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Economic Policy and Influence

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Feature on Prof Tomoki Fujii, Associate Professor of Economics
Associate Dean (Undergraduate Curriculum)
School of Economics, Singapore Management University 

Evaluating policy prescriptions for developing countries  

As a development economist, Associate Professor Tomoki Fujii uses experimental methods to evaluate the effectiveness of development programmes in ‘real-time’.   

When your doctor gives you a prescription you can be sure that it has been through rigorous trials—including randomised control trial. This is not only for safety, but to ensure it is the adequate solution to the health problem. But can the same be said when policymakers prescribe programmes to improve life in developing countries – or anywhere for that matter? How do we know if it will help and not harm the ‘patient,’ in the form of society?  

Associate Professor Tomoki Fujii, of the SMU School of Economics has not only devoted his academic career to this question but has found ways to apply the rigour of drug evaluation to development programmes, for example in health and education.  

In a randomised control trial for drugs, a sample population is randomly divided into two groups–the control group, which receives no intervention (except for a “placebo”), and the treatment group, which does receive the drug. Other factors may be accounted for and isolated as well. Development economists increasingly use randomized control testing to evaluate policies and programs in a similar fashion, and for good reason, says Professor Fujii. 

“Wealthy countries have spent billions of dollars aiding developing countries. But has the success been phenomenal? Success is found here and there, but it's often unclear whether programmes are effective in eradicating poverty or improving education, health and so on.” 

While randomised control trials offer better clarity, applying the method to development programmes is complex, because the ‘patient’ is a society rather than an individual. 

“In medical trials, the drug or treatment typically affects only the individual taking it. But in economics, when you provide cash to impoverished people, they spend the money, and this affects the economic status of others— economists call this the ‘spill-over effect’.” 

Professor Fujii was able to isolate the effects of different versions of policy prescriptions for improving school attendance in Bangladesh, in his paper Conditional Cash Transfer, Loss Framing, and SMS Nudges: Evidence from a Randomized Field Experiment in Bangladesh.   

“Conditional Cash Transfers have become one of the most common policy interventions to increase school attendance, but its cost-effectiveness has not attracted the attention it deserves,” says Professor Fujii. This study compared two policies aimed at improving the effectiveness of school attendance interventions: SMS information nudges; and different methods of conditional cash transfers. 

For the conditional cash transfers, the study drilled even further down to the way the cash transfer was ‘framed’—that is, whether it was pitched to the participants as gaining or losing cash.  

“We split the sample groups into Gain and Loss groups,” Professor Fujii explains. “Participants in the Gain group start with a zero account balance and when they attend school they gain cash. At the end of the intervention period, the money is disbursed to them. Conversely, people in the Loss group start with a full account balance, and when they miss school, they lose cash.” The students and their parents would also receive weekly SMS updates on their school attendance information and account balance. This is where it got interesting.  

“Since we were giving this information by SMS, we also had another treatment group, which only received attendance information, no cash. So the parents were told how many days the child attended, and depending on which group they were in, whether they had gained or lost money.”  

While the study found that loss framing—or loss of cash—had a slightly stronger positive impact on attendance the difference was insignificant, reports Professor Fujii. More important, he says, were the effects of the pure information nudges. In that group, the study detected a positive impact a year later, at the tail end of the intervention. This is particularly the case for girls. This result suggests some important lessons for development policy.  

“The findings suggest that money matters but, once money is gone, that portion of impact is also gone. But if you provide information, in this case via SMS, it might cause a more persistent change in behaviour,” says Professor Fujii. 

Professor Fujii has already been looking at how policymakers can make use of these insights.  

“Bangladesh had one of the longest school closures around the world when the COVID-19 pandemic happened,” he explains. “The learning loss during this period is a serious concern. We are exploring with policymakers the potential to use SMS and other digital technologies to help students’ households stay engaged with education resources even during disrupted times.”   

Finding truth in HIV testing rates  

As well as taking medical research methods into the realm of development, Professor Fujii also maintains an interest in public health issues and the ways in which economics and statistics can help understand them. One example is a recent paper on HIV testing rates in Malawi, Refusal bias in HIV data from the Demographic and Health Surveys: Evaluation, critique and recommendations.  

“In places where HIV and Acquired Immunodeficiency Syndrome (AIDS) are stigmatised, people who are likely to be HIV-positive may refuse to test themselves – because they fear the results,” he says of an issue that persists in many societies.   

He and his colleagues examined this “refusal bias” in HIV data from the Demographic and Health Surveys and the Malawi Diffusion and Ideational Change Project in Malawi, to help health researchers and authorities understand the true HIV prevalence after accounting for the potential presence of selective refusals. “Understanding the consequences of the potential importance of refusals is key to improving the design of policy interventions,” Professor Fujii says.  He and his colleagues are currently working on a related project with updated data.

Feature on Prof Tan Swee Liang, Associate Professor of Economics (Practice)
School of Economics, Singapore Management University 

‘Pooling people together’ to help SMEs in challenging times  

Even in a global economy small and medium enterprises (SMEs) remain vitally important, but they are vulnerable to big disruptions as well as their own unique challenges. Through her research and as a Council Member of the Economic Society of Singapore, Associate Professor Tan Swee Liang helps find innovative support mechanisms for SMEs.   

In Singapore, SMEs make up 99 per cent of companies and employ 71 per cent of the local workforce. They also contribute almost half of the country’s Gross Domestic Product (GDP). Hence, it is important for countries such to Singapore to have sound SME policies to ensure the business ecosystem provides growth opportunities for promising SMEs.  

“During economic downturn, SMEs are extremely vulnerable due to their size and lack of market power,” says Tan Swee Liang, Associate Professor of Economics (Practice) at the SMU School of Economics.   

One of the challenges SMEs faced is access to funding. SME’s typically have low to no collateral and require smaller fund injections for a shorter time. This conflicts with the banks’ ideal borrowers: those asking for larger amounts for a longer time, backed by solid collateral. “Funding is important in helping SME’s digitalization and regionalization strategies to be more competitive, but equally or more important for many SMEs, that access to funding can help to address SMEs cash flow problems,” says Professor Tan.   

Lowering credit barriers for SME through innovation    

Her current research looks at how FinTech can help. “Big Data, for example, gives FinTech firms a new way to determine the credit risks of SMEs, thus overcoming one of the big stumbling blocks for traditional lenders.” 

