Knowledge that Transforms

Social neuroscience studies the “social brain,” conceived as the set of brain structures and functions supporting the perception and evaluation of the social environment. This article provides an overview of the field, using the book Social Neuroscience: Brain, Mind, and Society (Russell K. Schutt, Larry J. Seidman, and Matcheri S. Keshavan, editors) as a starting point. Topics include the evolution of the social brain, the concept of “theory of mind,” the relevant brain networks, and documented failures of the social brain. I argue that social neuroscience and economics can greatly benefit from each other because the social brain underlies interpersonal decision making, as studied in economics. (JEL D11, D71, D87, Z13)

This essay presents a critical review of the recent book by Alkire et al. entitled Multidimensional Poverty Measurement and Analysis, and, in the course of doing so, it also discusses some general issues that come up in this context. We outline the basic structure of the problem of measuring multidimensional deprivation and critically evaluate the methodology adopted by Alkire et al. (2015). In particular, we discuss some problems associated with the methods used by them to identify the deprived and to aggregate individual deprivations so as to derive an index of social deprivation. We examine the interpretation in terms of unfreedoms of individuals, which Alkire et al. put on one of their measures of social deprivation. We also suggest a variant of their methodology for measuring multidimensional deprivation.( JEL C38, E02, I32, Z13)

Abundant data has led to new opportunities for empirical auctions research in recent years, with much of the newest work on auctions of multiple objects, including: (1) auctions of ranked objects (such as sponsored search ads), (2) auctions of identical objects (such as Treasury bonds), and (3) auctions of dissimilar objects (such as FCC spectrum licenses). This paper surveys recent developments in the empirical analysis of such auctions. (JEL D44, H82)

There is a growing appreciation in economics that people have emotional vulnerabilities, commitments to social norms, and systematic irrationalities that impact their decision making and choice in the market place. The flip side of this is that human beings are susceptible to being manipulated by unscrupulous agents single-minded about marketing their services and wares. This paper reviews George Akerlof and Robert Shiller's Phishing for Phools: The Economics of Manipulation and Deception, alongside other writings in the field, and discusses how this research agenda can be taken forward. The paper shows how this new research can shed light on the ubiquity of corruption in so many societies, and proposes ideas for controlling corruption. (JEL D11, D90, M31, Z13)

The Health Gap documents the large and persistent health gaps that exist across and within relatively rich countries today. Marmot argues that in developed countries, poor health does not cause low incomes; rather, low socioeconomic status leads to poor health, but not because of proximate factors like differential health care access, which can explain only a small portion of these gaps. Therefore, to eliminate health gaps, policy should focus on the deep causes of disease: poverty, education, and occupational mobility, among others. While Marmot’s ethical arguments are quite compelling, his recommendations are too strong given the current evidence. Policies need to be based on a clearer understanding of why things work, when, and for whom. (JEL H51, I10, I13, I15, I18, I28)

While the GDP was intended by its originators as a measure of production, the absence of a measure of welfare in the national accounts has led to widespread misuse of the GDP to proxy welfare. Measures of welfare are needed to appraise the outcomes of changes in economic policies and evaluate the results. Concepts that describe the income distribution, such as poverty and inequality, fall within the scope of welfare rather than production. This paper reviews recent advances in the measurement of production and welfare within the national accounts, primarily in the United States and international organizations. Expanding the framework beyond the national accounts has led to important innovations in the measurement of both production and welfare. (JEL D63, E01, E23, E24, E31, I20)

Residential segregation by race and income are enduring features of urban America. Understanding the effects of residential segregation on educational attainment, labor market outcomes, criminal activity, and other outcomes has been a leading project of the social sciences for over half a century. This paper describes techniques for measuring the effects of neighborhood of residence on long-run life outcomes. ( JEL C51, I24, J15, K42, R23)

The achievements and limitations of the classical theory of optimal labor-income taxation based on social welfare functions are now well known. Even though utilitarianism still dominates public economics, recent interest has arisen for broadening the normative approach and making room for fairness principles such as desert or responsibility. Fairness principles sometimes provide immediate recommendations about the relative weights to assign to various income ranges, but in general require a careful choice of utility representations embodying the relevant interpersonal comparisons. The main message of this paper is that the traditional tool of welfare economics, the social welfare function framework, is flexible enough to incorporate many approaches, from egalitarianism to libertarianism. ( JEL D63, H21, H24, J24)

This paper reevaluates the basic prescriptions of monetary policy design in the new Keynesian paradigm through the lens of imperfect knowledge. We show that while the basic logic of monetary policy design under rational expectations continues to obtain, perfect knowledge and learning can limit the set of policies available to central banks, rendering expectations management in general more difficult. Nonetheless, the desirability of some form of price-level targeting, inducing inertia in interest-rate policy, paramount under rational expectations, is robust to the assumption of imperfect knowledge. (JEL D84, E13, E31, E52, E58)

The pharmaceutical industry accounts for a substantial chunk of the US economy's research and development investments, which have resulted in significant medical breakthroughs. At the same time, the costs of pharmaceutical products continue to rise, as does pressure to adopt direct or indirect controls on pharmaceutical prices. We review the economics literature on the pharmaceutical industry, focusing particularly on its positive and normative implications for the innovation, pricing, and marketing decisions of pharmaceutical firms. We discuss the major achievements of, and persistent gaps in, the literature, along with lessons for policy. (JEL I11, L11, L65, M31, M37, O31, O34)