the design of insurance coverage for medical products under imperfect competition this paper studies the design of health insurance with ex post moral hazard when there is imperfect competition in the market for the medical product various scenarios such as monopoly pricing or horizontal differentiation are considered insurers or their regulator can commit to a reimbursement policy which specifies two types of copayments an ad valoremcoinsurance rate and a specific per unit copayment by combining both copayment rates in an adequate way the insurer can effectively control the producer price which is then set so that the producer s revenue just covers fixed costs consequently a suitable regulation of the copayment instruments leads to the same reimbursement rule as under perfect competition for medical products additional rationing of coverage because of imperfect competition is notnecessary the optimal policy involves the smallest possible copayment combined with the largest possible coinsurance rate such that the participation constraint of health providers is binding

real exchange rate volatility and economic openness theory and evidence this paper relates the volatility of the trade weighted effective real exchange rate to the degree of trade openness of an economy the theoretical part presents an intertemporal monetary model of a small open economy with nominal rigidities both monetary and aggregate supply shocks are shown to produce ceteris paribus smaller real exchange rate movements if the country is more open to foreign trade empirical evidence on a cross section of forty eight countries confirms this relationship differences in trade openness explain a large part of the cross country variation in the volatility of the effective real exchange rate

the role of firm size in bilateral bargaining a study of the cable television industry we examine the effect of buyer merger on bilateral negotiations between a supplier and n buyers merger may have bargaining effects in addition to the usual efficiency effects the effect of merger on the buyers bargaining position depends on the curvature of the supplier s gross surplus function merger enhances worsens the buyers bargaining position if the function is concave convex based on a panel of advertising revenue in the cable television industry our estimates indicate that the gross surplus function for suppliers of program services is convex this result suggests that cable operators integrate horizontally to realize efficiency gains rather than to enhance their bargaining position vis a vis program suppliers

modeling charitable giving using a box cox standard tobit model there is a large literature investigating the determinants of charitable giving in particular price and income elasticities we find that many of the most often reported results from this literature rely on a model specification that is inappropriate when applied to recent federal tax file data we develop a standard tobit model with a box cox transformation parameter that nests a number of other specifications the box cox model yields estimates of price elasticities and expected charitable contributions that differ from those obtained using the typical specification additionally we find that the use of sample weights provides potentially important policy insights copyright 1991 by mit press

trade surpluses and life cycle saving behaviour abstract the national income account identity and the life cycle theory of consumption together imply that the current account should be a function of the age structure a country with a high proportion of young and retired should have current account deficits using a panel of 84 countries we find empirical support for this hypothesis

inter vivos transfers and intergenerational exchange the surge of interest in intergenerational transfers in the past decade has sparked a debate over the motivation for them are transfers given out of altruism or part of an exchange while each motive is probably at work to some extent we know little about whether one motive predominates the question is relevant for issues concerning public income redistribution and inequality in the family but despite its importance empirical evidence about motives is scarce because of limited data we investigate a new data set the national survey of families and households which remedies many of the shortcomings of other data sets containing private transfer information we find that empirical patterns for inter vivos transfers i e transfers between living persons are more consistent with exchange than altruism

anticipated protectionist policies real exchange rates and the current account the case of rigid wages abstract in this paper we develop a general equilibrium model of an economy with short run unemployment to analyze how anticipated protectionist policies affect real exchange rates the current account and aggregate employment we find that a key transmission channel is the change in current employment induced by future changes in tariffs we show that the direction and magnitude of this effect will depend on relative factor intensities and on real exchange rate behavior if a future tariff generated a current real exchange rate appreciation and if nontradables are labor intensive the anticipation of protectionist policies will generate an increase in current employment

international evidence on tradables and nontradables inflation abstract using 1970 1985 sectoral data for the oecd we find that inflation in nontradable goods exceeds inflation in tradables we identify a demand shift towards nontradables and faster growth of total factor productivity in the tradable goods sector as the prime causes of the differential inflation in addition disinflation attempts and the exchange rate regime appear to have exerted significant influence on the relative inflation rate

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed

the other ex ante moral hazard in health it is well known that pooled insurance coverage can induce people to make inefficiently low investments in self protective activities we identify another ex ante moral hazard that runs in the opposite direction lower levels of self protection and the associated chronic conditions and behavioral patterns such as obesity smoking and malnutrition increase the incidence of many diseases and consumption of treatments to those diseases this increases the reward for innovation and thus benefits the innovator it also increases treatment innovation which benefits all consumers as individuals do not take these positive externalities into account their investments in self protection are inefficiently high we quantify the lower bound of this externality for obesity the lower bound is independent of how much additional innovation is generated the results show that the externality we identify offsets the negative medicare induced insurance externality of obesity the medicare induced obesity subsidy is thus not a sufficient rationale for soda taxes fat taxes or other penalties on obesity the quantitative finding also implies that the other ex ante moral hazard that we identify can be as important as the ex ante moral hazard that has been a central concept in health economics for decades

