Open and closed systems and the Cambridge School

In recent years a group of researchers at Cambridge (UK) have (re)introduced conceptions of open and closed systems into economics. In doing so they have employed these categories in ways that, in my assessment, both facilitate a significant critique of current disciplinary practices and also point to more fruitful ways of proceeding. In an issue of this journal, Andrew Mearman has advanced three criticisms of the Cambridge position which, if valid, would seriously undermine this assessment. Below I defend the Cambridge position against Mearman's criticisms.     

ON THE ROLE OF THE PRIMARY SYSTEM IN CANDIDATE SELECTION

How does the type of the primary system affect political outcomes? We address this issue by constructing a simple model that accounts for intra‐party as well as inter‐party political competition. Our model suggests that allowing non‐partisan voters to participate in the primaries (i.e. a semi‐open primary system) indeed improves the chances of a moderate candidate getting elected. However, this need not necessarily happen in the case of a completely open primary system. Under such a system there arise multiple equilibria, some of which may lead to a greater degree of extremism than the closed primary system. Thus, our model contributes to the current debate on the choice of primary systems from an analytical perspective and helps explain some of the empirical findings.     

Empirical Regularities of Financial Market Volatility and Good Modelling Process: Developing Countries’ Exchange Rate Markets Perspective

A survey of contemporary literature suggests that empirical studies on developing economies are few or almost non-existent. Engle and Patton (2001, What good is a volatility model. Quantitative Finance, 1, 237–245) as well as Poon (2005, A Practical Guide to Forecasting Financial Market Volatility. New Jersey: Wiley.) suggest that a good volatility model is one that utilizes the empirical regularities of financial market volatility (of which most were observed on industrialized economies markets). This paper uses exchange rate series from Ghana, Mozambique and Tanzania to show that;

1. they are not different from other financial markets as they exhibit most of the empirical regularities including volatility sign asymmetry, non-normal distribution and volatility clustering. It is however observed that the three exchange rate series are very volatile, with induced volatile shocks highly persistent and asymmetric, and extreme prices commonplace;

2. the ARCH technique (which has been well documented to capture these empirical regularities and produce good forecasts) generally produced a good fit to the three exchange rate series when compared with volatility forecasts generated using the EWMA technique. In the simple analysis of a day-ahead volatility forecast abilities of estimated models, it was observed that best fit does not necessarily ensure best forecast.

     

The role of scanning in open intelligence systems

Every month, SRI Consulting Business Intelligence (SRIC-BI) professionals assemble more than 100 short abstracts of developments that they perceive to be signals of change, discontinuities, inflection points, outliers, or disruptive developments. The effort is part of a continuous scanning process and Scan program that allows SRIC-BI to gauge the ongoing turbulent confluence of culture, commerce, and technology that defines today's business environment. For more than 25 years, scanning has played an essential role in SRIC-BI's and SRI International's foresight capabilities by providing a systematic means for surveying the broad external environment for change vectors. Traditional monitoring processes in most organizations are largely arbitrary, depending on what concerned individuals or leaders in the organization are reading, thinking about, and sharing informally with each other. But in today's world, arbitrary is insufficient. No foresight function can operate with confidence without a disciplined process for spotting new patterns of change and bringing those issues into the organization for early consideration and action. This article describes the scanning process as SRIC-BI practices it, the importance of open intelligence systems, what benefits the scanning process can provide to organizations, and what problems organizations typically run into when setting up scanning systems.     

A dynamic small open economy model with involuntary unemployment

Abstract It is well known that real business cycle small open economy (SOE) models rely on Greenwood, Hercowitz, and Huffman (1988) preferences to match the countercyclical trade balance observed in open economies, as well as other second moments, while standard preferences à la King, Plosser, and Rebelo (1988) are commonly labelled ‘ineffective,’ owing to their inability to yield the countercyclical trade balance. In this paper, I show that an SOE model with standard preferences and ‘involuntary’ unemployment with efficient risk sharing can obtain a countercyclical trade balance and match main empirical regularities in small open economies.     

