Spatial econometric Monte Carlo studies: raising the bar

We discuss Monte Carlo methodology that can be used to explore alternative approaches to estimating spatial regression models. Our focus is on models that include spatial lags of the dependent variable, e.g., the SAR specification. A major point is that practitioners rely on scalar summary measures of direct and indirect effects estimates to interpret the impact of changes in explanatory variables on the dependent variable of interest. We argue that these should be the focus of Monte Carlo experiments. Since effects estimates reflect a nonlinear function of both \(\beta \) and \(\rho \), past studies’ focus exclusively on \(\beta \) and \(\rho \) parameter estimates may not provide useful information regarding statistical properties of effects estimates produced by alternative estimators. Since effects estimates have recently become the focus of inference regarding the significance of (scalar summary) direct and indirect impacts arising from changes in the explanatory variables, empirical measures of dispersion produced by simulating draws from the (estimated) variance–covariance matrix of the parameters \(\beta \) and \(\rho \) should be part of the Monte Carlo study. An implication is that differences in the quality of estimated variance–covariance matrices arising from alternative estimators also plays a role in determining the accuracy of inference. An applied illustration is used to demonstrate how these issues can impact conclusions regarding the performance of alternative estimators.     

The revenue potential of a financial transaction tax for US financial markets

This paper estimates the revenue potential of a financial transaction tax (FTT) for US financial markets. We focus on analyzing the revenue potential of the Inclusive Prosperity Act that was introduced in the US House of Representatives in 2012 and the US Senate in 2015. The tax rates stipulated in this Act include 0.5% (50 basis points (bps)) for all stock transactions, 0.1% (10 bps) for all bond transactions and 0.005% (0.5 bps) on the notional value of all derivative trades. We examine three sets of evidence to generate potential revenue estimates: 1) the levels of transaction costs in US financial markets over time and within the range of financial market segments; 2) the extent of trading elasticities under various trading conditions; and 3) the current level of trading activity in US financial markets. Based on this evidence, we conclude that a US FTT operating at the tax rates stated above would generate about $220 billion per year, equal to about 1.2% of the current US GDP.     

Habits of Thought and the Process of Economic Development: Remarks on Receiving the Veblen-Commons Award

Among the many insightful contributions of Thorstein Veblen and John R. Commons is that habits of thought matter. Habits of thought condition policy and place limits on what is possible. This article tackles five habits of thought that inhibit the process of economic development. These include: (i) the confusion of economic development with economic growth; (ii) the crowding-out hypothesis; (iii) the concept of the steady state economy; (iv) the peak oil hypothesis; and (v) the inevitability of economic progress. None of the discussions in this article are intended to minimize the importance of other very real constraints to the development process. A few of these other constraints are war, racism, sexism, political instability, corruption, and climate change.     

Real-world utilization of molecular diagnostic testing and matched drug therapies in the treatment of metastatic cancers

Aims: To assess the frequency of biopsies and molecular diagnostic testing (human DNA/RNA analysis), anti-cancer drug use (genomically-matched targeted therapy [GMTT], unmatched targeted therapy [UTT], endocrine therapy [ET], and chemotherapy [CT]), and medical service costs among adults with metastatic cancer.

Methods: Adults diagnosed with metastatic breast, non-small cell lung (NSCLC), colorectal, head and neck, ovarian, and uterine cancer (2010Q1–2015Q1) were identified in the OptumHealth Care Solutions claims database and followed from first metastatic diagnosis for ≥1 month and until the end of data availability. Utilization was assessed for each cancer cohort (all and patients aged ≥65 years); per-patient-per-month (PPPM) medical service costs were assessed for all patients. Testing frequency estimates were applied to Surveillance, Epidemiology, and End Results Program data to estimate the number of untested patients (2010–2014).

Results: Patients with metastatic cancer (n?=?8,193; breast [n?=?3,414], NSCLC [n?=?2,231], colorectal [n?=?1,611], head and neck [n?=?511], ovarian [n?=?275], and uterine [n?=?151]) were 63 years old (mean), with 11.1–22.2 months of observation. Biopsy and molecular diagnostic testing frequencies ranged from 7% (uterine) to 73% (ovarian), and from 34% (head and neck) to 52% (breast), respectively. Few were treated with GMTT (breast, 11%; NSCLC, 9%; colorectal, 6%). Treatment with UTT ranged from 0.7% (uterine) to 21% (colorectal). Biopsy, diagnostic testing, and anti-cancer drug therapy were less frequent for those ≥65 years. Medical service costs (PPPM, mean) ranged from $6,618 (head and neck) to $9,940 (ovarian). The estimated number of untested new patients with metastatic cancer was 636,369 (all) and 341,397 (≥65).

Limitations: In addition to the limitations of claims analyses, diagnostic testing frequency may be under-estimated if patients underwent testing prior to study inclusion.

Conclusions: The low frequency of molecular diagnostic testing suggests there are opportunities to better inform management of patients with advanced cancer, particularly decisions to treat with GMTT.     

