Capture Theory and the FDA

 

               The Food and Drug administration is no stranger to controversy. Whether mass recalls on previously approved drugs, or shady transactions occurring after approvals, there seems to be a conflict-of-interest present. Big corporations, such as Monsanto, always seem to have allies on regulatory agencies, such as the FDA, questioning the validity of many safety measures taken. Such regulatory agencies have been “captured” in a sense, bowing to the wants of large corporations in exchange for compensation.

               One example of such an occurrence is the approval of the drug Brilinta, which reduces blood clotting, limiting the risk of heart attacks and strokes. After the approval of this drug, many officials responsible for the approval received hefty compensation from the company AstraZeneca. This is incredibly concerning, as the regulatory agency that determines what is permitted within production of consumable goods seemingly has been captured by corporate interests. What corners are being cut to reduce costs that the FDA just turns a blind eye to, due to the financial incentives? How can we trust the safety of our food when the overseeing body has incentives to led certain things slide? The principle-agent problem present in this situation is also clear. The American people (principles) wish for adequate regulation and knowledge about approved drugs and foods, while the FDA officials (agents) have incentives to overlook important factors in order to financially benefit. While the FDA has what the deem as “strong” conflict-of interest-assessments, shady transactions, such as those proceeding the approval of Brilinta, question the validity of these assessments, and the overall reliability of the organization.

Georgia's Senate Race

 The Georgia Senate Race between the Democrat Incumbent Raphael Warnock and Republican Herschel Walker has been one of the most closely watched races of the 2022 cycle. Mr. Warnock is a pastor of a well-known church in Atlanta who campaigned on his accomplishments since election, as well as “painting himself as a champion of bipartisan problem solving in a gridlocked congress”. Warnock painting himself as a bi-partisan legislator is an example of Down’s Median Voter Theorem: candidates and parties converging to the median voter. Warnock is trying to get as many votes as possible, which means voting for moderate policies or at least doing what he did in the campaign- presenting himself as bi-partisan.

    Additionally, in class, we discussed various voting methods and their advantages and disadvantages. Georgia law mandates a majority rule with runoff, meaning that the winner needs to get 50.1% of the vote. However, in this election, Warnock received 49.4%, Walker 48.5%, and a 3rd candidate, Chase Oliver, a libertarian, received 2.1% of the vote. Because of Oliver’s candidacy, neither Walker nor Warnock were able to reach the majority threshold. Therefore, the election will head to a December 6th runoff between Warnock and Walker. It may be possible that the winner of the runoff will be different under the majority rule with the runoff system than if a plurality rule was used. On December 6th, we may (?) experience first-hand how different electoral rules can produce different winners.

Working From Home or Shirking From Home?

 In class, we recently talked about the principal-agent problem, which involves the misalignment of incentives/preferences in which the incentives of an agent do not perfectly align with those of the principal. This can lead to shirking, which occurs when an agent does not act in accordance with the principal's wishes. In class, we talked about this in the context of government in which the representative is the agent and the voter is the principal. However, this misalignment of incentives exists in many scenarios, especially in the workplace. Workers, or agents, have an incentive to not work as hard as their manager may like. In other words, they have the incentive to shirk. There are several ways to control shirking, for instance by defining desired output well, monitoring the agent's behavior, completing frequent performance reviews, and securing other alternatives. 

Our discussion of shirking got me thinking about the pandemic and its effect on the frequency of working from home. According to a study by the US Bureau of Labor Statistics, 1/3 of workplaces increased telework for some or all of their employees during the COVID-19 pandemic. Working from home makes it much harder for principals to monitor their agent's behavior, so what effect might the pandemic have had in increasing shirking by agents, and what can employers do about it? Well, it seems that many employers anticipated this, so they moved toward trying to find ways to monitor their workers from home to avoid shirking. PwC was one such company that has come under scrutiny for their development of a facial recognition technology that logs when employees are absent from their computers during the work day. It requires employees to provide a written reason for why they are absent from their computers, even if it is just to use the bathroom. Critics of this development say that it is a huge intrusion of privacy which damages trust and negatively impacts worker morale. However, the company says that it is designed to help financial institutions meet their compliance obligations where workers would normally be highly monitored for security purposes on trading floors. Though PwC may have gone too far in their efforts to control shirking, what is certain is that companies will have to find new ways to monitor the behavior of their employees in order to control shirking as workers continue to work from home due to the pandemic. 

