I will never forget the first time I met Gary Becker. It was the mid-1990s and I was just beginning my academic career, having recently received a PhD in economics and accepted a postdoctoral fellowship at Harvard. A session in honor of Gary Becker was being held as part of an academic conference in California, and I was invited to give a talk. Despite the fact that I was earning a very low salary and had no research funds to cover my expenses, I eagerly accepted the invitation to fly cross-country on my own dime for the chance to present my work in front of Gary Becker.
Becker was sitting in the front row at the session, participating actively as always. I was the third speaker to present. When my turn to take the stage finally arrived, I walked toward the podium, only to see Becker rise from his seat and head for the exit.He returned to the room just as I presented my final slide. I was crestfallen, having come this far just to impress Becker and missing my chance. But I underestimated Gary. Despite the fact that he had not heard the talk, his questions dominated the question-and-answer session that followed. He had read my paper in great detail prior to the conference, both exposing holes in my economic thinking and providing the pathway to fill those holes. After the session, he shook my hand and told me I still had a lot of work to do on the paper. I wasnt smart enough to have written a good paper, but I was smart enough to know that if I ever were going to do good research, I needed to maximize the amount of time I spent listening to and learning from Gary Becker.
A decade later, Becker still continues to teach me (and many others) fundamental lessons about economics on a daily basis. This issue of Capital Ideas coincides with a major conference in honor of Gary Becker, organized by the Initiative on Chicago Price Theory, bringing together academic and business leaders to debate the biggest issues of the day. The research we do here at the Initiative on Chicago Price Theory is diverse in subject matter, but has the unifying theme of asking important, policy-relevant questions, giving careful attention to the role of incentives and markets, and using rigorous empirical methods to test the underlying economic hypotheses. The first article in this issue, Should the Purchase and Sale of Organs for Transplant Surgery be Permitted? reports Beckers latest thinking on whether there should be a market for human organs. While many ethicists bristle at the suggestion, Becker compellingly argues that if market forces were allowed to operate, many of the nearly 3,000 Americans who die each year waiting for a kidney donation could be saved. This article is vintage Becker: controversial, important, unpopular, and almost certainly correct.
The second article, The HIV/AIDS Epidemic in Africa, reports on research by Emily Oster and also offers an iconoclastic solution to a public health problem. Oster finds that nearly all the variation in HIV prevalence between the United States and Sub-Saharan Africa can be explained by the fact that the transmission rate of HIVthe chance that an uninfected individual becomes infected during a sexual partnership with an infected individualis much higher in Sub-Saharan Africa than in the United States. One explanation for this difference is that the HIV transmission rate is much higher for individuals who have other sexually transmitted infections (STIs), particularly those which cause open genital sores. The rate of untreated STIs in Africa is approximately 11.9 percent, versus approximately 1.9 percent in the United States. Osters results suggest that substantial strides could be made toward curbing the HIV epidemic in Africa by simply treating other STIs using inexpensive, off-patent drugsa solution very different (and much cheaper) than most policy proposals currently in place.
In Accentuate the Positive, Jesse Shapiro provides a new take on the age-old question of why companies advertise and why advertising works. One theory of advertising is that it provides information to consumers. However, Shapiro notes that most consumers already have plenty of information about established brands such as Coca-Cola, which nonetheless advertise heavily. Shapiros work draws on psychological research which suggests that people can quite easily forget the origin of a memory for a fact or sensation; advertising can take advantage of this imperfection by recreating more positive associations with a product in our minds. Shapiros model makes two predictions that match real-world experiences, which previous models of advertising dont provide: first, some types of advertising will actually increase as consumers become more experienced with the product, and second, the return to advertising yields increasing returns, in the sense that exposing a consumer to one advertisement may actually increase responsiveness to a second ad.
The Science of Economics discusses research John List and I have been doing on the issue of whether results obtained in controlled laboratory environments generalize to everyday settings like product markets. Controlled experiments have been a cornerstone of the hard sciences for centuries, but have only recently become popular in economics. We argue that lab experiments are a more reliable tool in physics than economics, because humans, unlike protons, know they are being watched in the lab and alter their behavior in response. When peoples actions are being scrutinized (e.g. in the lab, on television, or when their children are watching them), evidence suggests that they behave much more morally than they do when actions are relatively anonymous. In this research, we compile evidence from a wide range of sources supporting our contention that one must use great caution when extrapolating from behavior in the lab to behavior in everyday life.
Finally, How Bad Was Crack Cocaine? reports the results of work Ive done with Kevin Murphy and our coauthors Roland Fryer and Paul Heaton. This research starts by documenting the fact that a wide array of social indicators took a sharp turn for the worse among blacks in the late 1980s, most notably the black youth homicide rates. Could one underlying factor, namely crack cocaine, be driving these many phenomena? Because of the difficulty of measuring the prevalence of crack, there has been almost no quantitative research on the subject. We assemble a set of indicators for the prevalence of crack (e.g., the number of cocaine-related emergency room visits, cocaine arrests, and the frequency of newspaper articles on crack). Using statistical techniques, we combine the information in these various measures to create a single index of crack. Then, we analyze the extent to which our measure of crack cocaine can explain the fluctuations in social indicators we observe in the data. We find that the crack index we construct can explain much of the initial rise in black youth violence, but is relatively weakly associated with other outcomes like low birth weight babies, weapons arrests, and fetal death rates. Moreover, the link between crack and adverse social outcomes weakens substantially over time. Thus, it appears that crack cocaine was indeed bad, but not nearly as bad as is often claimed.
Although Gary Beckers name appears on only one of the research projects included in this issue, his influence on the work that all of us are doing here at the Initiative on Chicago Price Theoryand in the profession more broadlyis unmistakable. I look forward to the next ten years of learning at Gary Beckers knee.
Steven D. Levitt
Alvin H. Baum Professor in the Department of Economics at the University of Chicago and Director of the Initiative on Chicago Price Theory at the University of Chicago Graduate School of Business