the economics of invention incentives patents prizes and research contracts though public intervention in the market for research is virtually universal economists have paid surprisingly little attention to the choice of the form of research incentive in a given market structure many studies concentrate on patents but any assumption of their superiority over other incentives has been founded on intuition rather than on formal analysis in this paper i analyze the choice between three of the most common alternative means of public intervention in the research market namely patents prizes and direct contracting for research services i show why and under what conditions any one of the three may be preferred by a social welfare maximizing administrator in a competitive economy using a model that for the first time pays explicit attention to differences in the informational roles of each of these alternatives in the extensive literature on the economics of patents see arnold plant 1934 fritz machlup 1958 charles taylor and z a silberston 1973 morton kamien and nancy schwartz 1975 and f m scherer 1977 for valuable surveys formal analysis weighs the benefits of patents as a solution to the market failure associated with the inappropriability of knowledge against the welfare cost due to the restriction on the use of the knowledge generated and this tradeoff is optimized by patent life adjustment in william nordhaus 1969 scant analytical attention is paid to alternative incentive mechanisms an exception is ben yu 1981 who considers the role of prior contracting for inventions but as many writers for example dan usher 1964 yoram barzel 1968 joseph stiglitz 1969 carole kitti 1973 glenn loury 1979 partha dasgupta and stiglitz 1980a have pointed out in various contexts the incentive offered by an unlimited patent to competitive researchers may be excessive due to the common pool problem discussed further in section i below if the patent administrator and researchers share the same information as implicitly assumed in previous models then the patent life limitation can be adjusted to provide the optimal patent incentive given the common pool problem but in all such models patents would not be chosen in a fully optimized fiscal system researchers and the administrator are assumed to have identical information about the shadow price of potential inventions a patent is just a means of turning this shadow price into a monetary reward but monetary compensation can instead be offered directly to researchers by the state assuming that patent revenues incur a higher deadweight loss than an equivalent amount of public funds financed by less distortionary means for example a minimally efficient tax system appropriate prizes or government contracts are socially preferable to patents with optimal lives if the patent is ever to be the optimal incentive mechanism for research it must possess advantages not captured in existing models informal discussions of patents emphasize their informational role to include the latter as a justification for decentralized invention incentives i incorporate an ex ante imbalance of information about costs and benefits of research in the model presented in section ii but this alone is not quite enough it is further necessary to specify that the terms of the award must be fixed before department of economics economic growth center box 1987 yale station yale university new haven ct 06520 i thank with the usual caveat marguerite alejandro wright cindy arfken martin baily nuong brennan steven englander robert evenson richard levin richard nelson susan rose ackerman denis wright and two referees for assistance of various kinds

competition among hospitals we examine competition in the hospital industry in particular the effect of ownership type for profit not for profit government we estimate a structural model of demand and pricing in the hospital industry in california then use the estimates to simulate the effect of a merger california hospitals in 1995 face an average price elasticity of demand of 4 85 not for profit hospitals face less elastic demand and act as if they have lower marginal costs their prices are lower than those of for profits but markups are higher we simulate the effects of the 1997 merger of two hospital chains in san luis obispo county where the merger creates a near monopoly prices rise by up to 53 and the predicted price increase would not be substantially smaller were the chains not for profit

when excessive consumption is rational if average cost is everywhere above market demand it is usually argued that the nondiscriminating firm will shut down although the first best outcome may dictate production in this setting it is shown that there is often a nash equilibrium in consumption that will keep the firm producing selfish consumers engage in excessive beyond demand consumption to keep the firm in business and to protect their surpluses this is shown to be true in a simple model with perfect information and also in a more realistic model in which consumers are uncertain about the firm s costs copyright 1991 by american economic association

the insurance value of medical innovation abstract economists think of medical innovation as a valuable but risky good producing health benefits but increasing financial risk for consumers and healthcare payers this perspective overlooks how innovation can lower physical risks borne by healthy patients facing the prospect of future disease we present an alternative framework that accounts for all these sources of value and links them to the value of healthcare insurance we show that any innovation worth buying reduces overall risk and generates positive insurance value on its own we conduct a stylized numerical exercise to assess the potential empirical significance of our insights our calculations suggest that conventional methods meaningfully understate the value of historical health gains and disproportionately undervalue treatments for the most severe illnesses where physical risk to consumers is the costliest these calculations also suggest that the value of physical insurance from new technologies may exceed the financial spending risk that they pose

price and concentration in hospital markets the switch from patient driven to payer driven competition perhaps the most widely accepted paradigm of industrial organization i o is that competition lowers prices or alternatively that price cost margins are lower in less concentrated markets 1 the applicability of this paradigm for hospital markets has been questioned for example in united states vs carilion health system and roanoke valley hospital the district and appellate courts accepted evidence that hospital prices are lower in more concentrated markets and thereby approved a merger between the two largest hospitals in a three hospital market 2 the view that competition has a weak or perverse effect on hospital prices is shared by a number of researchers 3 is a common theme in newspaper stories