Competition and open source with perfect software compatibility

In this paper we study duopolistic competition between closed and open source software. Inspired by recent contributions on open source, we propose a two-stage game with perfect information and product differentiation, in which producers first set software quality and then determine prices (the price is zero for open source programs). We assume perfect software compatibility and model lock-in effects, a network externality component of software quality, and accumulation of experience in software use and implementation. In comparison to the monopolistic benchmark case, we argue that, in a duopoly created by the emergence of an open source program, the proprietary software producer will reduce its selling price if: (i) its network of users is larger than the open source network and its consumers are largely familiar with its program, (ii) it has a small network of unskilled consumers. On the other hand, the price of proprietary software will increase if its users form a large, but poorly-skilled network. Furthermore, we show that, in all of the above cases, the hedonic quality of proprietary software increases. Finally, by modeling experience accumulation processes through difference equations, we show that the ratio between the closed and open source programs’ opportunity costs for software learning and deployment plays a crucial role in shaping market outcomes. If open source software remains too complex and technical for unskilled or time-pressed users, a shared market solution, in which both programs are adopted, is likely to emerge. However, if opportunity costs in learning and understanding open source programs are particularly low, or at least equal to the opportunity costs of a closed-source program, then open source dominance emerges (i.e. markets tip to open source).     

Costs of hospital events in patients with metastatic colorectal cancer

Abstract

Background:

In the last decade, the number of new agents, including monoclonal antibodies, being developed to treat metastatic colorectal cancer (mCRC) increased rapidly. While improving outcomes, these new treatments also have distinct and known safety profiles with toxicities that may require hospitalizations. However, patterns and costs of hospitalizations of toxicities of these new ‘targeted’ drugs are often unknown.

Objective:

This study aimed to estimate the costs of hospital events associated with adverse events specified in the ‘Special Warnings and Precautions for Use’ section of the European Medicinal Agency Summary of Product Characteristics for bevacizumab, cetuximab, and panitumumab, in patients with mCRC.

Methods:

From the PHARMO Record Linkage System (RLS), patients with a primary or secondary hospital discharge code for CRC and distant metastasis between 2000–2008 were selected and defined as patients with mCRC. The first discharge diagnosis defining metastases served as the index date. Patients were followed from index date until end of data collection, death, or end of study period, whichever occurred first. Hospital events during follow-up were identified through primary hospital discharge codes. Main outcomes for each event were length of stay and costs per hospital admission.

Results:

Among 2964 mCRC patients, 271 hospital events occurred in 210 patients (mean [SD] duration of follow-up: 34 [31] months). The longest mean (SD) length of stay per hospital admission were for stroke (16 [33] days), arterial thromboembolism (ATE) (14 [21] days), wound-healing complications (WHC), acute myocardial infarction (AMI), congestive heart failure (CHF), and neutropenia (all 9 days; SD 5–15). Highest mean (SD) costs per admission were for stroke (€13,500 [€28,800]), ATE (€13,300 [€18,800]), WHC (€10,800 [€20,500]).

Limitations:

Although no causal link could be identified between any specific event and any specific treatment, data from this study are valuable for pharmacoeconomic evaluations of newer treatments in mCRC patients.

Conclusions:

Inpatient costs for events in mCRC patients are considerable and vary greatly.     

Social Insurance and Redistribution with Moral Hazard and Adverse Selection*

Rochet (1991) showed that with distortionary income taxes, social insurance is a desirable redistributive device when risk and ability are negatively correlated. This finding is re‐examined when ex post moral hazard and adverse selection are included, and under different informational assumptions. Individuals can take actions influencing the size of the loss in the event of accident (or ill health). Social insurance can be supplemented by private insurance, but private insurance markets are affected by both adverse selection and moral hazard. We study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced. The case for social insurance is strongest when the government is well informed about household productivity.     

Impact of nocturnal hypoglycemic events on diabetes management,sleep quality,and next-day function: results from a four-country survey

Abstract

Objectives:

Non-severe nocturnal hypoglycemic events (NSNHEs) may have a major impact on patients. The objective was to determine how NSNHEs affect diabetes management, sleep quality, functioning, and to assess if these impacts differ by diabetes type or country.

Methods:

An internet survey to adults with diabetes in the US, UK, Germany, and France.