In the book chapter Financing Singapore’s SMEs and the Crowdfunding Industry in Singapore, Professor Tan and her co-authors explored how new digital technologies might address barriers that SMEs face in accessing credit.   

“Through a survey and interviews with crowdfunders, we learned that their business models are well-suited to solving SMEs’ liquidity problems by providing low quantum, short term loans at competitive rates efficiently,” she explains. Crowdfunders also approve the funds much faster than banks, again thanks to digital technologies and granular customer data. The data used by crowdfunders comes from the ‘daily life’ of SMEs, some of which may fall beneath the notice of banks: utility payments, rent payment history, insurance claims, use of mobile phones, social media, and sales data.  

In particular, the paper focuses on how crowdfunding via digital platforms improved SMEs’ timeliness to pay debt in Singapore. An inverse relationship was found between crowdfunding and the “days turned cash” variable – a measure of the timeliness of debt payment by SMEs. “Anecdotal evidence from growing SMEs also suggests that getting crowdfunding loans induces financing from banks, leading to more efficient allocations of credit,” Professor Tan says. To that end, her research on measuring drivers of fintech credit identified key drivers to be availability of venture capital, and financial development depth. 

Harnessing the power of an ecosystem   

Her research findings have spurred her interest to collaborate with the Association for Small Medium Enterprises ASME and share how alternative financing works to fill the financing gaps, and what are the pitfalls that are platform specific. In her capacity as a Council Member of the Economic Society of Singapore, she collaborates with ASME to have SMEs representatives, solution providers (such as peer-to-peer P2P lending companies, invoice financing companies), government entities (Enterprise Singapore) and academic experts come together to discuss on challenges that SMEs face (access to financing, mergers and acquisitions opportunities, and other issues such as graduates’ perception of employment in SMEs). 

“One of my roles is to facilitate conversations and drive collaboration between the SMEs and the players in the FinTech industry.” In her words, she’s “pooling people together” to build a united front to fight against an increasingly challenging economic landscape for SMEs.  

Sharing that she finds the work extremely meaningful, Professor Tan says, “As economists, we are always looking at ways to improve the welfare in a society. One way to do so is by achieving inclusive, higher income per capita.”    

She elaborates, “In a mature economy, more input will not necessarily produce more output. Instead, we aim for higher productivity and efficiency through the financial-real sector channel.”  

The impact of financial development on the standard of living  

One of her recent research projects addresses that issue, by analysing the association between the development of bank and capital markets, with the income per capita in three groupings: ASEAN-5 economies (Singapore, Malaysia, Thailand, Philippines, Indonesia), Asia-5 (Japan, China, Hong Kong SAR, South Korea and India) and OECD-7 (Australia, Canada, Denmark, Norway, Sweden, UK and US).  

In the research paper “What, why and how financial development matters: Evidence of ASEAN-5, Asia-5 and OECD-7 economies”, she used panel data analysis to highlight the role of banks in Asia-5 and OECD-7. In turn, the paper looks at what ASEAN-5 can learn from those economies to help raise the standard of living throughout the region.  

Professor Tan says of the OECD-7 results, it’s not the size of the banks that matter – rather, it’s bank efficiency that drives income per capita. “This emphasises the need for banks to shift from simply mobilising savings, toward improving efficiency of investment, which will then contribute to higher economy-wide standard of living.”  

“We found that banks remained important for Asia-5 and OECD-7 despite ongoing threats that FinTech posed to their banking services,” she adds.  

On the effects fintech disruption, in the book chapter Financing Singapore’s SMEs and the Crowdfunding Industry in Singapore, she and two co-authors categorised four scenarios of a “good” or “bad” outcomes from the perspective of the incumbent banks, and proposed a combination of the better bank-cum-distributed bank outcome in Singapore. Regulatory changes such as the issuance of new digital bank licenses could shape the future fintech landscape. Regulators must strike the right balance between developing the fintech industry while safeguarding financial stability.  

Keeping ourselves ahead   

Emphasising the importance of innovating to raise productivity and efficiency levels, Professor Tan explains that developing economies tend to record higher economic growth rates of about eight to ten per cent. “But as they mature, their growth rate naturally slows to about two to three per cent – even then, this is not to be taken for granted.”   

For maturing economies such as Singapore, the efficiency factor becomes a critical source of growth; hence policies to facilitate efficient funding of scarce capital by encouraging traditional and innovative lenders to co-evolve (as opposed to zero-sum competition) is, in her opinion, critical for Singapore to achieve a two to three per cent inclusive and dynamic growth over the next decade. 

Professor Tan is optimistic due to the power of collaborative innovation – if organizations and sectors pool their strengths, they can turn challenges into opportunities for SMEs, incumbent lenders and fintech platforms.

Feature on Prof Yuan Mei, Assistant Professor of Economics
School of Economics, Singapore Management University 

Trade blindspots: the hidden impact of steering wheels on international trade  

A foreign plug may be a barrier to charging your phone, but is it also be a barrier to trade? Assistant Professor of Economics Yuan Mei examines how product variations resulting from different standards impede trade in ways previously unnoticed by trade negotiators. 

Whether a car is a left or right-hand drive is something most people take for granted unless they strike the novelty of driving on the opposite side while travelling. But when Professor Yuan Mei thinks about steering wheels, or any other transnational product difference for that matter, he sees a potential trade barrier. The international trade expert is passionate about how trade policy affects cross-border trade, and in turn people’s welfare. He also brings a different perspective than most.  

“As tariffs reached historically low levels after decades of trade liberalization, recent trade negotiations naturally emphasize reducing trade costs associated with product standards especially those associated with quality”, says Professor Mei, referring to what trade negotiators call ‘vertical standards.’ But through his research, he believes larger trade gains may be found through unifying standards that affect different product design that cannot be ranked by stringency—or ‘horizontal standards’ in trade speak. 

“International product variations such as differently shaped electrical plugs, battery types and even vehicle steering wheel positions probably affect trade flows more than vertical standards that are about product quality,” suggests Professor Mei. “But academic research has paid little attention to horizontal standards.” Several challenges account for this blind spot, he adds.  

