Weekend reading links

1. On the traffic related negative externalities associated with ride hailing services,

Far from reducing congestion by encouraging people to give up their cars, as many had hoped, ride-hailing seems to increase it. Bruce Schaller, a transport consultant, estimates that over half of all Uber and Lyft trips in big American cities would otherwise have been made on foot or by bike, bus, subway or train. He reckons that ride-hailing services add 2.8 vehicle miles of driving in those cities for every mile they subtract. A new working paper by John Barrios of the University of Chicago and Yael Hochberg and Hanyi Yi of Rice University spells out one deadly consequence of this increase in traffic. Using data from the federal transport department, they find that the introduction of ride-sharing to a city is associated with an increase in vehicle-miles travelled, petrol consumption and car registrations—and a 3.5% jump in fatal car accidents. At a national level, this translates into 987 extra deaths a year.

As I have blogged earlier, this really should not have been a matter of debate. Ride-hailing services clearly induce more passenger vehicles into the roads. And that is precisely what public policy should strive to discourage.

2. This timeline of events on the insolvency resolution process in India is very informative.

One of the true "big bang" reforms and a genuine success of the government. The challenge is now its implementation - both in terms of supply (capacity and integrity of NCLT, IRP, CoC etc) and demand (market absorption, debtors gaming etc). 

And it also raises the question about whether such reforms could not have been pushed without the gravity of the crisis being so. 

3. Good illustration of the challenges associated with infrastructure project bond financing,

A 2016 bond issued for the construction of a public‐private partnership (PPP) hospital in Turkey is frequently mentioned as a model for how MDBs can credit‐enhance project bonds, but is in many ways more illustrative of its difficulties. The project involved a risk guarantee provided by the Multilateral Investment Guarantee Agency (MIGA) for €208 million (out of a total €288 million bond) in the event of expropriation, transfer restriction or breach of contract. This was supplemented with a liquidity facility by the EBRD for €89 million to mitigate project construction risk and potential payment delays from MIGA’s guarantee caused by required arbitration procedures. Even with this credit enhancement package, investor interest was insufficient to float the bond publicly. It was in the end a private deal, and a substantial portion was purchased by other development finance institutions (DFIs): IFC for €80 million, France’s Agence Française de Développement‐ Proparco for €40 million and Holland’s Nederlandse Financierings‐Maatschappij voor Ontwikkelingslanden (FMO) for €20 million.

The EBRD support was effectively a guarantee on a guarantee!

4. Juan Ketterer and Andrew Powell from IADB are the latest to highlight the unbundling of construction and maintenance phases of an infrastructure asset and finance them accordingly. They also suggest refinancing of assets post-construction with bond issuances and establishment of national infrastructure development funds that aggregate projects and fund them. 

5. The Indian Economic Survey 2017-18 said that 12% of urban housing stock is vacant. It triggered a flurry of responses to address this "problem".

So how does this 12% compare with that in other countries. The Bloomberg has an article which shows that over 50 million units or 22% of China's urban housing stock is unoccupied and 12-15% is pretty much the norm across countries.

Clearly there is a natural dynamic associated with all systems. In this case, it is clear that even in  a reasonably efficient steady state 12% of houses are likely to remain vacant for various reasons - temporary migration, second property purchases, speculation, and just the flow from purchase to moving in. Further, the numbers are likely to be even lower in average percentage terms across Indian cities if we take out the largest 4-5 cities whose absolute house numbers skew the percentage.

6. Too many of canonical experiments that purport to illustrate evidence on something are being debunked. The Easterlin Paradox (and this) and Marshmallow Test (and this) are but just two examples. The latest is new research which traces a biochemical cause for the Placebo effect - fake treatments with no plausible reason to create an effect. 

Depression, back pain, chemotherapy-related malaise, migraine, post-traumatic stress disorder: The list of conditions that respond to placebos — as well as they do to drugs, with some patients — is long and growing. But as ubiquitous as the phenomenon is, and as plentiful the studies that demonstrate it, the placebo effect has yet to become part of the doctor’s standard armamentarium — and not only because it has a reputation as “fake medicine” doled out by the unscrupulous to the credulous. It also has, so far, resisted a full understanding, its mechanisms shrouded in mystery. Without a clear knowledge of how it works, doctors can’t know when to deploy it, or how... theories, which posit that the mind acts upon the body to bring about physical responses, tend to strike doctors and researchers steeped in the scientific tradition as insufficiently scientific to lend credibility to the placebo effect...

Aided by functional magnetic resonance imaging (f.M.R.I.) and other precise surveillance techniques, Kaptchuk and his colleagues have begun to elucidate an ensemble of biochemical processes that may finally account for how placebos work and why they are more effective for some people, and some disorders, than others. The molecules, in other words, appear to be emerging. And their emergence may reveal fundamental flaws in the way we understand the body’s healing mechanisms, and the way we evaluate whether more standard medical interventions in those processes work, or don’t. Long a useful foil for medical science, the placebo effect might soon represent a more fundamental challenge to it... the placebo effect is a biological response to an act of caring; that somehow the encounter itself calls forth healing and that the more intense and focused it is, the more healing it evokes... “Rituals trigger specific neurobiological pathways that specifically modulate bodily sensations, symptoms and emotions,” he wrote. “It seems that if the mind can be persuaded, the body can sometimes act accordingly.” 

Does this also mean that Eastern systems of medicine which focus as much on the mind as on the body itself is correct on purely technical basis as well?

7. FT covers how the infamous Malaysian 1MDB scandal is engulfing Goldman Sachs with the DoJ indictment of three of its senior executives, including the co-head of Asia-Pacific investment banking division. The investment bank had raised $6.5 bn for the Malaysian state investment fund in 2012-13 pocketing nearly $600 m in fees in the process.

Goldman is presenting the case legally as one of 'rogue employees' and not known by its leadership. But it is a very hard act to pull off since these 'rogue' employees were themselves part of the leadership.

8. Finally, Times has a long overdue post on the corrosive political implications of business concentration. Tim Wu writes,

Over the last two decades, more than 75 percent of United States industries have experienced an increase in concentration, while United States public markets have lost almost 50 percent of their publicly traded firms. There is a direct link between concentration and the distortion of democratic process. As any undergraduate political science major could tell you, the more concentrated an industry — the fewer members it has — the easier it is to cooperate to achieve its political goals. A group like the middle class is hopelessly disorganized and has limited influence in Congress. But concentrated industries, like the pharmaceutical industry, find it easy to organize to take from the public for their own benefit. Consider the law preventing Medicare from negotiating for lower drug prices: That particular lobbying project cost the industry more than $100 million — but it returns some $15 billion a year in higher payments for its products.