Industrial organisation

Charles F Manski, 01 October 2014

Clinical practice guidelines recommend treating all patients with similar attributes the same way. This column argues that, under conditions of uncertainty or ambiguity, this may be bad advice. Treating similar patients differently provides two benefits. The first is diversification – assigning similar patients to different treatments limits the consequences of choosing an inappropriate treatment. The second benefit is that randomly assigning treatments helps clinicians learn which ones are most effective.

Biagio Bossone, Thomas Fazi, Richard Wood, 01 October 2014

High debt and deflation have afflicted Japan, the Eurozone, and the US. However, the monetary and fiscal policies implemented so far have been disappointing. This column discusses the importance of helicopter money in the form of overt monetary financing in addressing these problems. Overt money financing is the policy with the highest impact in raising demand and output without increasing public debt and interest rates. 

László Andor, 01 October 2014

Negative real interest rates imply redistribution from savers to debtors. This column, by the EU Commissioner for Employment, Social Affairs and Inclusion, argues that such redistribution would benefit the whole economy. It would strengthen aggregate demand – including investment demand – at a time when such a boost is clearly needed.

Fernando Alvarez, Hervé Le Bihan, Francesco Lippi, 30 September 2014

The assumption of sticky prices is central in understanding the effect of monetary policies on the economy. Yet, how best to model price stickiness is an unresolved issue. This column assesses a selection of models that are able to reproduce cross-sectional heterogeneity in the setting of prices. The authors derive a formula which gives a useful approximation of the effect of a small monetary shock on total output. The formula demonstrates the importance of the Kurtosis of the distribution of price changes. It can be applied to a large class of models, including such with different timing of price adjustment.

Daron Acemoglu, Gino Gancia, Fabrizio Zilibotti, 30 September 2014

Offshoring of production can have a deep impact on the wages and welfare of workers with different abilities through its effect on technological progress. This column argues that, when labour is sufficiently cheap abroad, firms have incentives to offshore low-skill tasks and invest in skill-biased technologies at home. Over time, however, offshoring raises foreign wages. This increases demand for all firms and makes innovations complementing low-skill workers more profitable. As a result, offshoring can eventually lead to higher wages for everybody and less inequality.

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