“Isolating the horizontal components of regulations from other confounding factors is not easy. Measuring the impact of changes of standards on the trade flow of relevant goods is also difficult, because manufacturers and importers adjust to many other incentives and signals. So, finding good research data  that can be applied to frontier econometric  models is a challenge.” 

Professor Mei is meeting that challenge through his study of the ubiquitous electrical plug.  

He teamed up with Professor Jimmy Xu from Peking University to examine how regulations on electric plugs across countries affects the trade flow of the electronic devices those plugs are attached to.  

 “We use various data sources to show that fewer electronic devices are exported to destination countries with incompatible plugs. The magnitude of this trade friction is about a third of the average contemporaneous tariffs imposed on electronic devices,” he shared.  

To date, the research is believed to be the first to empirically analyse the impact of a purely horizontal regulatory barrier in international trade. It also illustrates the potential benefits of harmonising international product standards for newly developing technologies, such as telecommunications standards and data products.  

Pursuing unlikely passions 

Professor Mei’s interest in trade policy was sparked in 2015, when he was PhD student at the University of Chicago. Professor Mei saw the importance of understanding the potential impact of large-scale trade wars—even though few thought it a likely scenario at the time, given the then healthy trade flows and low tariff rates around the world.  

“When I began my PhD thesis, I felt I had to constantly convince people to care about tariffs and trade policy in general”, recalls Professor Mei. “Now I am not asked those questions,” he quips, alluding to the outbreak of protectionist trade policies, either in terms of tariffs or domestic regulations, and what some believe is a trend towards de-globalisation.   

Following his PhD, Professor Mei crossed the border himself in 2018, returning from the US to Singapore where he had already attended school for a time.  

“Having come to Singapore from China at the age of 16, I have a long history with the city and many fond memories. More importantly, when I later visited SMU as a scholar, I was very impressed by the friendly faculty who were supportive of me, and community of trade researchers who were strong and academically oriented”, he says. 

This community enabled him to pivot quickly in his research to a conflict that was both military and trade in nature—Russia’s invasion of Ukraine in early 2022.  

To sanction or not to sanction 

Sanctions are significant geopolitical tools and indeed featured among the most immediate global response to Russia’s invasion, yet the impact of using trade policy as tools of sanctions remain unclear and they can be difficult to strike the most effective balance. To lend some evidence to the sanctions effort, Professor Mei and his co-authors Dr Gustavo de Souza from the Federal Reserve Bank of Chicago, Professor Haishi Li from the University of Hong Kong and a PhD student Naiyuan Hu from SMU worked to quantify the costs and benefits of tariffs as a tool of sanction.  

One complication their research addressed is that tariff sanctions are a double-edge sword; those who impose sanctions also face economic pain. “We aimed to compute the optimal sanctioning tariffs on Russia, taking into account the negative impact on the sanctioning economies,” Professor Mei explains.  

A key factor in the calculation he says, is how willing the sanctioning countries are to bear the cost of imposing sanctions.  

“We found that when there is less will to suffer the costs of imposing sanctions, the best policy is to impose small tariffs on all kinds of products. If sanctioning countries are willing to pay a bigger price, sanctioning countries should target Russia’s main exports such as mining and energy products,” explains Professor Mei.    

The study also found that retaliatory tariffs imposed by Russia would affect Russia’s welfare more than those imposing the sanctions—in this study the European Union. By measuring and quantifying the costs of trade wars, this project helps decision-makers evaluate their options and actions.  

Professor Mei is proud of the research team’s efforts to quickly provide this analysis, noting that the work not only contributes to academia, but also policy makers: the paper featured on a European policy portal that promotes research-based policy analysis, delivering valuable insights directly to relevant policymakers. 

The interaction of geopolitics and international trade is also the setting for future research that Professor Mei hopes to undertake, where his focus would include smaller states experiencing disruption from the side lines. “Economists now a have a pretty clear understanding of the impacts of trade battles on the United States and China. But far less clear is the impact on other countries along the global value chain, such as Singapore. 

“We can do much more research to contribute to both academia and policymakers. For example, how the polarization of political views affects international trade, and consequently the welfare of Singapore and Asia, is an intriguing research question that has yet been answered,” concludes Professor Mei.

Feature on Prof Lee Jungho, Assistant Professor of Economics
School of Economics, Singapore Management University 

Understanding entrepreneurs through labour theory  

Examining entrepreneurial success through the lens of Labour Economics has led Assistant Professor Lee Jungho to new insights about the difference between success and failure in new businesses.  

Why does one new business flourish while another flounders? One answer is the choices made by businesses at the outset, including where to launch, whom to partner with, and how to fuel the operation—with cash or credit that is. The factors are myriad and the links between them are complex, so studying the outcomes of each recipe keeps economists and policymakers busy.  

Assistant Professor Lee Jungho has found previously undiscovered insights by investigating business owners’ choices with the tools he has gained as a labour economist. Labour and entrepreneurialism may seem removed from each other given the different roles they play in business, but Professor Lee finds that it all comes back to productivity. 

“Understanding business owners through the lens tools developed for understanding labour economics is not usual, but I was very curious and excited about it—it motivates my research,” he enthuses. 

Looking at business productivity through the lens of labour economics has enabled Professor Lee to shed new light on mysteries such as why some people seem to go against the grain when starting a business. 

“Why do some people choose to start their businesses in rural areas, and even do well, when it’s a fact that urban locations are a better bet to start a business—ample empirical data shows this” says Professor Lee of the motivating question behind his research paper, Why do businesses grow faster in urban areas than in rural areas? In that study, conducted with Assistant Professor Xu Jianhuan, also of SMU, he examined the geographical factors behind the difference between business outcomes in the United States. 

Professor Lee highlights two previous explanations for the productivity gap between urban and rural businesses. One is the agglomeration economy, where firms gathered closely together enjoy cost reductions and productivity benefits. The other has some resemblance to Darwinian natural selection, as Professor Lee explains, the other reason is firm selection, “where less productive firms are more likely to exit in metro than in rural areas.”  

Less is known about the relationship between location and another business success factor: the role of financial constraints. This was what Professor explored in his business location paper.  

“We used a firm-dynamics model with a location choice to show how borrowing constraints interact with growth and location choices of firms.” 