Are Santa's Elves the Masters of Controlling Shirking?

In class on 03 Nov. as we were discussing the Kalt and Zupan paper “Capture and Ideology in the Economic Theory of Politics”. Our discussion shifted to what ideologies are and how they can lead to principle agent problems. The principle agent problem is when there is a misalignment of incentives between the principle and agent, specifically in our conversation we discussed how it arises when an elected representative (the agent) begins shirking what the underlying electorate (the principal) voted him/her in for and instead votes based on his/her own ideology. After this we learned that there are four ways to control Shirking. The first, is having a well define output in place, something that is measurable, like a quota. The second is for the principal to constantly monitor the agent in order to have complete knowledge of what they are doing. The third is to have frequent performance reviews and the fourth is to have many alternatives that are available to hire, in order to replace the shirking agent. 

Now, I may be getting a little ahead of myself, but after Halloween ended the holidays have been on my mind. Specifically Christmas, so naturally my mind immediately jumped to one of the best Christmas movies ever made, Elf! If you don't already know what scene I'm going to then you need to rewatch the movie immediately. In case you don't, a link to the scene can be found here. We see Buddy (the agent) hard at work as Ming-Ming approaches. They immediately start discussing quotas for Etch-a-Sketches and that unfortunately Buddy will fall short of that quota, approximately 915 Etch-a-Sketches off pace. The elves clearly have a well defined and measurable output. Then Ming-Ming acts as a monitor in this scene as well. You can see him intently looking down the production line gaining accurate knowledge on how well prepared the elves are for Christmas. Buddy then starts to get down on himself and even ventures to call himself a Cotton Headed Ninny Muggins. Here Ming-Ming initiates a performance review. He acknowledges that Buddy may not be great at toy making, but rather he has other "special talents" as other elves soon point out all the unique things Buddy can do. Now for the fourth and final shirk control. Buddy is sent to the Toy Testing department, meant for "special elves". The efficient operation in the North Pole even has secure alternatives for Buddy. Ming-Ming also asks Foom Foom to pick up  the slack on the Etch-a-Sketches another alternative for the workshop to meet the desired toy output. In this short two minute clip there is irrefutable evidence that Santa's Elves have shirking under control.

Billions of Dollars for Semiconductors? Or for the Median Voter?

In late September, we discussed the median voter theory’s influence on how elected officials form policy using the following quote: “Candidates formulate policies to win elections rather than win elections to formulate policies.” An example of such behavior is President Biden’s resumption of construction of the US-Mexico border wall. In forming policies that are not overly progressive (or in this case, align more clearly with conservative agendas), Biden hopes to capture the median voter, which will ultimately be the deciding voter in an election. 

I observed another case of Biden’s tendency to continue the implementation of Trump’s policies. Over the weekend, this article was assigned as reading for another class. The article discusses the recently-passed CHIPS for America Act, which granted $52 billion to US semiconductor manufacturers. Industrial policy on this scale fit into Trump’s ant-China narrative as a protectionist policy, and now conveniently fits into Biden’s narrative of government intervention for innovation. Interestingly, history shows that industrial policy is most effective at helping new industries gain momentum within the US. However, the semiconductor industry is not new, and Asian nations like China, Taiwan, and South Korea already dominate the global market. So, is Biden’s motivation for passing the CHIPS Act truly to help the American people (as he claims so in this speech), or is taking advantage of the opportunity to reach the median voter? Or is it both?

Why I Hate Jiffy Lube

From the moment I got my license and my parent's hand-me-down car for my 16th birthday, I was instructed on the importance of getting my oil changed every 3,000 miles or every 6 months. I hit six months before 3,000 miles, so when I was 16 and a half and I first needed to change my oil, I went to what I thought was the most efficient and least costly specialty automotive oil change shop ... Jiffy Lube. 

At the all-knowing age of 16, I insisted my parents did not need to come with me and that I could handle this monumental and adult-like moment. I walked in, told the manager at the counter I needed an oil change, gave him my keys, and waited in the lobby for about an hour before they called me back to my car. Much to my surprise, the car mechanic told me that he completed the oil change but said my car NEEDED a tire rotation, tire air pressure check and filling, and a battery inspection because my car was older. Me, again being a genius 16-year-old, completely trusted the mechanic and decided to pay the extra money to keep my car in great shape. When I got home and my parents asked me why it took so long, I explained how the mechanic insisted I needed other services done to my car. Horrified at the extra amount of money I spent (my parents are very frugal), I got a stern lecture about the costliness of falling into the trap of listening and acting on the car mechanic's suggestions. They insisted he had scammed me knowing I was an easy target!