Wealth inequality: Theory,measurement and decomposition

This paper reviews the basic principles of inequality measurement, underlining the advantages and shortcomings of alternative measures from a theoretical standpoint and in the context of the study of the distribution of wealth. Adopting the two most popular measures, the Gini index and the P‐shares, the paper documents wealth inequality in Canada using the 1999, 2005 and 2012 Survey of Financial Security (SFS). It carries out several decompositions with covariates, featuring DFL‐type reweighting methods and Gini and P‐shares RIF regressions. The latter parallel decompositions deepen our understanding of how changes in socio‐demographic characteristics, including the compensating role of family formation and human capital, impact wealth inequality.     

Brentuximab vedotin in relapsed/refractory Hodgkin lymphoma post-autologous stem cell transplant: a cost-effectiveness analysis in Scotland

Objective: To evaluate cost-effectiveness of brentuximab vedotin in patients with relapsed/refractory Hodgkin lymphoma who have received autologous stem cell transplantation, from a Scottish healthcare payer perspective.

Methods: A Microsoft Excel-based partitioned survival model comprising three health states (progression-free survival [PFS], post-progression survival, and death) was developed. Relevant comparators were chemotherapy with or without radiotherapy (C/R) and C/R with intent to allogeneic hematopoietic stem cell transplantation (alloSCT). Data were obtained from the pivotal phase II single-arm trial in 102 patients (SG035-0003; NCT00848926), a systematic literature review and clinical expert opinions (where empirical evidence was unavailable). PFS and overall survival for brentuximab vedotin were estimated using 5-year follow-up data from SG035-0003, and extrapolated using event rates observed for comparator treatments from published survival data. Resource use included drug acquisition and administration; alloSCT; treatment of adverse events; and long-term follow-up. Deterministic and probabilistic sensitivity analyses were conducted to evaluate the impact of uncertainty.

Results: In the base case, the incremental cost-effectiveness ratio (ICER) for brentuximab vedotin was £38,769 per quality-adjusted life year (QALY) vs C/R, whereas C/R with intent to alloSCT was dominated by brentuximab vedotin. ICERs for brentuximab vedotin generated by the deterministic sensitivity analysis ranged between £32,000–£54,000 per QALY. Including productivity benefits reduced the ICER to £28,881 per QALY.

Limitations: Limitations include lack of comparative data from this single arm study and the heterogeneous population. Inconsistent baseline characteristic reporting across studies prevented complete assessment of heterogeneity and the extent of potential bias in clinical and cost-effectiveness estimates.

Conclusions: Although the base case ICER is above the threshold usually applied in Scotland, it is relatively low compared with other orphan drugs, and lower than the ICER generated using a previous data cut of SG035-0003 that informed a positive recommendation from the Scottish Medicines Consortium, under its decision-making framework for assessment of ultra-orphan medicines.     

The evolution of inflation expectations in Canada and the US

We model inflation forecasts as monotonically diverging from an estimated long‐run anchor point towards actual inflation as the forecast horizon shortens. Fitting the model with forecaster‐level data for Canada and the US, we identify three key differences between the two countries. First, the average estimated anchor of US inflation forecasts has tended to decline gradually over time in rolling samples, from 3.4% for 1989–1998 to 2.2% for 2004–2013. By contrast, it has remained close to 2% since the mid‐1990 for Canadian forecasts. Second, the variance of estimates of the long‐run anchor is considerably lower for the panel of Canadian forecasters than US ones following Canada's adoption of inflation targets. And third, forecasters in Canada look much more alike than those in the US in terms of the weight that they place on the anchor. One explanation for these results is that an explicit inflation‐targeting regime (Canada) provides for less uncertainty about future monetary policy actions than a monetary policy regime where there was no explicit numerical inflation target (the US before 2012) to anchor expectations.     

Pricing and Mispricing of Accounting Fundamentals in the Time‐Series and in the Cross Section

This study examines the extent to which parsimonious and general cross‐sectional valuation models, restricted to include only publicly available historical accounting information, explain share prices in the cross section, identify periods when market mispricing may be more pervasive, and also identify which shares within those cross sections are more likely to be mispriced. Our model simply includes historical book value, earnings, dividends, and growth, but it explains on average over 60 percent of the cross‐sectional variation in share prices in annual estimations across 1975–2011. We also examine the extent to which the residuals indicate mispricing. The quintile of stocks picked by our model as most likely underpriced outperform the quintile of stocks picked as most likely overpriced by an average of 9.9 percent over the following 12 months, after controlling for size. We also predict and find that value residuals are better predictors of future abnormal returns: (i) among firms that are not covered by analysts; (ii) among firms that face fewer accounting measurement challenges; and (iii) when we estimate value model parameters by industry/year. We also predict and find our approach works better in periods when the mapping of fundamentals into prices is weaker. This study contributes a novel and straightforward approach to map accounting fundamentals into share prices in order to identify mispricing in time‐series and in the cross section.