The results suggested a reason why some firms choose the rural economic life: even though urban firms were more productive, they could not borrow enough money to finance their business. 

“When the banks are unsure about how and whether your new business can be successful, they might be less willing to provide you with financing. This financing friction contributes to a substantial part of the observed growth-rate difference between urban and rural young firms,” Professor explains. Young rural firms don’t need as much initial financial capital to kickstart their business. “This is because they generally serve a small community and have fewer expenses,” he adds.       

Another fateful finance choice that entrepreneurs and businesses make is about people rather than place: whether to go into partnership. Professor Lee explored the motivations, benefits and costs of forming business partnerships in his paper, Estimating the benefits and costs of forming business partnerships.  

“We found that on average, a business headed by a partnership tends to perform better than one that only has a single owner. This may be driven by a complementarity effect between the owners,” Professor Lee says, speaking of the different skills and assets partners bring together.  

He found that the need for finance was a common motivation behind choices to enter partnership. “For example, if you have a great business idea, but somehow the bank refuses to finance it – then one alternative way of financing could be to sell your equity and find partners.”   

The broader policy implication for this study lies in the fact that business partnerships positively affect the productivity of the entrepreneurs involved. But he is cautious about whether this means that governments should incentivise people to enter partnerships, as individual business people each have their own interests which are not always a good match. “We need to understand the underlying mechanism or reason behind a business partnership formation, which is what I aim to do through my research,” he says.   

Entrepreneurship in the digital age 

Despite the complexities, Professor Lee speaks positively about the entrepreneurial landscape. Rapid technological innovation has lowered the entry barriers for young people looking to start businesses. “What we are seeing now is a democratisation of entrepreneurship, with digitalisation creating lots of opportunities,” Professor Lee says.  

When he was growing up in South Korea, the idea of creating his own business did not occur to him as an option. “A typical career path for my friends and me would be to graduate from university, get a job in a big company, and remain there for a long time. That perception has changed, not just in South Korea, but I believe in Singapore as well.”   

Despite the rapidly changing business landscape, Professor Lee believes that the heart of entrepreneurship is unchanged.   

“The process of starting a business, regardless of what era you are in, is about identifying a customer pain point that you want to solve, and coming up with a business solution that could be profitable. You then need to execute your plan, sell your idea to investors, and then form a team to materialise it,” he says.  

 “Creating a good business plan has always been the key challenge–that still remains. It is creativity that makes the difference, and I believe it is key to capturing the myriad of new opportunities in the digital age,” Professor Lee concludes.

Feature on Prof Matthew Shapiro, Assistant Professor of Economics
School of Economics, Singapore Management University 

Will super-apps survive? (And what if they don’t?) 

Our way of life is changing, even improving, thanks to digital services and a desire to protect the environment. But how deep are these changes and are they sustainable? Assistant Professor of Economics Matthew Shapiro analyses disrupted industries, government policy and consumer behaviour to understand where these changes might take us.  

Among the tools adopted by governments to steer citizens towards environmentally friendly decisions, are financial incentives that encourage people to choose electric cars. The problem is that industries do not always stick to the script. Understanding the real effect of subsidies on the car industry is not easy. But the discipline of industrial organisation is evolving to help answer these questions in the modern context, says Assistant Professor Matthew Shapiro, of the SMU School of Economics, who works at the frontiers of the discipline. 

Traditionally concerned with how firms, consumers and regulations interact to make up the market’s nature, industrial organisation has embraced new dilemmas thrown up by modern society, says Professor Shapiro. He originally hails from the United States, where he began his research into a transport industry upheaved by technology and environmental concerns.  

His paper, “The Heterogeneous Effect of Subsidy and Infrastructure Investment in Electric Vehicles Adoption” reported on his research into the effectiveness of electric vehicle subsidies across the United States. The research found that the programmes needed a serious tune-up.  

“To make a real difference, electric vehicle subsidies should target those who drive often, use a petrol car, and who would not otherwise buy an electric car,” he explains. In the United States, a person who fits into this category is probably going to be someone on a low income, he adds.   

“In our study, however, the people receiving electric vehicle incentives typically already had a clean car by combustion engine standards. They also tended to be wealthy enough to afford an car without the subsidy. So there is a high probability they would have purchased an electric vehicle even without the subsidy,” he adds. 

“We hope this research helps policymakers redesign these incentives to efficiently target the ‘ideal recipients’ who would not otherwise purchase a more environmentally friendly car.”  

The evolution of industrial organisation  

Professor Shapiro’s current research provides another example of the evolution of industrial organisation research. Just two decades ago industrial organization research would have little to say on the intersection of digitization and urban economics.  

But observing a literal intersection in many of today’s busy cities would make it easy to see industrial organisation at work. A person ignoring taxis at a nearby taxi-stand while watching surge pricing on their smartphone as they choose which transport app to use. Another using the same app to send a meal to their parents. An electric car pulling into a nearby charging facility. Such scenes are both new and ubiquitous in 2022, but are the people within them better off in the long term?  

To understand the big picture, industrial organisation research looks at the relationships between the people and businesses involved: the consumer, the taxi drivers, the app provider, and the rules that moderate those relationships. Are they producing the best results for consumers, workers and the environment? Enter Professor Shapiro’s latest research. “My new projects focus on the anatomy of digital platforms, the market power of multi-service businesses, as well as transportation.”   

Super Apps in the Big Apple  

“Uber’s launch revolutionised the transport sector and brought significant potential for consumer welfare gains,” observes Professor Shapiro of one of his research targets. In his paper “Density of Demand and the Benefit of Uber”, he quantifies the benefits that consumers gained when ride hailing services were introduced to the largest taxi market in the United States—New York.  

“Using publicly available transportation data, such as data scraped from Uber and traffic cameras, I found that how much consumers benefited from Uber’s technology is actually dependent on the density of the market.” The people who most benefited from the service, he found, lived in New York City’s less populated outer suburbs. He can even put numbers to it.  

“In New York’s densest areas, Uber saved consumers only $0.10 per ride on average. In the outer areas, consumers saved over a dollar,” he says.  

But there is a larger point to these numbers, because with change comes disruption to the industry—for taxi drivers, digital economy workers, and consumers, not to mention the wider social and environmental effects. Professor Shapiro’s research also looks at these wider implications.  

