Weekly Top 5 Papers – March 19, 2018

1. The Moral Hazard of Lifesaving Innovations: Naloxone Access, Opioid Abuse, and Crime by Jennifer L. Doleac (University of Virginia – Frank Batten School of Leadership and Public Policy) and Anita Mukherjee (University of Wisconsin – Madison – School of Business)

A number of recent studies have provided one piece of bad news after another about how our efforts to reduce opioid-related mortality are failing. Our study is one more piece of bad news. The takeaway for practitioners and policymakers should be that the opioid epidemic has no easy solutions, and efforts like expanding naloxone access to help save the lives of those who overdose could unintendedly make the problem worse.

On a more positive note, we find that a higher density of substance abuse treatment centers can mitigate the negative effects of broadening naloxone access. This suggests that access to treatment is an important complement to increased naloxone access. -Jennifer Doleac and Anita Mukherjee

2. Initial Coin Offerings and the Value of Crypto Tokens by Christian Catalini (Massachusetts Institute of Technology (MIT) – Sloan School of Management) and Joshua S. Gans (University of Toronto – Rotman School of Management)

Why do crypto tokens have value? Initial coin offerings (ICOs) have emerged as a novel mechanism for financing entrepreneurial ventures, with startups raising over $7B through ICOs compared to $1B through traditional venture capital flowing into the space. Through an ICO, a venture offers specialized crypto tokens for sale with the promise that those tokens will operate as the medium of exchange when accessing services on a digital platform developed by the venture.
This paper explores how entrepreneurs can use initial coin offerings to fund venture start-up costs. We show that the ICO mechanism allows entrepreneurs to generate buyer competition for the token, which, in turn, reveals consumer value without the entrepreneurs having to know, ex ante, consumer willingness to pay. We find that venture returns are independent of any committed growth in the supply of tokens over time, but that initial funds raised are maximized by setting that growth to zero to encourage saving by early participants. Furthermore, by revealing key aspects of consumer demand, crypto tokens may increase entrepreneurial returns beyond what can be achieved through traditional equity financing. A lack of commitment in monetary policy can, however, undermine saving and, thus, the cost of using tokens to fund start-up costs is potential inflexibility in future capital raising. Crypto tokens can also facilitate coordination among stakeholders within digital ecosystems when network effects are present. – Christian Catalini

3. Pulling the Goalie: Hockey and Investment Implications by Clifford S. Asness (AQR Capital Management) and Aaron Brown (LLC New York University (NYU) – Courant Institute of Mathematical Sciences)

4. What is Program Evaluation? A Beginners Guide (Presentation Slides) by Gene Shackman (The Global Social Change Research Project)

I am hoping this guide may be useful to anyone who wants to know about the very basic ideas and methods of evaluation. Evaluation can be useful, but only if people understand it. I am hoping this will help clients, potential clients, funders, stakeholders, and the public better understand evaluation and a little of how it works. That way, people can have a realistic idea of how it can be used, and how it cannot be used. – Gene Shackman

5. Some Simple Economics of the Blockchain by Christian Catalini (Massachusetts Institute of Technology (MIT) – Sloan School of Management) and Joshua S. Gans (University of Toronto – Rotman School of Management)

The paper relies on economic theory to surface two key costs affected by blockchain technology: the cost of verification of transaction attributes, and the cost of bootstrapping and operating a digital marketplace without the need for a traditional intermediary. When combined with a native token (as in Bitcoin and Ethereum), a blockchain allows a decentralized network of economic agents to agree, at regular intervals, about the true state of shared data.
This shared data can represent exchanges of currency, intellectual property, equity, information or other types of contracts and digital assets – making blockchain a general purpose technology that can be used to trade scarce, digital property rights and create novel types of digital platforms. The resulting marketplaces are characterized by increased competition, lower barriers to entry and innovation, lower privacy and censorship risk, and allow participants within the same ecosystem to make investments to support and operate shared infrastructure without assigning market power to a platform operator. – Christian Catalini