Research

Abstract: This paper studies strategic spillovers of regulations intended for one particular market to other related markets and their implications for new product introduction and consumer welfare. We study the US pharmaceutical market, where market exclusivity is granted to the first over-the-counter drug, independent of patents for prescription drugs. Our paper shows that, due to the interplay of incentives in the prescription and the over-the-counter markets, the status-quo exclusivity policy reduces consumer welfare, as it causes many firms to delay entry into the over-the-counter market until prescription drug patents expire. In the counterfactual world, eliminating the exclusivity provision incentivizes firms to release the over-the-counter version earlier. However, it weakens firms’ incentives to make risky investments in R&D. An alternative policy that ties the over-the-counter drug exclusivity provision to prescription drug patent expiry dates preserves firms' R&D incentives while eliminating strategic incentives to delay, enhancing access to drugs and consumer welfare.

Abstract: This paper studies the welfare implications of policies implemented to regulate the consumption of unhealthy food items by focusing on the trans-fat content of a product. Trans-fat is a primary cause of death related to heart attack and obesity in the U.S., and partially hydrogenated oil (PHO) is identified as a key ingredient contributing to the trans-fat content of food items. However, using partially-hydrogenated oil as an ingredient may enhance taste, add texture to food items, and decrease production costs by providing longer storability and shelf-stability for products. To study the welfare implications of different policy regulations, we estimate a demand and supply model using Nielsen retail scanner datasets, recover consumer preferences, and the marginal cost of production. We then evaluate the welfare effects of banning the use of PHO leading to a ban on trans-fat in the market for microwaveable popcorn and compare it with an alternative proposal that imposes a tax on products that contain trans-fat. Our results suggest that a trans-fat ban leads to a 26% drop in consumer welfare compared to the status quo. We find that a high level (35%) of ad-valorem tax can also achieve close to zero trans-fat in the food chain (as ensured by the ban of PHO) and leads to a comparable loss of consumer surplus to the ban. Lower taxes, for example, a tax of 10\%, can still lead to a significant reduction of trans-fat consumption (around 51%) while the associated reduction of consumer welfare is substantially smaller.

Abstract: This paper examines the welfare consequences of a trade association in an exporting country on consumers in destination countries. We estimate a structural model of the Chilean Salmon exporting industry that endogenizes firms' pricing and export decisions. Our results show that the trade association has a strong positive effect on consumer utility and requires higher marginal costs of production, which is consistent with mechanisms of higher quality products and lower trade frictions. We also document robust evidence of collusive activity among trade association members. Our counterfactual analysis reveals that eliminating the trade association would still significantly decrease consumer welfare in destination countries.

Abstract: This paper highlights and quantifies how the presence of technologically superior firms in a market helps the development of a complementary market (a cross-market spillover effect), which, in turn, benefits other firms in the first market (a within-market spillover effect), and more importantly, how consumers benefit from both spillover effects. Our context is the Indian mobile industry during the 4G rollout. The industry consists of the handset market and the complementary wireless service market. Using a detailed dataset on these two markets, we estimate a structural model of consumer demand, carriers’ 4G network expansions, and handset firms’ product choices. Our estimates yield four findings that support the spillover effects. Using counterfactual simulations, we quantify how the presence of international handset firms, which are technologically more advanced than domestic firms, speeds up the 4G network rollout, increases the 4G phone variety, and benefits consumers.

Abstract: This paper studies the unintended welfare consequences of industrial policies designed to encourage domestic manufacturing in the context of developing countries. We explore the case of the tariff policy proposed by the Indian government to promote mobile handset production in India. We develop and estimate a structural model of India's mobile phone handset industry where firms endogenously decide supply chain alternatives, product sets, and prices. Our counterfactual simulations suggest that the continuation of the proposed policy would have resulted in lower investments in the supply chain within India, defeating the policy's goal and causing a drop in consumer surplus.

Abstract: This article investigates the effects of drug price-control policy on access to drugs and consumer welfare. We focus on regional markets for malarial drugs in India. Governments in developing and underdeveloped countries implement price controls to make drugs affordable and improve consumer welfare. However, gains from lower prices due to price control have little meaning if, firms stop selling those drugs in response to price control, and drugs are not available for purchase in local markets. In order to characterize the trade-off between availability and affordability on consumer welfare, we estimate a structural model of Indian malarial market where firms make endogenous product offering decisions across regions. We use a unique dataset that features detailed region level information. Our estimates reveal that even in a poor region, lower prices lead to lower consumer welfare, as costs of making a drug available in a regional market are high enough to induce exit of products in response to lower prices. We characterize the optimal price control level that balances the trade-off and maximizes consumer welfare.

Abstract: With over a billion people lacking access to clean drinking water and freshwater reserves of groundwater dwindling rapidly, informal water markets have become an important source of resource allocation in the developing world. We study these informal markets in Rajasthan India using in-depth buyers, sellers, and transactions data we collected. Utilizing this data, we structurally estimate the demand for drinking water allowing consumer heterogeneity to obtain price elasticities. This enables us to quantify the consumer welfare gains generated by such markets. We find that these markets disproportionately benefit the poor households and the households where women spend longer time collecting water indicating that a ban on extraction affecting the supply would largely affect the welfare of these households. Using our estimates, we are able to recover the ‘valuation of time’ of women in the household. We then use our structural estimates to study how firms compete in these informal markets. We implement a test of collusion and find evidence of caste-based collusion in these markets. Our simulations indicate that government entry in water distribution may lead to heterogeneous effects on consumer welfare as market prices may go up in response to government entry for wealthier consumers.

Abstract: Our article studies the design of reimbursement rates in the context of a large-scale publicly funded health insurance program in India by exploring its effects on the quality of care, diagnostic facilities provided by the hospitals and welfare of the patients. Under this insurance program implemented in the state of Andhra Pradesh, close to 40 million eligible households get free treatment from hospitals, and the hospitals are reimbursed by the government. The level of reimbursement is the key decision variable for the government. Setting the level too low implies that not enough private hospitals will participate, and the program will have capacity shortfalls and potentially lower quality. Setting the level too high implies that the fiscal burden will be high, which might be unsustainable in the future. To study this problem, we gather a unique and novel dataset that records the universe of claims made by the patients in the state of Andhra-Pradesh. Our data covers patient characteristics as well as details of diagnosis for each patient. Additionally, we collect detailed data on hospital characteristics, including provision of hospital facilities, quality of care as well as entry and exit of hospitals over time. We build a structural model and estimate the underlying incentives for patient's choice of hospital, hospitals' decision to participate in the insurance program as well as the provision of quality of care conditional on participation. Given the parameter estimates, in our counterfactual exercise, we vary the reimbursement rates, simulate hospitals' decisions to participate and provision of quality, and compute corresponding patient welfare. Our preliminary estimates suggest that adopting an alternative reimbursement policy that varies in urban and rural markets may save the Government up to 15% of its cost without compromising the access and quality of health care.