The future of Superapps  

Professor Shapiro now focuses on understanding the concept of super apps inside out. They may be super, but is there a chance that these apps are no more immune to economic change than the traditional market structures that they disrupted?  

“The key reason why these disruptive applications have been sustainable in the past is because they've been receiving large amounts of subsidies from free-flowing financial capital.”  

But as the markets become more volatile and uncertain, investors may have less money to invest and so will be more discerning about where to put it. “To survive, these businesses will have to charge higher prices. Obviously, that won’t sit well with customers. But if they collapse, the consumers lose a service that they have gotten used to– imagine losing our food delivery options now!”  

While highly speculative, these risks could potentially affect everyone—business and consumers alike, he notes. “Given the opportunity, it would be interesting to  bring to light some insights on the future of super apps from a financial capital perspective.”   

Professor Shapiro exudes excitement about the possibilities for his research, especially given the variety of data becoming available. “You could say it sparks joy! Just a decade ago, we wouldn't have been able to access so much information about how consumers behave.  

“The same data that helps businesses to innovate and compete, helps economists like me understand how their industry works and how their consumers behave.”

Feature on Prof Li Jing, Assistant Professor of Economics
School of Economics, Singapore Management University 

How economic choices might reshape our cities 

The COVID-19 pandemic not only changed the way we work and live, but might also change how we plan our cities in the long term. Through her urban economics research, Li Jing, Assistant Professor of Economics, Singapore Management University (SMU), uncovers how our economic choices help form the shape of our cities. 

As economic activity receded from the city centre into the suburbs during the pandemic, talk about the daily commute from the bedroom to the living room became a running joke. But the change put the spotlight on serious questions, not just about how to manage work, school, and family life in one room, but how we arrange our cities to manage economic and civic life.    

The shifts we saw during the pandemic could reshape cities in significant ways, says Li Jing, Assistant Professor of Economics, Singapore Management University (SMU). How cities are laid out is the focus of her research in urban economics.  

“Essentially, urban economics is about location and space, and how that affects a multitude of areas, from housing and transport to innovation” she says. Professor Li lists the many questions that inspired her to study urban economics, but which others may take for granted, at least until we experience a disruption like the pandemic. “Take for example labour supply—what motivates workers when they choose a place to live? Why do people choose big cities? It’s very interesting how all these factors are intricately linked.”  

Globally, cities have grown in similar shape, which points to some profound, almost universal trends that affect how we live and how our economies develop. 

One fundamental economic phenomenon disrupted by the pandemic is grounded in the theory of the ‘monocentric city model,’ as Professor Li explains. “Most cities have a centre and a residential area around the periphery, and as you move from the centre outwards you find declining density and declining house prices.” Economists summarize this change in price and demand for housing based on the distance from the central business district, as the ‘bid rent function’.  

“The drop in house prices as you move from the city centre tends to be determined by the underlying travel cost and the need to commute,” adds Professor Li, whose research has found that the cost and convenience of the daily commute is a powerful factor in determining how much people will pay for inner-city housing. She was aided in this research by another unique institutional feature: Singapore’s car ownership scheme, the Certificate of Entitlement (COE) for car ownership. The COE’s price fluctuates according to factors such as demand for vehicles.  

Professor Li devised a way to use this fluctuating price as a proxy for the cost of commuting, and so was able to measure how changes to that cost affected the ‘bid rent function’, in her recent paper, The Impact of the Cost of Car Ownership on House Price Gradient in Singapore.  

Her findings revealed a close relationship between housing and commuting choices: when COE prices increased, inner city house prices increased more. “People might prefer to spend on their house rather than a commute, and the opposite also holds–the more affordable a car, the further from the city centre people are more willing to live.”  

The pandemic may have injected new factors into this equation. House prices in the periphery areas of cities have been rising significantly faster than those in the CBD as the need to commute recedes. “With many people working from home, the price gap between the city centre and the suburbs has narrowed”, says Professor Li. This trend, she adds, has been observed not just in Singapore, but in major cities in the United States, such as New York and San Francisco.  

City connections and innovation  

Urban economics is by no means just about housing and transport; when planning our cities we need to understand trends that are less observable but just as profound. Concerns are emerging, for example, that the trend toward working from home may erode innovation, which has been found to flourish in the presence of intensive personal interactions enabled by high population density, included by Professor Li’s research.  

Professor Li unearthed links between the building of subways and the fostering of innovation in her recent study, Subway, Collaborative Matching, and Innovation. For this research, she analysed how the rapid expansion of the Beijing’s subway system from 2000 to 2018 affected collaborative matches across locations and the spatial organisation of innovation activities within the city.  

“We found that when the travel time between two locations is substantially reduced, there is a corresponding significant increase in both the probability and intensity of collaborations between innovators at the two locations,” she explains. This points to the importance of a city’s infrastructure in elevating the overall level of innovation within a region.   

The findings have important policy implications, Professor Li noted. “It helps to justify government spending on expensive transport infrastructure, such as subways. Beyond the usual reasons of raising productivity through less congestion and faster commutes, it shows broader economic gains through facilitating innovation, which in turn drives economic growth.”  

Speaking of her passion for urban economics, Professor Li explains that this is an example of why she finds her research purpose a very fulfilling one. “We are producing evidence based on data–we’re not proposing models based on pure assumptions. I think that’s important because the issues that we are looking into concern people’s everyday lives. The product of the rigour of our research can form the foundation of policy making.”  

Most economists, Professor Li believes, “share the same hopes as me in wanting to produce work that can contribute to a better world through shaping policy making decisions.” 

Feature on Prof Li Jiangtao, Associate Professor of Economics
School of Economics, Singapore Management University 

More robust models for real life answers 

By making modelling mechanisms better at capturing how people act in real life, Associate Professor Li Jiangtao hopes to move mechanism design from theory to practice in designing effective systems. 

Most games, from outdoor activities like Capture the Flag, boardgames like chess or computer games like Fortnite, run on a common aim—to win. While the objectives may differ, no game is complete without a set of rules that lead to strategic behaviours as players try to best one another. 

In economics, game theory works in a similar way, says Associate Professor Li Jiangtao. He uses mathematical models to simulate how rational agents—or people who play an active role in a system—act strategically to maximize their own interest. In other words, how people try to win, given a system’s rules. 

