Economist 9/5/16

  1. According to the National Highway Traffic Safety Administration (NHTSA), just over 35,000 people were killed in crashes in 2015. That was 7% more than in 2014, the biggest annual percentage increase since 1965.By most counts America has the worst road-safety record in the rich world. Its rate of 10.9 deaths per 100,000 people per year is almost twice as high as Belgium’s, the next-worst well-off country, and roughly level with that of Mexico. One of the main reasons that the United States sits atop this grim ranking is because Americans drive far more often than the rich-world average. When miles travelled are taken into account, America was actually a bit safer than Japan, Slovenia and Belgium in 2013.In 2000 Slovenia’s death rate per person was higher than America’s; by 2013 it was 40% lower. Sweden, which in 1997 introduced a plan to reduce fatal crashes to zero, now has the safest roads in the world.
  2. Thanks to better anti-lock brakes, airbags and side-impact protections, cars have become far safer, while other road users have not benefited from similar advances. As a result, car users’ share of road deaths in America fell from 42% in 2006 to 36% last year.Mark Rosekind, head of the NHTSA, says 94% of crashes “can be tied back to human choice or error”. Fully 85% of the people who perished on America’s roads last year either were not wearing a seat belt or were in accidents where a driver had been speeding or drinking.
  3. George Akerlof was at the forefront of the effort to to incorporate “asymmetric information” into their thinking.George Akerlof was at the forefront of this effort. In his seminal 1970 paper “The Market for Lemons”, Mr Akerlof asked what would happen to the market for used cars if buyers could not tell between good and bad.Suppose a buyer would pay $1,000 for a good set of wheels (a “peach”) but only $500 for a malfunctioning car (a “lemon”).But if lemons and peaches are hard to distinguish, buyers will cut their offers accordingly. They might be willing to pay, say, $750 for a car they perceive as having an even chance of being a lemon or a peach. The problem is that dealers who know for sure they have a peach will reject such an offer. As a result, the buyers face “adverse selection”: the only sellers who will be prepared to accept $750 will be those offloading lemons.
  4. Subsequent research highlighted two sorts of solutions. Peter Spence, another pioneer of information economics, focused on “signalling”. His example was the labour market. Employers may struggle to tell which job candidates are best. So workers can signal their talents to firms by collecting gongs, like college degrees.Adverse selection is plaguing America’s Affordable Care Act, better known as “Obamacare”. Fewer healthy people than expected have signed up to the government-sponsored insurance exchanges, which limit how much premiums can vary with risk. Insurers are making losses; as a result, they are raising prices substantially (or pulling out altogether). Critics say those price rises will drive away more healthy customers, leading to a “death spiral”.
  5. Americans are furious about the cost of medicines. Over the past week their ire engulfed Mylan, a generic-drug firm, which had raised the price of its EpiPen, an injectable medicine that fends off deadly allergic reactions, to $608, from about $100 in 2007. On August 29th Mylan said it would start selling a generic version for half the price.For pharma firms, this is a worrying prospect. To date the government has done little to lower or cap spending on medicines. Across Europe governments control prices in one way or another, but American drug firms can set whatever official price they like. Their single biggest customer is Medicare, which spent a massive $112 billion on medicines for the elderly in 2014.And it is illegal for Medicare to negotiate with drug companies. Only private health insurers do so on the government’s behalf, but they are sharply constrained. Insurers are obliging patients to pay a greater share of the cost for their treatment, so they notice higher prices.Prices are also rising rapidly. The average launch price of a range of cancer drugs, adjusted for inflation and health benefits, grew by 10% each year between 1995 and 2013
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