What Should Government Do?

Article excerpt

The 2012 U.S. presidential campaign revealed a sharp divide between Republicans and Democrats on the role of government in American society, sparking a philosophical debate on how much citizens should rely on lawmakers, courts, and bureaucrats to stimulate economic growth, promote fairness for all, and protect basic human freedoms.

Politics aside, the influence of government has undoubtedly grown along with the increasing complexity of American society--taking on a major role in regulating commerce and financial transactions, shielding buyers from unfair practices, and providing infrastructure and services for such basic needs as transportation, communication, and water.

To better understand the influence of government on our everyday lives, faculty members in the Department of Policy Analysis and Management (PAM) are investigating policies and regulations, as well as the financial costs to taxpayers, put forth by government. They also are training students to evaluate the myriad functions of government, with a new undergraduate minor in Law and Regulation (see sidebar on page 17) launched last fall.

Watching the watchdog

PAM associate professor Sharon Tennyson examines government regulation of private transactions between firms and consumers, studying laws and policies designed to prevent businesses from engaging in unfair practices. Her work has spanned areas including pharmaceuticals, credit cards, insurance, and the airline industry.

Editor of the journal of Consumer Affairs, Tennyson described her research as "looking at data from a market that is being regulated and trying to assess whether the regulation is having an effect--positive or negative."

Tennyson explained: "The question to ask is how close the market comes to looking like a perfectly competitive market. If we feel a market is not functioning well, we have to think about what we could do to help that market work better. That could be something done through the court system, through legislation passed by Congress, or through rules that regulatory agencies make."

Most recently, Tennyson has evaluated the effect of "black box" warning labels on prescription drugs, which the U.S. Food and Drug Administration requires when a medicine is found to have potentially fatal side effects. In a recent paper co-authored with Kosali Simon, professor at Indiana University; Joseph Price, PhD '07, assistant professor at Brigham Young University; and Cornell labor economics doctoral student Kristy Parkinson, Tennyson looked at how consumers' use of antidepressant drugs changed in response to a black box label that warned of potential suicidal thinking among teens who start antidepressants.

[ILLUSTRATION OMITTED]

They found that fewer teens began taking antidepressants once the label was used, but fewer adults also began using the drugs, even though the warning doesn't apply to adults.

"The research suggests that the label conveys more negative information than is intended, which may have negative health consequences for adults," Tennyson said, explaining that the label may have been too restrictive.

In other research, Tennyson, Cazilia Loibl, associate professor at Ohio State University, and PAM doctoral student Lauren Jones examined the effects of new disclosures required on credit card billing statements. After the 2008 financial crisis, these disclosures were designed to help consumers better understand the cost of credit.

[ILLUSTRATION OMITTED]

They found that since the disclosures have been included, more consumers are fully paying off their credit cards each month. However, among those who did not pay off their credit cards each month, there was little behavioral change.

"So, in our view, the new disclosures are a partial success," Tennyson said.

A cure for ailing infrastructure

America's infrastructure is on shaky ground: In March, the American Society of Civil Engineers graded its bridges, roads, tunnels, water systems, and other assets a D+ on its quadrennial report card. …