“Game theory offers a systematic approach for us to analyse the behaviour of agents. It helps us to examine the world and make sense of why things work the way they do,” he says. “My research in mechanism design uses game theory as a building block.” 

While game theory attempts to describe how agents will act, mechanism design examines a system from the other end—asking how different rules can influence the players’ interactions with each other. The aim is not to win but to identify the most optimal set of rules for the game towards a given purpose. 

“Once we understand how agents behave, we have a systematic approach to design better institutions for them,” says Professor Li. 

In policymaking, for example, Singapore’s government might use mechanism design to figure out the rules for distributing Certificates of Entitlement, a license to own vehicles used to manage the number of cars on the road. Mechanism design helps public officials compare find the mechanism that best promotes that policy goal. 

Mechanisms for maximal gain 

While mechanism design applies to many practical scenarios, such research is still heavily theoretical in nature. Professor Li, however, does not define impact as changing how the world works in one stride. Instead, he is most happy when other researchers take inspiration from his models and frameworks, leading to the birth of new ideas and endeavours to address related research questions. 

“The exciting part about research is trying to discover something previously undiscovered. By doing that, we gain a unique and new perspective of looking at the same thing, even about longstanding classical economic problems.” 

He did just that in a recent study, Are simple mechanisms optimal when agents are unsophisticated?, in collaboration with Northwestern University Associate Professor Piotr Dworczak. 

In a system with simple mechanisms, agents can easily identify the optimal strategy and behave accordingly to get what they want. In contrast, complex mechanisms demand more in-depth and sophisticated reasoning that could confuse agents who whose behaviour is not fully rational. 

System designers often prefer simple mechanisms as it means they can be “confident about predicting the agents’ behaviour and about what will happen under their system,” says Professor Li. Moreover, the agents are also more likely to participate since they understand how to ‘play’ the game. 

But Professors Li and Dworczak flip the script in their new work, showing that there may be cases where a complex mechanism is useful even if the agents are not strategically sophisticated. Using an approach called robust dominance, where the production of a higher payoff influences the designer to prefer the complex mechanism at all times, they proved that the inability of the designer to predict the outcome of a complex mechanism does not justify the choice of employing a simple mechanism instead. 

“The designers may not need to care about whether the mechanism is simple or not, because that’s not their objective. Their objective is to maximize their own utility,” Professor Li explains. “Some of the agents may be confused, but as long as they are willing to participate and as long as the eventual profits are higher or the system achieves their desired outcomes, then the designer could actually choose the complex mechanism.” 

Better models for broader applications 

Inevitably, mechanism design models operate on many assumptions about how people will respond to rules and what will motivate them. Assumptions make economic modelling more straightforward. One standard assumption, for example, is the level of strategic sophistication of the agents. But this comes with an obvious weakness.  

“It’s safe to say that everyday real-life people are not as rational as is assumed in typical models,” Professor Li points out. 

“Mechanisms work well when you have identified the optimal mechanism for a particular set of assumptions, and the assumptions are true. But they fail miserably in the much more frequent cases where people act ways that make the assumptions false and unhelpful.” 

Given this dilemma, Professor Li is steering his research towards robust mechanism designs that work on a broader set of assumptions and so predict outcomes in a larger set of situations. He hopes this approach can lend greater credence to the data models and analyses used in the field. 

“If we can relax these assumptions, we can make more practical mechanism designs and so be more helpful to real-life policymaking,” he adds. 

Empirical evidence is important to this goal, says Professor Li. He plans to conduct experiments by implementing mechanisms in controlled environments and testing whether the results match up with the theoretical findings. 

In support of this research, Professor Li is grateful to have twice received the Lee Kong Chian Fellowship, an annual award  for research excellence. 

“With the funding, I can meet with other researchers and initiate potential collaborations. I can also run experiments to test my theoretical findings and revise my models to coincide with actual behaviour even more,” he says. “I’m very privileged to win the award.” 

As he continues to run the numbers on his models, Professor Li hopes to inspire fellow researchers and students alike to see the value of game theory and mechanism design in analysing real-life phenomena—understanding “what happens, why things happen, and what will happen” in the world around us.

Feature on Prof Koon Shing Kwong, Professor of Statistics (Education)
Director of Actuarial Science programme
School of Economics, Singapore Management University 

Shaping the next generation of leaders in actuarial science 

While dedicating his actuarial research to securing the financial future of Singapore’s retirees, Professor Koon Shing Kwong dedicates his teaching duties to the future of his students and faculty.  

A great mentor can be pivotal for anyone’s growth—whether a coach for an athlete, a manager for an employee or a teacher for a student. That was the case for SMU Professor of Statistics Koon Shing Kwong, when he embarked on his career as a statistician in 1993. 

Two of his senior colleagues were not only decorated researchers with extensive publication records but also qualified actuaries. “Their achievements inspired me and I considered them my role models. Their successful career paths motivated me to pursue the actuarial qualification as well,” Professor Kwong recalls. 

Nearly thirty years on, Professor Kwong has similarly enjoyed a thriving career: he earned his professional qualifications, has had his research published in top-ranked statistics journals and received several awards for teaching excellence. Now, he is completing the circle by setting the next generation on their way.  

As the Director of SMU’s Actuarial Science programme, Professor Kwong has turned his attention to serving as a mentor to students and junior faculty—contributing to the future of the field and making an impact in society. 

Finding a secure future through statistics  

In his three decades as a researcher, Professor Kwong has swung from establishing statistical testing in clinical trials, to building a pricing framework for Singapore’s Lifelong Income For the Elderly (LIFE) pension programme. Professor Kwong approached the transition to retirement financing with a personal and empathetic motivation, having his own future at the back of his mind. 

“I was thinking ahead and asking myself what I need to do to ensure I have enough savings for my retirement, and so I did some research. As I read the literature on Singapore and Asia, I realised that most countries do not have enough financial tools to tackle the challenge of aging populations,” Professor Kwong says. 

This realisation motivated him to contribute innovative retirement financing ideas, a task which he describes as “increasingly compelling and crucial” in Singapore, given the city-state’s ageing population.  