Results:

Of 6756 screened respondents, 1086 reported an NSNHE in the past month. For this last event, respondents with type 2 required significantly more time than type 1 to recognize and respond to the event (1.5 vs 1.1 hours), 25.7% (T1) and 18.5% (T2) decreased their normal insulin dose due to their most recent NSNHE. All respondents were likely to take 1–2 additional self-monitored blood glucose measurements on the day following. NSNHEs were associated with a high proportion of respondents contacting a healthcare professional (18.6% T1, 27.8% T2) reporting they could not return to sleep at night (13.3% T1, 13.4% T2), and tiredness on the day following the event (71.2% for both). Of the respondents working for pay, 18.4% T1 and 28.1% T2 reported being absent from work due to the NSNHE, and a substantial proportion of respondents (8.7% T1, 14.4% T2) also reported missing a meeting or work appointment or not finishing a task on time. Compared with other countries, respondents from France may experience a more substantial impact on diabetes management and daily functioning following an NSNHE. Potential limitations in this study include recall and selection bias; however, these biases are not believed to have impacted findings in any meaningful way.

Conclusions:

NSNHEs are associated with a substantial impact on diabetes management, sleep quality, and next-day functioning.     

A New Matrix Theorem: Interpretation in Terms of Internal Trade Structure and Implications for Dynamic Systems

Economic systems often are described in matrix form as x = Mx. We present a new theorem for systems of this type where M is square, nonnegative and indecomposable. The theorem discloses the existence of additional economic relations that have not been discussed in the literature up to now, and gives further insight in the economic processes described by these systems. As examples of the relevance of the theorem we focus on static and dynamic closed Input-Output (I-O) models. We show that the theorem is directly relevant for I-O models formulated in terms of difference or differential equations. In the special case of the dynamic Leontief model the systems behavior is shown to depend on the properties of matrix M = A + C where A and C are the matrices of intermediate and capital coefficients, respectively. In this case, C is small relative to A and a perturbation result can be employed which leads directly to a statement on the systems eigenvalues. This immediately suggests a solution to the well-known problem of the instability of the dynamic Leontief model.     

On the Effects of Inflation Shocks in a Small Open Economy

The effects of monetary policies remain always an important topic in macroeconomics. In the literature (closed and open economy), there is no theoretical as well as empirical consensus regarding the effects of monetary policies. In this paper we examine the real effects of inflation in an open economy. Australia is a classic example of a small open economy and is known to exercise inflation targeting. Using quarterly data from Australia and employing vector autoregressive (VAR) analysis, we provide evidence that inflation, both in the short and long run, negatively affects durable and non‐durable consumption and investment, and has a positive effect on the current account. Further, we show that consumption of durable goods is more sensitive than the consumption of non‐durables during the initial periods following inflationary shocks.     

Assessment of zoledronic acid treatment patterns and clinical outcomes in patients with bone metastases from genitourinary cancers

Abstract

Background:

Patients with bone metastases secondary to genitourinary (GU) cancer are at risk for skeletal-related events (SREs), including bone pain requiring palliative radiotherapy, fractures or surgery to bone, spinal cord compression, and hypercalcemia of malignancy. These SREs can be debilitating and potentially life-limiting. This study examined treatment practices and the association of treatment patterns with Zometa (zoledronic acid, ZOL), an intravenous bisphosphonate (IV-BP), with SREs and fractures. (Zometa is a registered trademark of Novartis Pharmaceuticals Corporation, USA.)

Methods:

Retrospective analysis of commercial and Medicare Advantage enrollment and medical claims data was performed to evaluate IV-BP use and SRE patterns in adult patients with GU cancers. Criteria included diagnosis of ≥1 bone metastasis and prostate cancer (PC), renal cell carcinoma (RCC), or bladder cancer (BlC) between January 2001 and December 2006; continuous healthcare plan enrollment for ≥6 months before the index date; and no evidence of prior IV-BP use. Patients were followed until disenrollment from the healthcare plan or December 2007.

