A. “Fettered Consumers and Sophisticated Firms: Evidence from Mexico’s Privatized Social Security Market,” by Fabian Duarte and Justine S. Hastings (w18582, December 2012, .pdf format, 37p.).
Abstract:
This paper brings new evidence from the privatized social security system in Mexico, offering insight into investment behavior and the efficacy of government ‘nudges’ in the context of profit maximizing firms. We use administrative data from the social security system surrounding the government adoption of a new official fee index aimed at simplifying fees and increasing price sensitivity of investors. The fee index combined load and management fees in a particular way, implying that choosing a lower index firm could lead many workers to choose a higher-cost fund for them. We find that before the index, investors of all backgrounds paid little attention to fees when choosing fund managers. Post-policy intervention, investors heavily weighted the fee index regardless of whether doing so caused them to choose a higher-cost fund. In contrast to investors, we find that firms responded optimally to the changes in demand induced by government policy, restructuring rather than lowering their fees to minimize the index. The strategic response erased gains to consumers from increased price sensitivity and redistributed management fees from high-income to low-income segments of the market. We conclude that regulations and policies aimed at aiding consumer decision-making also need to incorporate firm incentives to be effective.
B. “The Gorbachev Anti-Alcohol Campaign and Russia’s Mortality Crisis,” by Jay Bhattacharya, Christina Gathmann, and Grant Miller (w18589, December 2012, .pdf format, 45p.).
Abstract:
Political and economic transition is often blamed for Russia’s 40% surge in deaths between 1990 and 1994. Highlighting that increases in mortality occurred primarily among alcohol-related causes and among working-age men (the heaviest drinkers), this paper investigates an alternative explanation: the demise of the 1985-1988 Gorbachev Anti-Alcohol Campaign. Using archival sources to build a new oblast-year data set spanning 1978-2000, we find a variety of evidence suggesting that the campaign’s end explains a large share of the mortality crisis – implying that Russia’s transition to capitalism and democracy was not as lethal as commonly suggested.