Aside from pensions and insurance, another set of potential retirement financing tools are those which unlock cash from their assets, such as public housing offered by the Housing & Development Board (HDB). “Asset-rich-cash-poor retirees often have their own flat but not enough cash,” explains Professor Kwong. “If they can release their property assets into retirement funds, it would benefit not only the retiree but society as a whole. People could more easily support themselves without as much government subsidy.” 

This was the plan when, in 2009, the HDB introduced a Lease Buyback Scheme (LBS) to allow homeowners to sell the tail-end of their flat lease for an upfront cash payment. However, this lost property ownership and shortened period of staying to the front-end lease expiry date—usually covering the first 20 to 30 years, instead of for life. This catch may have contributed to relatively few people choosing the LBS offering, according to Professor Kwong. 

To find a better approach, Professor Kwong and colleagues applied actuarial science principles to analyse the current system and proposed a sell-type hybrid equity release (HER) plan, in the paper A hybrid equity release plan for retirement financing

“If we offer homeowners to stay in the HDB flat for life, the additional cost is relatively small,” he explains of their findings. “HER entitles homeowners to stay in their property for a certain period, or for life if homeowners outlive the stipulated period. As part of property may be sold, it also provides the potential of monetary benefit if the property’s value increases.” 

By exploring such ideas with rigorous calculations, Professor Kwong hopes to provide better alternative financial retirement plans that meet people’s personal needs and preferences. At the same time, the Government would find it easier to fund a growing retired population. 

Passing the baton to the next generation 

Beyond retirement futures, Professor Kwong’s mission is to nurture the future generation of actuaries. “For me, teaching is not just a job, it is a social responsibility to give back to society. Our curriculum should help our students to earn their professional qualifications and make their own contributions to society,” he shares. 

In pursuit of this mission, Professor Kwong moved from developing materials for individual courses, to overseeing three second major tracks for students at SMU—Applied Statistics, Data Science & Analytics, and now Actuarial Science. 

Professor Kwong and colleagues strategically curated course content to help students to pursue the actuarial qualification. By partnering with a market consultancy firm, for example, they secured actuarial software licenses for training students outside the regular curriculum. They also updated the curriculum to reflect changes made by the US Society of Actuaries, such as adding modules aligned with the data science component in the professional exams and adding Work-Study Elective offering six-months internship with industry partners. 

For Professor Kwong, shifting from teaching to administrative responsibilities meant dedicating more time to take the programme to the next level. “I receive valuable help from junior faculty because they are the ones to carry on these ideas and make sure that the programme and related courses continues to run smoothly in the future.” 

With this future in mind, Professor Kwong actively gleans insights from co-faculty, ranging from improving classroom management to meeting their career development needs. This healthy sharing of ideas and experiences across generations also extends to the alumni, who return to their roots to deliver talks to inspire future Actuarial Science graduates. 

“I do not measure success based on how many articles I have published or awards I have won. I constantly ask myself what I should do to provide a better learning environment for my students and help junior faculty to transform from being good teachers to all-round educators,” Professor Kwong says. No doubt some of his students and colleagues will be repeating the cycle in the decades to come.

Feature on Prof Seonghoon Kim, Associate Professor of Economics, School of Economics
Deputy Director, Centre for Research on Successful Ageing
Singapore Management University

Tracking social change and response in Singapore 

From long-term retirement preparedness to short-term pandemic policies, Associate Professor Seonghoon Kim uses micro-data to assess the big impacts on Singapore’s quality of life. 

Singapore is adding another dramatic social shift to its half-century of change: the proportion of people who have reached 65 years or older is expected to climb from 15 percent in 2019 to 25 percent by 2030.  

Of course, the sharp rise is no surprise, but rather a positive result from Singapore’s race from third world to first, driven by the very people now arriving at their retirement years. Even so, it is a new and unexplored phase, which requires a close watch on how well people and policies are adjusting: are seniors active and involved in the community, are they getting the right healthcare, and are the means of paying to support these efforts efficient and fair?  

When Associate Professor Seonghoon Kim arrived in Singapore via his home of South Korea and then the United States, Singapore’s population structure and economy were new to him, but he was ready for the challenge. As an empirical economist focused on labour and health, he had expertise in areas crucial to Singapore’s aging challenge. “I began studying the impacts of public policy such as CPF and re-employment policies using microdata and factors affecting economic well-being of older workers,” recounts Professor Kim, who has since become Deputy Director, Centre for Research on Successful Ageing (ROSA).  

ROSA was established with funding from the Singapore Ministry of Education and Ngee Ann Kongsi (NAKS) to understand Singapore’s population structure and ageing trends. At the heart of ROSA’s research is the Singapore Life Panel (SLP), which surveys the economic, social, physical and psychological well-being of older adults. Since 2015, the effort has followed over 12,000 participants and yielded 7,500 responses monthly. 

The SLP provides high-frequency and longitudinal data on Singaporeans’ income, expenditures, healthcare utilization and life satisfaction—quick snapshots of dynamic changes as they unfold, explains Professor Kim. With this data, researchers can paint a holistic picture of well-being at various stages of the senior years. “To make Singapore a better place for the next generation and senior citizens, we, as economists, want to understand what is really going in the society first” says Professor Kim. 

Observing policy impacts  

The tricky question of when to allow people to unlock their Central Provident Fund (CPF) savings as they approach retirement, provides one example of how the SLP helps us understand what happens when the government adjusts its policy levers. In the study Does early access to pension wealth improve health?, Professor Kim and Korea University Associate Professor Kanghyock Koh examined the health and subjective well-being impacts of allowing people to withdraw some of their CPF savings upon turning 55 years old even before their retirement. Analysis of the SLP data revealed that early access led to enhanced self-reported well-being, primarily through better psychological health and life satisfaction.   

Achieving the right tax balance to support an aging population is another challenge where evidence is crucial, says Professor Kim.  

“The challenge for any government is finding the ‘sweet spot’ in setting different tax rates and pooling funds to address evolving social challenges—such as supporting an aging population,” he says. Raising employer CPF contributions, for example, should translate into greater retirement savings. But the risk is in how employers respond, notes Professor Kim, citing his study on Labor market institutions and the incidence of payroll taxation. “Because Singapore’s labour market is highly competitive, wages are highly responsive. When taxes change, the wages change, too. So, raising the employer’s CPF contribution might not necessarily improve retirement preparedness as much as the policy intended as the wages might downward adjust.” 

