Differences in regulated pharmaceutical prices within the European Economic Area create arbitrage opportunities that pharmacy retailers can access through parallel imports. For prescription drugs under patent, parallel trade affects the sharing of profits among an innovating pharmaceutical company, retailers, and parallel traders. We develop a structural model of demand and supply in which retailers can choose the set of goods to sell, thus foreclosing consumers' access to less profitable drugs. This allows retailers to bargain and obtain lower wholesale prices from the manufacturer and parallel trader. With detailed transaction data from Norway, we identify a demand model with unobserved choice sets using retail‐side conditions for optimal assortment decisions of pharmacies. We find that retailer incentives play a significant role in fostering parallel trade penetration and that banning parallel imports would benefit manufacturers as well as prevent pharmacies from foreclosing the manufacturer's product. Finally, in the case of the statin market in Norway, we show that it would be possible to decrease spending and increase profits of the original manufacturer through lump sum transfers associated with a lower reimbursement price, thus decreasing price differentiation across countries

BESLEY’S PAPER studies the role of civic culture in expanding fiscal capacity in a political economy model of the interaction between policy-making élites and tax-paying citizens. At an equilibrium, (i) élites choose the tax rate t and the composition of expenditures between public goods G and private rents B, while (ii) citizens choose their tax compliancy, 1 − n. Civic culture is defined by a form of intrinsic reciprocity, a reduced disutility for paying taxes when taxes are used to provide public goods rather than transfers and rents to the élites. I read this paper through the eyes of a fascinating and broad agenda on the role of institutions and culture in fostering economic development, which Besley has prominently contributed to; for example, Besley and Persson (2019).1 My comments aim at elucidating the theoretical contribution of the paper to this literature. First of all, I will argue that the results of the paper are bound to hold at least qualitatively in different models as long as they display a fundamental complementarity between civic culture and public good provision, opening the analysis to new and interesting implications. I will then attempt an analysis of the institutional design of the polity of the state, for example, its constitutional frame, legal structure and enforcement mechanisms, political procedures, rights and regulations enforced by official authorities, and so on, in the context of the model. I will illustrate how this analysis produces a rich set of novel implications with regards to institutional change and to the institutional correlates of civic capital, state capacity, and public goods provision. I will also show that the maintained assumption in the model, that élites display commitment when choosing policy, has important implications. Relaxing this assumption also produces interesting implications for the study of culture and institutions. Finally, I will briefly speculate on the dynamics of civic culture which can be obtained in the model if inter-generational cultural transmission is characterized by some form of imperfect altruism on the parts of the parents. Complementarity between civic culture and public good provision. The formal model in the paper focuses on how civic culture affects state capacity and public good provision: civic-minded citizens are more willing to comply with taxation when public goods are provided and this aligns the incentives of élites with those of the citizenry (the élites do not pay taxes but enjoy public goods). At equilibrium, therefore, state capacity and public good provision G increase with the fraction of civic-minded citizens, that is, with civic capital μ. Furthermore, the postulated dynamics of μ (a reduced-form replicator dynamics to capture inter-generational transmission of cultural traits) has the property that μ increases with the provision of public goods G