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An Economist among Biologists (or maybe vice versa!)

Chirantan Chatterjee, IIM Bangalore

I learnt my first tenets in economics one particularly troubling night in the year 1995, sitting with my otolaryngologist father, in what now seems distant history. Overcome by a nervous attack that I was forgetting all the basics of demand and supply before my school’s standard 10 examinations, I turned to him who took charge. In his spiel of two hours, I learnt in about 1/12th of a day what it seems I had failed to learn the entire academic year. And that included all the fundamentals starting from the notions of long and short run, cost curves, average and marginal costs as also, the issue of opportunity cost or of demand and supply along with Pareto equilibrium.

Over the years, looking at my doctor-father, I have often marvelled how, with all his training in the medical sciences, he has retained his knack for the science of money. How for example, he has maintained a systematic understanding of the demand side and the flow of patients in his clinic and its relationship with seasonality. Or how, he has evolved with competition as an unaffiliated physician with new doctors entering the medical market in our small town West Bengal. Or even how he has managed to innovate despite the changing nature of market structure with entry of private healthcare operators moving away from an old world of governmental health care providers.

Perhaps those were the seeds of my intrigue about how it might be to be ‘an economist among biologists’. And recently the thought came back to me in a curious sort of way. Working on a paper with my co-author in Atlanta, we contemplated investigating this issue of how entry of generic medicines in various drug therapeutic markets has impacted the flow of early stage pharmaceutical innovations in the pipeline of innovator firms located in the United States. In doing so, as common sense would predict, one would have to, in a modelling framework, ‘control’ for all other competing explanations that could have stifled pharmaceutical innovations. However, how could one control for, we wondered, the nature of science and its intricacies – that results in newer drugs, sometimes being more successful than older ones despite the older ones having a track record of scientific efficacy. We figured (credits must also go to a colleague for this suggestion) that there is an easy way out - perhaps by inserting paired fixed effects of drug therapeutic markets with time.

Let me try to explain this a bit further. In the language of empirical economists, fixed effects are a way to keep all other things that cannot be measured directly, constant, for a unit that is being explored. This unit could possibly be a firm, a country, or even a drug-market as was the case with our project. Inserting a fixed-effect for a drug-market would mean that there would be a dummy variable =1 for a particular drug market (=0 for all other drug markets being considered), and those dummies in some sense in the model control (or keep constant) for what empirical economists, like to call, unobserved heterogeneity of the unit being explored (of drug markets in this case). How about variation or changes or heterogeneity which is not only unobserved, but also which is dynamically evolving over time[i]? We hit upon, what I mentioned earlier, inserting paired fixed effects in our statistical model, of the drug market interacted with time dummies in our statistical model – such that both unobserved issues in the drug market and out of those, which varied over time, could be kept constant in our model.

The procedure however left in me a sense of dissatisfaction. As an empirical economist, which today is so much about nifty statistical techniques, one can only go as far as fixed effects and paired fixed effects perhaps, I thought, in explaining the curious nature of biological sciences. Yet, economists historically and even today have never shied away in trying to understand biology (and perhaps even inspiring some of their earliest work). This is intriguingly documented by UC Berkeley zoologist Michael Ghiselin (1978) writing in the American Economic Review: “The situation appears all the more odd when we realize that Darwin himself attributed his discovery of natural selection to reading a work by the economist Malthus.”

Ghiselin further outlines how Adam Smith (1776), one of the founding fathers of economics, formulated the notion of ‘division of labor’ but how that notion might have remained under-researched over time in economics[ii]. Ghiselin however points out to how ‘division of labor’ finds a home in biology. Drawing an analogy to the human body, Ghiselin notes: “We have incisors for cutting, canines and premolars for shearing, and molars for grinding. The reason for this differentiation is obvious enough. A different shape of tooth is optimal for each kind of chewing, and a tooth cannot change its shape.”

This is an intriguing discussion for inherent in that phrasing – Ghiselin hints at some of the basic notions of comparative advantages, that also shapes how certain nations of the world become hubs for manufacturing activity, certain others for software services and some others turn into becoming the hotspots for innovation. It also outlines how the human body is so static in some sense (though here there will be evolutionary biologists with an argument). Once the molars have been assigned the job of grinding, they keep doing that all through their lives, yet – how nations leapfrog and evolve in the product life cycle – elucidated by economists such as Raymond Vernon (1979) and Paul Krugman (1979) in their work to understand economic growth of nations.

Stepping a few steps back to my personal experience however, my intrigue as an economist among biologists has constantly been whetted by some very interesting papers that I have had the opportunity to witness being presented during my graduate school in Pittsburgh. Am particularly reminded here of papers originating from my colleagues in Boston (not to mention many other hard working and illustrious colleagues working in this space). Some notable names in this regard would be economists Jeff Furman, Fiona Murray, Margaret Kyle, Heidi Williams, Iain Cockburn,   Pierre Azoulay and Scott Stern at Boston University and MIT. Without further belabouring this point, let me suggest the interested reader to dig up their homepages from the WWW to get a flavour of how they derived their inspiration from their co-location in a biology cluster like that in Boston.

In conclusion, to my mind, this intriguing marriage of economists and biologists is going to continue. Health at large is being increasingly considered carefully by governments and policy makers and underneath that consideration, lies the evolving nature of biology, its relationship and interactions with other disciplines to generate efficiencies. This also translates to concomitant issues like discovery of new drugs for still unresolved diseases, and the future structure of what has been a much investigated global pharmaceutical and healthcare industry.

And all for valid reasons, I am sure, my father will agree, perhaps posing today: “Didn’t I teach you that while explaining the Human Development Index, that particular night in 1995?” I will acknowledge, be grateful and continue my trudge as an economist among biologists.


“The Economy of the Body”, Michael Ghiselin, The American Economic Review, Vol. 68, No. 2, Papers and Proceedings of the Ninetieth Annual Meeting of the American Economic Association (May, 1978), pp. 233-237.

"The Wealth of Nations", Adam Smith, 1776.

“The Product Cycle Hypothesis in a New International Environment”, Raymond Vernon, 1979, Oxford Bulletin of Economics and Statistics, Vol 41, No 4.

"A Model of Innovation, Technology Transfer and the World Distribution of Income," Paul Krugman, Joumal of Political Economy, April 1979, 87, 253-66.

"Economics and Biology: Specialization and Speciation," H. Houthakker, Kyklos, 1956, 9, 181-89.


[i] Looking at how statin drugs have evolved, atorvastatin (brand name Lipitor) became one of the more successful statin drugs, though the science of statins has had a long history, originating much earlier with Mevacor, the first statin in 1978 (Tobert 2003). This is probably a classic illustration of the dynamic nature of unobserved heterogeneity as it pertains to science and how that explains success of a later generation drug over the earlier generation, despite the earlier version’s proven scientific efficacy. http://www.phc.org.au/wp-content/uploads/Lovastatin-and-beyond.pdf

[ii] At least till 1978, when Ghiselin’s paper was published, since globalization has obviously ushered in a new series of economic work on division of labor and more specifically in its innovative forms.

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