Some Simple Economics of PrEP

There's a new strategy in the fight against HIV, especially among men who have sex with men (MSM): a drug called Truvada, also referred to as PrEP (for pre-exposure prophylaxis). Early reports suggest that taking Truvada can nearly eliminate the risk of an HIV-negative individual acquiring HIV. PrEP has been somewhat controversial, since one might reasonably conjecture that reducing the risk of unprotected sex will increase the prevalence of unprotected sex.

More on Miller & Sanjurjo

Edit: Jonathan Miller was nice enough to explain my error in interpreting their claim. See below. 

I wrote last week about Miller & Sanjurjo (2015), a working paper which shows how taking unweighted averages of ratios of conditional proportions of success (conditional on previous success) can lead to a biased estimate of the true conditional probability. I then claimed that this result does not extend meaningfuly to the context that they're trying to extend it to: the "hot hand" in basketball, particularly Gilovich, et al. (1985).

Various people smarter than me, notably Andrew Gelman, disagree. They think that the Sanjurjo & Miller critique matters even for the sample sizes considered by Gilovich et al.

Are coin flips memoryless?

There's a working paper going around by Miller and Sanjurjo, cited in a New York Times article, that seems to be arguing the impossible: that, in a sequence of flips of a fair coin, the probability of flipping heads is smaller than 1/2 if the previous flip was heads.

The working paper argues that this is relevant to the "hot hand" debate. E.g., is a basketball player more likely to hit his next shot if he hit his previous shot? The seminal paper in this literature, Gilovich, Vallone, and Tversky (1985), found that the conditional probability of success given previous success was close to the unconditional probability of success, concluding that each shot was roughly independent. But if the laws of probability as we know them are wrong, and independence would somehow imply a decline in the conditional probability of success given previous success, then a finding of conditional probability equal to unconditional would actually be evidence in favor of the hot hand hypothesis.

This claim, for lack of a better word, appears to be wrong.

Edit: See my most recent entry for why I was misunderstanding Miller & Sanjurjo's claim with respect to the Gilovich, et al. study. Basically, I was looking at the wrong part of the Gilovich paper! My exposition of the Miller & Sanjurjo result is still valid, though.

"Would a significant increase in the top income tax rate substantially alter income inequality?"

Here's a Brookings piece by Gale, Kearney, and Orszag --- with some research assistance from yours truly --- which tries to perform the following accounting exercise: If we increased tax rates on the wealthy, and there were no behavioral effects, how much would the after-tax Gini decrease? The answer is "not very much at all."

Under current tax provisions, the after-tax Gini coefficient is .574. This compares to a Gini of .610 calculated over pre-tax income. Raising the top income tax rate to 45 percent reduces the Gini coefficient only from .575 to .573. Raising it to 50 percent brings the Gini to .571.

Some explicit redistribution from the rich to the bottom 20% reduces inequality a bit further, but still not much.

Why? Mostly, because we were considering changes just to the top bracket, which doesn't start until taxable income of $464,850 (for married filing jointly), which corresponds to gross income even higher. Changing the top bracket effects only the very top --- the top 0.5 percent or so --- while 90/10 inequality would be untouched.

On Borjas (2015), The Wage Impact of the Marielitos : A Reappraisal

Influential labor economist George Borjas is out with a new working paper revisiting the famous Card (1990) result on the Mariel Boatlift. The Boatlift was a huge, plausibly exogenous immigration shock felt by Miami in 1980. Card had originally found that the Miami labor market had seemed to absorb the immigrants without an impact on native wages. Borjas' working paper challenges that result.

Is Tax Avoidance Socially Costly?

Yesterday, I was reading Gorry, Hassett, Hubbard, and Mathur (2015) in this week's NBER release. Their paper is about how taxes affect the structure of executive compensation (e.g., between cash, stock grants, and stock options). This motivated me to try to think carefully about the extent to which tax avoidance is socially costly.

A Toy Model of Repatriation of Foreign Earnings of U.S. Corporations (or, How Congress Keeps Shooting Itself in the Foot)

Frequently, we hear reports out of Washington that, while "tax reform is dead", the parts of the corporate tax involving foreign earnings are so self-evidently horrible that we might see a small-scale reform to this part of the tax code.

This stylized fact seems relatively true: the most recent estimates suggest that U.S. corporations are holding over $2 trillion in "profits" overseas; these profits, if repatriated, would be subject to a tax equal to the difference between the U.S. corporate rate (35%) and whatever was paid initially to the foreign country [omitting some details]. Members of Congress would love to see this cash brought home, even if the benefits only accrue to shareholders and executives, as the recent literature has suggested. (Of course, the profits need not actually be "held" overseas; we just mean that some controlled foreign corporation has yet to pay its U.S. parent corporation a big fat dividend of those profits.)