Information to Federal Reserve Participation in Fastened Revenue Markets,” by Nina Boyarchenko and Or Shachar
We evaluation US dealer-intermediated mounted earnings markets, together with Treasuries, company mortgage-backed securities, company bonds, and municipal bonds. Via the lenses of major sellers’ positions, we present these markets’ evolution over the previous decade and the results of current episodes of abrupt deterioration in market functioning. We then overview how the Federal Reserve interacts with mounted earnings markets for the needs of financial coverage implementation and liquidity interventions. We conclude by discussing the shifting composition of traders in US mounted earnings markets, and what penalties such modifications within the investor base could have for financial coverage transmissions.
“How US Treasuries Can Stay the World’s Secure Haven,” by Darrell Duffie
Weaknesses within the design of the marketplace for US Treasuries have lowered the effectiveness of world’s favored safe-haven asset. For the reason that World Monetary Disaster, the market’s intermediation capability is much extra constrained by the stability sheets of supplier banks, which deal with just about all investor trades. Since 2007, the entire measurement of major supplier stability sheets per greenback of Treasuries excellent has shrunk by an element of 4. This development continues due to giant US fiscal deficits and post-GFC regulatory capital constraints, that are obligatory for monetary stability however restrict the supply of liquidity beneath stress. For US Treasuries to stay a strong secure haven, the intermediation capability of the market will have to be expanded and additional supported by official-sector backstops.
“US Company Bond Markets: Larger and (Possibly) Higher?” by Maureen O’Hara and Xing (Alex) Zhou
The US company bond market has expanded considerably, fueled by digital buying and selling, institutional innovation, and rising retail participation through mutual and exchange-traded funds. These developments have improved effectivity by lowering prices and enhancing transparency, but they’ve additionally launched new vulnerabilities. The market’s shift from relationship-based to transaction-based buying and selling has weakened its potential to soak up stress, particularly in periods of widespread promoting. We look at the structural modifications which have lowered supplier intermediation, the restricted liquidity advantages of digital platforms, and the destabilizing function of fund flows. The COVID-19 disaster uncovered these weaknesses, prompting the Federal Reserve to behave as a “market maker of final resort.” We argue that whereas the market is “higher” in some ways, enhancing resilience via transparency and long-term investor participation is important for future stability.
“Why Is the Fragmented Municipal Bond Market So Expensive to Traders and Issuers” by John M. Griffin, Nicholas Hirschey, and Samuel Kruger
The municipal bond market performs an important function in offering capital to US municipalities and features via a community of underwriters, municipal advisors, credit standing companies, insurers, particular person and institutional traders, and a number of regulators. Many of those market individuals have vital uneven data and conflicting incentive buildings, which may generally result in disparate and seemingly inefficient outcomes. Puzzles documented within the educational literature embody excessive underwriting prices, conflicting roles by municipal advisors, excessive and extensively various commerce markups, funding holdings which are typically not tax-efficient, inconsistent implied marginal tax charges, a heavy reliance on credit score scores, little profit however widespread use of insurance coverage, delayed use of name provisions, and inconsistent therapy of accounting data. We evaluation points within the municipal bond market and suggest implementable solutions that may hopefully permit for a extra aggressive and low-cost marketplace for each taxpayers and traders.
Options
“Retrospectives: Yair Mundlak and the Fastened Results Estimator,” by Marc F. Bellemare and Daniel L. Millimet
We focus on Yair Mundlak’s (1927–2015) contribution to econometrics via the lens of the mounted results estimator. We set the stage by discussing Mundlak’s life and his seminal 1961 article within the Journal of Farm Economics, exhibiting the way it was trying on the proper utility—the research of agricultural productiveness, which had hitherto been regarded as marred by the presence of administration bias—that led Mundlak to make use of the mounted results estimator. After discussing Mundlak’s contribution, we briefly focus on the historic financial and statistical contexts through which he made that contribution. We then spotlight the dialogue that befell between the proponents of mounted versus random results and focus on how Mundlak settled the controversy in his 1978 Econometrica article. We conclude by discussing how, between mounted and random results, the mounted results estimator gained the day, turning into the de facto estimator of selection amongst utilized economists due to the Credibility Revolution, culminating within the recognition these days of difference-in-differences designs and of two-way mounted results estimators.
“Suggestions for Additional Studying,” by Timothy Taylor
