The Weighing Problem
A German economist says politicians and economists argue less about the numbers than about whose gains matter more than whose losses.
DR. Achim Wambach is President of ZEW, the Leibniz Centre for European Economic Research in Germany, where he works on competition policy and the translation of academic research into government policy.
The Confluence: As President of ZEW, what does the actual translation from academic research into government policy look like? Is it as direct as people assume?
Dr. Wambach: ZEW has a dual mandate consisting of academic research and policy advice. The path from academic research to policy is rarely direct. While academic papers are not always picked up by policymakers, they help to establish a researcher’s expertise on a topic, which can later lead to invitations to expert hearings or to sit on committees.
Policy advice tends to be more direct: we are often commissioned to conduct specific studies investigating a policy issue. However, even commissioned research doesn’t always directly inform legislation.
The Confluence: Can you give an example of research from your institute that you think genuinely changed a policy decision?
Dr. Wambach: Over the past decade, ZEW has repeatedly examined the potential and impact of tax incentives for R&D as an innovation policy tool, including a 2017 study for the government’s Commission of Experts for Research and Innovation, an assessment of the finance ministry’s draft law in 2019, and ongoing evaluations of the R&D tax credit introduced at the time.
That’s one case where the line to a specific law is fairly traceable, but it’s not the typical pattern. More broadly, ZEW’s influence usually comes from three regular channels: ongoing seats on standing advisory bodies, such as the pension commission, where our input feeds directly into official reports; commissioned studies for the EU Commission or Parliament that prepare the ground for directives; and research that shapes the wider debate a law is drafted in.
One example is a study showing that online travel agents ranked hotels worse in search results when those hotels offered lower prices on other channels, effectively punishing them for price competition elsewhere. That kind of evidence on platform ranking practices was part of what informed the debate behind the EU Digital Markets Act’s rules on price parity and ranking transparency.
The Confluence: Where do economists and politicians tend to disagree most, the evidence itself, or what to do given the evidence?
Dr. Wambach: Economists can show what a given policy does to different groups, who gains, who loses, and by how much. What politicians then have to do is to weigh those often competing interests against each other and choose which group’s gains justify another group’s losses. So the dispute is rarely about the numbers themselves, it’s about that weighing process, and that’s a task for politicians, not for economists.
The Confluence: You’ve worked a lot on competition policy. In an age of a few giant tech firms dominating markets, is traditional antitrust theory still equipped for that?
Dr. Wambach: Classical tools have their limitations. It is difficult to define a market and measure price effects for services that are free but build enormous power through data and network effects. This is why the Digital Markets Act of the European Union introduced ex-ante regulation, prescribing certain behaviour for certain firms in advance rather than addressing abuse after the event.
I believe this combination is necessary, as the traditional toolkit alone is no longer sufficient. There is essentially a clash between two policy approaches here: industrial policy, which intervenes in markets to strengthen a sector or develop a technology, and can make a national or European champion look desirable, and competition policy, which aims to keep markets open and stays neutral about which firm ends up on top.
The champion that industrial policy seeks to create can be precisely the dominant position that competition policy must address. Personally, I favour the competition policy approach, since open markets tend to produce stronger firms than protected ones over time.
The Confluence: If a government doesn’t like your institute’s findings, what typically happens? Used anyway, quietly shelved, or contested publicly?
Dr. Wambach: Our results are always published and will thus enter the public debate if they are picked up by the media. However, if the media is not interested, then the strategy of quiet shelving can work. Outright dismissal is rare; more often, a ministry will point to other studies or aspects that it claims were omitted.
The Confluence: What’s one European economic policy debate right now you think the public is getting fundamentally wrong?
Dr. Wambach: I believe that the public debate regarding the European Emissions Trading System is often misguided. Much of the criticism, especially regarding its extension to buildings and transport, treats the rising carbon price as if it were merely an additional tax on households, and the political reaction has mostly been about softening or delaying it.
This overlooks the fact that a price on carbon is the most cost-effective way to reduce emissions, as it enables every household and firm to decide where reducing carbon is most cost-effective, rather than leaving this decision to a regulator.
