Efficiency and Equity Impacts of Urban Transportation Policies with Equilibrium Sorting (with Panle Barwick, Shanjun Li, Andrew Waxman, and Jing Wu) American Economic Review, 114 (10): 3161–3205.
We estimate an equilibrium sorting model of housing location and commuting mode choice with endogenous traffic congestion to evaluate the efficiency and equity impacts of a menu of urban transportation policies. Leveraging fine-scale data from household travel diaries and housing transaction data identifying residents’ home and work locations in Beijing, we recover structural estimates with rich preference heterogeneity over both travel mode and residential location decisions. Counterfactual simulations demonstrate that even when different policies reduce congestion to the same degree, their impacts on residential sorting and social welfare differ drastically. First, driving restrictions create large distortions in travel choices and are welfare reducing. Second, distance-based congestion pricing reduces the spatial separation between residences and workplaces and improves welfare for all households when it is accompanied by revenue recycling. Third, sorting undermines the congestion reduction under driving restrictions and subway expansion but strengthens it under congestion pricing. Fourth, the combination of congestion pricing and subway expansion delivers the greatest congestion relief and efficiency gains. It can also be self-financed, with the cost of subway expansion fully covered by congestion pricing revenue. Finally, eliminating preference heterogeneity, household sorting, or endogenous congestion significantly biases the welfare estimates and changes the relative welfare rankings of the policies.
Welfare Effects of Resale Price Maintenance: Evidence from the Chinese Pharmaceutical Industry (JMP)
This paper studies how resale price maintenance (RPM), a vertical practice that allows upstream manufacturers to directly control downstream retail prices, affects welfare. This effect is ambiguous because RPM can increase consumer welfare by eliminating double markups, but decreasing it by facilitating price coordination across competing retailers. I offer direct empirical evidence of these effects by studying an anti-trust case about RPM using a novel store-level dataset in the retail pharmacy market. Difference-in-differences estimates suggest the net effect of RPM decreases retail prices and is pro-competitive in this setting. The results also suggest that RPM reduces retailer markups and suppresses price dispersion across retailers, consistent with the incentives to both eliminate the double markup and coordinate the retail price. Motivated by these findings, I build and estimate a structural model to disentangle these incentives and illustrate how they interact with the market fundamentals, such as consumer substitution patterns and manufacturer bargaining power. The model confirms that RPM is overall welfare-improving in this setting. However, the consumer surplus gain from RPM would have been 77% higher absent of price coordination incentives. In addition, I show that under different market conditions RPM can lead to anti-competitive outcomes.
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Making expensive, innovative drugs affordable and accessible is a pressing global challenge. In this paper, we explore the welfare and equity effects of a recent policy reform in China that coupled centralized drug price negotiation with expanded insurance coverage. Before the reform, innovative drugs were mostly excluded from coverage, leading to high out-of-pocket expenses for consumers. The reform offered insurance coverage for these drugs, together with price reductions negotiated between the government and drug producers. Our design-based analysis shows that successful negotiations were followed by 48% decreases in retail prices and 350% increases in utilization. The reform also coincided with increased entry of innovative drugs into the Chinese market. We build a flexible model of demand and supply for cancer drugs to understand the mechanisms driving these results. Our model estimates and counterfactual simulations yield three key insights. First, there’s a notable synergy between insurance expansion and price negotiation. Insurance coverage incentivizes drug producers to engage in negotiations, which reduces costs and increases consumer surplus gains by 77% relative to scenarios where drugs are covered without negotiation. Second, the current coinsurance design tends to favor residents in wealthier provinces, thus benefiting higher-income consumers more. We present the results of alternative coinsurance models with equity targets. Lastly, we consider the impact of decentralized, province-level negotiations on the effectiveness of this policy.
In the market for medical goods and services, the intense involvement of the public sector creates a possible linkage between public-sector policies and private-sector outcomes. This study investigates the external effects of a centralized procurement auction policy on generic drugs in China, which creates a price shock (50% decrease on average) in the public sector. Leveraging the regional and timing variations, I find that the pharmacies’ retail price response is much smaller (10%), indicating strong market friction. I build a structural model to quantity the welfare and provide evidence of consumer inertia and transportation costs as the main mechanisms that explain market friction. Firstly, patients that got diagnosed recently are more likely to switch, indicating strong inertia. Secondly, the price response is more significant for pharmacies closer to hospitals, consistent with high transportation costs.
A few top content creators usually capture most of the impressions on digital platforms, discouraging grassroots users from creating new content and threatening the platform ecology. This is a prevalent dilemma: whether a platform should capitalize on established creators’ popular content or promote a diverse array of novice creators’ content. To quantify this tradeoff, I study a unique two-sided experiment by a short-form video platform that boosted amateur-generated content. While detrimental to viewer experience in the short run, measured by a 2% decrease in the viewer usage time, the program ultimately led to increased content posting, quality, and diversity. Furthermore, the results suggest that improving content quality could counterbalance the adverse effects on viewer experience within three months, suggesting the importance of considering long-term content creator response in evaluating platform strategy.
In the year 2016-2018, the Ministry of Public Security of China implemented a new policy to replace the electric vehicles’ (EV) plates with green ones, making EVs’ plates distinguishable from gasoline cars. We use the differences-in-differences method, leveraging the staggered implementation of the policy to identify the treatment effect. We find that this ”nudge” policy boosts the local sales of EVs by 24%, saving the government 2.5 billion RMB in cash subsidy. This effect is robust to province boundary design and heterogeneous across different EV brands and city demographics. We provide additional thoughts on the mechanism.
This paper examines the effects of social pressure on an individual’s behavior. I investigate the policy of a library that publicizes names of borrowers who fail to return books on time to see how such “shame tactics” induce the more timely returns. First, I use a difference-in-differences method to identify the impact of social pressure using historical policy changes as a quasi-experiment. Then a randomized controlled trial (RCT) is conducted by sending emails with different contents to students. The results indicate that: (1) social pressure increases the on-time return rate by 5 percentage points, comparable to the effects of reminders, but weaker than a small fine (1 RMB a day); (2) the impact of social pressure is heterogeneous over different groups of individuals, and is especially strong for faculty, students with wider social connections, and individuals who would have very likely returned the books on time. In practice, this paper suggests an alternative policy tool that facilitates task completion.