Looking back on this, what I didn't realize was that my parents were actually lecturing me on the principle-agent problem. The principal-agent problem is a conflict in priorities between a person (or the principal) and the representative (or the agent) authorized to act on the principal's behalf. In this scenario, I was the principle, and Jiffy Lube, or specifically the car mechanic, was the agent. Jiffy Lube has an incentive to act in their personal interest to charge me as much money as they can, an interest that does not align with mine of solely wanting to get my oil changed. One way to correct my principle-agent problem was to secure alternatives. When I need an oil change, I now go to either the Ford dealership or a less-known mechanic. And in fact, now that I am 22 and actually do know everything, I can play their prices off of one another and get the least costly service! 

Summer Intern Shirking Season

Over the summer, I had the privilege of working for a financial services company in Washington D.C. With very few employees and very little experience, I was constantly learning; my two direct managers would frequently peek over my shoulder at my progress or take me out to lunch to see how I was adapting, and an analyst had a running task list so that I was always kept busy. One day, the analyst showed me a podcast giving advice and perspectives for summer interns. It was on that day (and class this past week) that I realized my superiors did not particularly care for my personal growth as a young professional, they were making sure that I was not shirking.. 

How did they do this? A number of ways. First, there was well-defined output; when something needed to be produced, my superiors would add it to a master task list with loose instructions as well as a timeline. Second, I was monitored. My desk was strategically placed so that at any given moment, a senior associate or managing director would look over from their desk and see my screen. Third, I had performance reviews - once every three weeks, I would go out to lunch with a superior to discuss my progress as well as areas to improve. Lastly, they had secure alternatives. Had I not been getting the job done, they could have easily terminated my employment and found another summer intern. 

C-SPAN and Shirking

Have you ever wondered what your senator does all day? They are your agent, after all. C-SPAN might be able to help you determine whether or not your representative is shirking. Shirking occurs when the representative does not act in accordance with the principal's (you!) interests, and one way to control shirking is through monitoring. C-SPAN is a TV network that was founded to provide, "gavel-to-gavel coverage of the workings of the U.S. Congress, both the House and Senate, all without editing, commentary or analysis," and if your opportunity costs aren't too high, you can spend hours watching congressional hearings.

C-SPAN was founded in 1979, but it is clear that congressmen continue to shirk, even though much of their jobs are now televised. A Pew Research Center study indicates that around 12% of Americans take it upon themselves to monitor congressmen through C-SPAN, and the channel is often teased for its lack of viewers and low production value (as you can see in this video that C-SPAN compiled of comedians making jokes at their expense). Even if this 12% of Americans decided to enforce the shirking that they see, they would still run into the hurdle of being a single voter and having infrequent performance reviews (aka elections), so keep that in mind when deciding whether or not to watch the next hearing. 

Too much coffee?

     This past weekend, my parents went to a wine festival in Rosemary Beach, Florida. We have been going there for multiple years as a family. It is our home away from home. I was on Facetime with my mom and dad Saturday morning, and they were on their way to get coffee. My mom said to my dad, "how are we supposed to pick which coffee shop to go to? There are like twenty of them all next to each other!" I was immediately drawn back into our class from a few weeks ago. 

    This is an example of Downs' Spatial Location Theory. Rosemary Beach attracts millions of tourists each year, and when people vacation, they don't usually bring a coffee maker with them. They have to go out to buy coffee. Beach towns usually have lots of coffee shops because they want to be near a big attraction... aka the beach and ocean! Coffee is something people want in the morning and afternoon. If two coffee shops were placed on opposite ends of Highway 30a (the main highway that runs down the beach), they eventually would end up in the middle. If there are multiple coffee shops producing identical output (coffee) within a given territory, eventually they are forced to come to the middle to maximize profit. The middle minimizes walking distance for consumers. They pick these points to maximize profits and foot traffic. One coffee shop moves towards the middle of the highway, and the other is forced to follow in order to try to compete.