Industrial organisation

Ben Handel, Jonathan Kolstad, Thomas Minten, Johannes Spinnewijn, 21 November 2020

Public policies that offer choices to consumers are on the rise. But it is not clear that everyone benefits equally from these choices. This column presents new evidence using data on health insurance choices in the Netherlands. It finds that markedly worse choices were made by individuals with lower education levels, in less analytical professions, and with little exposure to high-quality choices made by peers. This new dimension of inequality calls for policies that genuinely improve consumers’ choices or cease offering them altogether.

Holger Breinlich, Harald Fadinger, Volker Nocke, Nicolas Schutz, 21 November 2020

Much of world trade is dominated by a small number of large firms. Market power becomes problematic for the estimation of gravity equations because many policy interventions also influence market shares and hence prices and the value of trade flows. This column proposes a method to correct the resulting inaccuracies in gravity equation estimation by adjusting trade flows for market power effects by subtracting a correction term that depends on the market share a firm or country has in the market in question. It finds membership in the euro area increases bilateral trade flows by around 48% before correcting for market power, and 58% after correction.

Joshua Gans, 15 November 2020

Paul Milgrom has been jointly awarded the 2020 Nobel Prize in Economic Sciences with Robert Wilson “for improvements to auction theory and invention of new auction formats”. This column outlines his key contributions in this area, which explain why when the US government wanted to run the largest auction in history in the early 1990s, there was a ring on his doorbell – and why his doorbell rang again in October this year, this time by his fellow laureate.

Richard Freeman, David Blanchflower, Alex Bryson, 11 November 2020

Things have been going badly for workers, but for many years their traditional representatives in the workplace – trade unions – have been on the back-foot.  This column revisits the association between unionisation and job satisfaction, and finds that while in the past union workers used to have lower job satisfaction than their non-union counterparts, union membership now raises wellbeing at work. The study suggests that unions do the same as they always did – it is the non-union world that has changed for the worse.  There is evidence of this sparking a growth in unionisation in the UK over the last three years.   

Isabela Manelici, Smaranda Pantea, 08 November 2020

Industrial policies can be an effective tool for governments to shape the development of different sectors to achieve productivity growth. But there is little evidence of their effectiveness or efficiency. This column examines the impact of an income tax break for IT workers in Romania. The findings suggest that targeted policies of this kind can boost key sectors. This finding is encouraging in terms of the ability of governments to design and implement effective industrial policies. 

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