The Point of this Blog

The reason i started this blog is to force myself to write. Writing forces one to clarify one’s thoughts, to make an argument sharp, clear as crystal. If i can’t describe a paper’s main point/intuition in the space of one short bond paper, then i really don’t understand it yet. Writing, as some of you may know, if the lifesblood of a career academician/researcher.

Eventually i will write a dissertation (at the very least!). Scaling every mountain requires a first, tentative step. So writing journal articles starts with writing smaller articles. So, i’m committing myself to writing at least two blog entries a week.

As part of my third year requirements, i’m supposed to submit a literature review on any topic i want to write about. Right now, i’m interested in pursuing the heterogeous firm literature in international trade. This means, i’ll be writing alot about trade in the near future, both on the empirical side and the theory.

For IO, i’m interested in Natural Resources, Energy and Marketing. There is an August 2006 JPE paper i’m currently reading on the dynamic pricing of experience goods. I’ll write about that soon as i understand the math. i might do a literature review on these topics too.

Other things related to economics i’ll be writing about. I’m also working through Obstfeld and Rogoff’s “Foundations of International Macroeconomics”, the bible of the field. I don’t think i can claim to trully know international economics without knowing the macro part!

In addition to the reading and writing, i’m also poised to (really) learn mathematica and matlab. For IO and International Trade, i need to understand simulation because data (especially for the research frontier topics) are typically not easily available. I’ll be blogging about data too — to construct a new theoretical approach, one must understand empirics.

So, for the non-econ who read my blog, feel free to tune out. However, comments on style and language are always helpful. There’s alot of bad writing out there in economics; I don’t feel the need to contribute to that.

TRIPs without Drugs II

Now to the gory details. The authors, who i now collectively christen CGJ, calculate a structural model of the Quinolone market. This essentially means estimating the demand and supply side of the model, i.e. elasticity parameters, etc. The parameters are used to construct counterfactuals, a what-if situation. In particular, they ask the question, what if domestic patented goods are withdrawn from the market as a results of TRIPs? — how much is the welfare damage (short-run)?

The actual numbers they get are beside the point (mainly because, when the TRIPS safeguard comes offline in 2005, all quinolone molecules will be off-patent anyways, rendering the numbers moot). The key finding is that domestic goods are not perfectly substitutable for foreign goods, even for the same molecule/Active ingredient. They conjecture (altho they can’t prove) that it must have something to do with better distribution facilities/marketing by local firms. Hence even in the presence of lots of substitutes (made by foreigners), the welfare loss will be large.

The authors conclude that compulsory licensing is a great idea, and price controls, while seemingly similar to licensing, will have deleterious effects on long run R&D in the market.

This is interesting, i have to research more on compulsory licensing. I wonder if there are models for this that exist?

TRIPs without Drugs I

I’m working on slides for my presentation in international investment. The idea is an intriguing counterfactual in the Indian pharmaceutical market: what happens if the next day, all patented drugs are taken-off the market?

Counterfactuals are tough to do in economics using historical data. To do it, you need to write down a fully formed structural model of behavior. Usually, data is hard to come by. The real problem is that the results you get are influenced alot by the assumptions and model you use.

Before the model and results, i’ll sketch the background of the paper in this post. Here, Chaudri, P Goldberg (yes, the same as the Price Discriminiation P Goldberg), and Jia think about the effects of the expiration of TRIPs developing country patent safeguard on welfare and profits in India’s Pharmaceutical industry. India has a well-developed domestic industry and is famous for it.

In 2005, TRIPs stipulated that developing countries had to re-tool their intellectual property laws to recognize product patents. I don’t know whats happened in the industry since then and i’ll have to research that to round up my presentation. They look at the Quinolones, a class of anti-bacterial drugs.

The skinny is, after estimating their model, they find that the expiration of the safeguard will mean heavy static loses to the tune of $305 million, about half the size of the the entire systemic antibacterial drugs in 2000. Most of that is lost consumer welfare. Wow. More on the model and results soon.