Results:

Of 6347 patients (PC, n?=?4976; RCC, n?=?941; BlC, n?=?430; mean [standard deviation] age: 68.9 [11.1] years), only ～23% received ZOL. The mean time between diagnosis of bone metastasis and ZOL initiation was ～108 days. Among patients with PC, fracture risk was significantly smaller for ZOL vs no IV-BP (incidence rate ratio?=?0.70; p?<?0.001), and 2-year survival was significantly longer for ZOL-treated vs no IV-BP patients (p?=?0.007). Patients with longer persistency on ZOL had a smaller fracture risk than patients with shorter persistency. Sub-set analyses were not performed for RCC and BIC because the proportion of patients treated was too low.

Limitations:

Interpretation of this claims-based analysis must be tempered by the inherent limitations of observational data, such as limited and accurate available information, and unavailable information including clinical or disease-specific parameters.

Conclusions:

Intravenous BP therapy is not always received in patients with bone metastases secondary to GU cancers, and, when used, there are typically long time periods before treatment initiation. Without IV-BPs, PC patients have significantly larger risks of fracture and death compared with ZOL-treated patients, and benefits appear to be larger with increasing persistency on ZOL.     

Cost of fractures commonly associated with osteoporosis in a managed-care population

Objective: To examine direct costs of hip, vertebral, and non-hip non-vertebral (NHNV) fractures, and to estimate the rate of osteoporosis (OA) diagnosis and treatment in the fracture population.

Methods: Subjects ≥ 45 years with a new hip, vertebral, or NHNV fragility (closed) fracture between June 30, 2002 and June 30, 2006 were studied retrospectively. All-cause and fracture-specific medical costs were calculated from medical claims in the 12-month baseline and follow-up periods. Total healthcare costs included pharmacy and medical costs. Diagnosis for OA and OA treatment were identified in both the baseline and follow-up period from diagnosis codes on medical claims for OA, and from pharmacy claims for treatment. Analyses were performed separately for commercial (COM) and Medicare Advantage (MA) populations and stratified by fracture type. Generalized linear models were estimated for total follow-up healthcare cost.

Results: The study sample included 36,521 COM and 10,160 MA subjects. Hip fracture subjects had the highest follow-up medical costs in unadjusted and adjusted analyses (COM: mean $35,898; median $22,945; MA: mean $32,919; median $26,047). Follow-up costs were much higher than baseline costs. Fracture-related costs accounted for a large proportion of follow-up medical costs. Although rates of osteoporosis diagnosis and treatment increased from baseline to follow-up, the majority of both COM and MA subjects had no evidence of osteoporosis diagnosis or treatment in either period.

Conclusions: Despite limitations of this study, including conventional generalizability issues, and sensitivity and specificity of claims-based diagnoses, results are consistent with other research and provide compelling results of substantial cost burden of fractures related to osteoporosis. Low rates of osteoporosis diagnosis and treatment among patients with costly fragility fractures underscore the opportunity for managed care organizations to initiate comprehensive disease management programs in osteoporosis.     

Modeling hard clinical end-point data in economic analyses

Abstract

Objective:

The availability of hard clinical end-point data, such as that on cardiovascular (CV) events among patients with type 2 diabetes mellitus, is increasing, and as a result there is growing interest in using hard end-point data of this type in economic analyses. This study investigated published approaches for modeling hard end-points from clinical trials and evaluated their applicability in health economic models with different disease features.

Methods:

A review of cost-effectiveness models of interventions in clinically significant therapeutic areas (CV diseases, cancer, and chronic lower respiratory diseases) was conducted in PubMed and Embase using a defined search strategy. Only studies integrating hard end-point data from randomized clinical trials were considered. For each study included, clinical input characteristics and modeling approach were summarized and evaluated.

Results:

A total of 33 articles (23 CV, eight cancer, two respiratory) were accepted for detailed analysis. Decision trees, Markov models, discrete event simulations, and hybrids were used. Event rates were incorporated either as constant rates, time-dependent risks, or risk equations based on patient characteristics. Risks dependent on time and/or patient characteristics were used where major event rates were >1%/year in models with fewer health states (<7). Models of infrequent events or with numerous health states generally preferred constant event rates.

Limitations:

The detailed modeling information and terminology varied, sometimes requiring interpretation.

Conclusions:

Key considerations for cost-effectiveness models incorporating hard end-point data include the frequency and characteristics of the relevant clinical events and how the trial data is reported. When event risk is low, simplification of both the model structure and event rate modeling is recommended. When event risk is common, such as in high risk populations, more detailed modeling approaches, including individual simulations or explicitly time-dependent event rates, are more appropriate to accurately reflect the trial data.     