The Singapore Life Panel has aided preparedness in other, more unexpected ways.  

Research in the time of COVID-19 

Professor Kim clearly recalls the 3rd of January 2020, when Singapore detected Covid-19 within its borders, on the tourist destination of Sentosa Island.  By March 2020, his regular work ceased, and his Covid contribution began. He soon realized that the SLP high frequency survey data was tracking the very things that had become disrupted: income, job, spending, happiness. “I saw this as the best chance to provide information about what was going on in Singapore, every month.” It was, he adds, a chance to show what economists can do for the society. 

Professor Kim’s research on Short-term impact of COVID-19 on consumption spending and its underlying mechanisms showed links between the national ‘circuit breaker’ and decreased consumption spending, economic uncertainty and lower incomes. The team used what they saw to lay out policy suggestions. These included providing cash transfers and support programs that favour disadvantaged households who faced larger drops in income but were less likely to be insured against these adverse events. 

By tracking the well-being of SLP participants over a period of 18 months, Professor Kim and collaborators also showed the ways in which life satisfaction levels declined in the lead-up to and following the circuit breaker. Importantly, the negative effects were much greater for those who experienced income losses. The findings were reported in the paper, Life satisfaction changes and adaptation in the COVID-19 pandemic.  

Enabling evidence-based decision-making in this way goes to the heart of Professor Kim’s research and his ambition to use economics to improve the quality of life for all. “I hope that policymakers can use our research to design effective policies to support seniors and improve retirement preparedness in the coming years.” 

Feature on Prof Aljoscha Janssen, Assistant Professor of Economics
School of Economics, Singapore Management University

Better health through better markets 

From drug development and marketing to choices made by pharmacy customers, Aljoscha Janssen, Assistant Professor of Economics at SMU’s School of Economics, analyses market behaviour in the health system to make it work for wellbeing rather than profit.  

Picture yourself in a local store looking for paracetamol. Do you look for a particular brand, a familiar colour and various promised effects, or do you scan the price tags for the cheapest version? 

If it’s a favourite brand you are looking for, welcome to the majority. This was starkly shown in Singapore’s early 2022 Omicron wave. Branded paracetamol flew from the shelves while plain packaged generic brands sat untouched, despite being under half the cost.  

This phenomenon is due to a “quality misconception”, says Assistant Professor Aljoscha Janssen, who examines healthcare systems through the lens of market economics. He likes to use the painkiller example to illustrate why it is important to understand healthcare as a market. The economic decisions of people throughout the system—drug manufacturers, marketers, even retailers—cumulate to become as significant to health outcomes as medical knowledge and skill, suggests Professor Janssen. Though disparities in medical knowledge are sometimes the problem, as he found when examining purchase decisions in Sweden. 

“We found that doctors and pharmacists choose the cheapest products. But other consumers choose the more expensive products. They either do not know or believe that the generic brand is essentially the same, and so perhaps unwittingly pay a brand premium,” explains Professor Jansson. “Improving customer knowledge and choices could improve competition and reduce medical costs,” he adds. 

Diagnosing incentives in the health system 

Market factors run deep in the health system and determine big questions, says Professor Janssen of his choice to dedicate his economics expertise to health. “How do we make pharmaceutical companies focus on important health areas? Why did the Covid vaccine appear quickly, while solutions for other problems, like dengue, take a long time?”  

To illustrate the complex and intertwined relationship of these questions, Professor Jansson points to the serious example of the United States’ opioid epidemic. Legal prescriptions were found to have fuelled if not sparked the epidemic. “Researchers are still working to understand what mistakes led to this big problem. What was the role of manufacturers? Were pharmacy controls inadequate? Were there bad intentions, or were financial incentives to blame?” The string of questions illustrates the need for rigorous economic analysis of how competition affects medical care, especially as the answers may be counterintuitive. 

“Though many are sceptical of big health companies, in this case the small pharmacies were the worst sector. They were more dependent on financial incentives. And in larger chain pharmacies, employees have no incentives to dispense a particular prescription drug.” Such dynamics complicate the question of whether competition leads to better outcomes, he adds.  

Observing public health through the cash register  

Economics also helps us understand public health—the task of promoting health among wider society—in surprising ways. One such area that interests Professor Janssen is how market dynamics influence ‘risky’ consumer behaviour, such as the purchase of drugs and alcohol. Here, attempts to sell more products combine with social behaviour and the biology of addiction, to create significant challenges for regulators and public health officials. 

Again, market data can help, says Professor Janssen. He is currently examining the lasting effects of pregnancy on alcohol choices. “Most people follow the advice to not drink during the nine months of pregnancy. The question then becomes, ‘what happens after the nine months?’”  

To answer this question, he has turned to data gathered from grocery store checkout scanners. The scanner data tells us a lot about what families buy and, in turn, what that tells us about their lives. 

“We found pregnancy had a strong and long-lasting impact on alcohol consumption within the family, which not only goes down but stays down,” Professor Janssen reports. Among the population covered by the study, households reduce their alcohol purchases by 36 after a first pregnancy. After pregnancy, alcohol purchases remained at 34 percent lower than before pregnancy. “This shows that pregnancy can be an opportunity to change lifestyle habits – such as lowering alcohol consumption – as there are many positive reasons to do so.”  

Health prediction and impact through machine learning  

As in the case of retail data, machine learning is helping health economists find valuable insights in very large data sets. Professor Janssen says the key difference between traditional research and machine learning is that it adds prediction powers to the traditional focus on establishing causation, or, ‘whether x leads to y”.  

“We can use machine learning to predict that people aged 18 to 35 are more likely to purchase a certain product, but it’s not a causal relationship. It’s not saying that because you are aged between 18 to 35, therefore you are buying this product.”  

Machine learning methods help Professor Janssen deal with large volumes of data. “New research projects often involve ploughing through lots of text. Machine learning helps us to analyse and structure text quickly, saving time and effort.”  

What excites Professor Janssen most about his research is the positive impact he can bring to social wellbeing through better health outcomes, especially as spending pressures increase with an ageing population. 

“Thinking ahead is important, especially with the ‘silver wave’. Reducing inefficiencies through understanding market choices is a great opportunity. I hope my research helps people to live healthier, better lives,” Professor Janssen concludes.

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