The effects of multilateral trading systems on risk and return in equity markets

The event study methodology of Brown and Warner (1985) is adopted and augmented to evaluate the effect of the launch of multilateral trading systems on risk and return in equity markets. The methodology is supplemented with various techniques, such as the nonparametric ranking test and kernel regression, to find out if announcements about the introduction of Chi-X Australia generated abnormal returns (ARs). Asset pricing models are fitted with interaction variables, while GARCH, threshold ARCH (TARCH), exponential GARCH (EGARCH) and power-ARCH (PARCH) are used to determine changes in systematic risk. We find evidence in favour of Fisher’s separation theorem and detect a new market anomaly, which we call the ‘Fisher market anomaly’. Our results show that Chi-X system testings affect ARs. Consistent with the adaptive expectations theory, we confirm that the first announcement about the launch of Chi-X affected systematic risk the most. In addition, we identify industry and firm effects in risk analysis.     

Can individuals’ beliefs help us understand nonadherence to malaria test results? Evidence from rural Kenya

In malaria‐endemic countries about a quarter of test‐negative individuals take antimalarials (artemisinin‐based combination therapies [ACTs]). ACT overuse depletes scarce resources for subsidies and contributes to parasite resistance. As part of an experiment in Kenya that provided subsidies for rapid diagnostic test and/or for ACTs conditionally on being positive, we studied the association between beliefs on malaria status (prior and posterior the intervention) and decisions to get tested and to purchase ACTs. We find that prior beliefs do not explain the decision of getting tested (conditional on the price) and nonadherence to a negative test. However, test‐negative individuals who purchase ACTs report higher posterior beliefs than those who do not, consistent with a framework in which the formers revise beliefs upward, while the latters do not change or revise downward. We also do not find evidence that prior beliefs on ACT effectiveness and trust in test results play any major role in explaining testing or treatment behavior. Further research is needed to improve adherence to malaria‐negative test results.     

Trade Policy in the Presence of Economies of Scale and Product Variety*

It is well known that laissez faire may not be the ‘first-best’ policy in a closed economy where economies of scale are present. Corden has shown that this conclusion can carry over into an open economy, though under his assumption that imported goods are perfect substitutes for home-produced goods, interference with international trade could not raise real income. We have shown that where there are economies of scale, and imported goods are not identical to the home produced goods, interference with trade could raise real national income, though such a form of intervention would not normally be optimal. Further, it could even be desirable to support home production of more than one ‘variety’. Measurements of ‘costs of protection’ that aggregate several varieties into one may mislead not only regarding the size of the cost but even regarding its sign.     

Terms‐of‐Trade Shocks and Exchange Rate Regimes in a Small Open Economy*

We examine the impact of terms‐of‐trade shocks on key macroeconomic variables by numerically solving a dynamic stochastic general equilibrium model of a small open economy. The model considers nominal price rigidity under different exchange rate regimes. The numerical solutions obtained are consistent with the empirical regularities documented by Broda (2004), in which output responses to shocks are smoother in floats than in pegs; in moving from pegs to floats, the rise in nominal exchange rate volatility is coupled by the rise in real exchange rate volatility; and in both exchange rate regimes, net foreign assets is the most volatile variable.     

The Optimal Environmental Tax and Urban Unemployment in an Open Economy

This paper investigates how a rise in the urban pollution tax rate may affect urban unemployment and welfare in a small open Harris–Todaro (HT) model with intersectoral capital mobility. First, by formulating urban pollution as a dirty input in manufacturing, we find that an increase in the urban pollution tax rate can increase the level of urban unemployment even with intersectoral capital mobility. That is, the optimistic finding by Rapanos (2007 ) that environmental protection policy reduces urban unemployment in the long run does not always hold. Second, the (sub)optimal pollution tax rate under urban unemployment is higher than the Pigouvian tax rate (the marginal damage of pollution). This result opposes those of Beladi and Chao (2006 ) for a closed HT economy and that of Tsakiris et al. (2008 ) for an open HT economy with sector‐specific capital.