demography national savings and international capital flows this paper addresses the relationship between age distribution national savings and the current account balance the results point to substantial demographic effects with increases in both the youth and old age dependency ratios associated with lower savings rates they also point to differential effects on savings and investment and thus to a role for demography in determining the current account balance the estimated demographic effect on the current account balance exceeds 6 percent of gdp over the last three decades for a number of countries and given expected demographic trends is likely to be substantially larger over the coming decades copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

population age structure saving capital flows and the real exchange rate a survey of the literature this paper surveys the existing literature on the effects of population age structure on saving capital flows and the real exchange rate we build on previous surveys of age structure and saving behaviour by including extensive discussion of international linkages specifically the impact on capital flows and real exchange rates we also point to unresolved issues that need to be addressed given that population aging has serious policy implications in the developed economies these days

the changing effects of competition on non profit and for profit hospital pricing behavior abstract has the nature of hospital competition changed from a medical arms race in which hospitals compete for patients by offering their doctors high quality services to a price war for the patients of payors this paper uses time series cross sectional methods on california hospital discharge data from 1986 1994 to show the association of hospital prices with measures of market concentration changed steadily over this period with prices now higher in less competitive areas even for non profit hospitals regression results are used to simulate the price impact of hypothetical hospital mergers

the welfare effects of restricted hospital choice in the us medical care market summary managed care health insurers in the usa restrict their enrollees choice of hospitals to within specific networks this paper considers the implications of these restrictions a three step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer the results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans a welfare analysis assuming fixed prices implies that restricting consumers choice of hospitals leads to a loss to society of approximately 1 billion per year across the 43 us markets considered this figure may be outweighed by the price reductions generated by the restriction copyright 2006 john wiley sons ltd

innovation and the welfare effects of public drug insurance rewarding inventors with inefficient monopoly power has long been regarded as the price of encouraging innovation prescription drug insurance escapes that trade off and achieves an elusive goal lowering static deadweight loss without reducing incentives for innovation as a result of this feature the public provision of drug insurance can be welfare improving even for risk neutral and purely self interested consumers the design of insurers cost sharing schedules can either reinforce or mitigate this result schedules that impose higher consumer cost sharing requirements on more expensive drugs help ensure that insurance subsidies translate into higher utilization rather than pure increases in manufacturer profits moreover some degree of price negotiation with manufacturers is likely to be welfare improving but the optimal degree depends on the size of such transactions costs as well as the social cost of weakening innovation incentives by lowering innovator profits these results have practical implications for the evaluation of public drug insurance programs like the us medicaid and medicare part d programs along with european insurance schemes

age structure and trade openness an empirical investigation this study focuses on the relationship between age structure and trade openness we hypothesise that a higher share of the working age population in the total population increases trade openness because the dependent population tends to spend more than the working age population on non tradable goods such as education and medical services we estimate the effects of age structure on trade openness using panel data for 85 countries from 1991 to 2010 the empirical results show that the share of the working age population has a positive effect on trade openness an increase in the share of the working age population is considered to be one factor that contributed to an increase in trade openness in the sample period

the private provision of public goods altruism and voluntary giving abstract a unique data set on exact giving by individual households for the support of a rural health care facility is used to examine the determinants of charitable giving including the role of altruism we examine whether a household s decision to give or not give and the amount it gives are influenced in the same or different ways by the household s characteristics and economic circumstances we also examine whether a household s altruistic history affects its current giving decisions

are invisible hands good hands moral hazard competition and the second best in health care markets the nature and normative properties of competition in health care markets have long been the subject of much debate in this paper we consider what the optimal benchmark is in the presence of moral hazard effects on consumption due to health insurance intuitively it seems that imperfect competition in the health care market may constrain this moral hazard by increasing prices we show that this intuition cannot be correct if insurance markets are competitive a competitive insurance market will always produce a contract that leaves consumers at least as well off under lower prices as under higher prices

health insurance and diversity of treatment we determine the optimal health policy mix when the average utility of patients increases with the supply of drugs available in a therapeutic class health risk coverage relies on two instruments copayment and reference pricing both of which affect the risk associated with health expenses and diversity of treatment for a fixed supply of drugs the reference pricing policy aims at minimizing expenses in which case the equilibrium price of drugs is independent of the copayment rate however with an endogenous supply of drugs diversity of treatment may susbtitute for insurance so that the reference pricing may depart from maximal cost containment in order to promote entry we next analyze the determinants of the optimal policy while an increase in risk aversion or in the side effect loss increases diversity and decreases the copayment rate an increase in entry cost decreases both diversity and the copayment rate

simultaneous determination of church contributions and church attendance in a standard model of household allocation of time and income church attendance and church contributions are determined simultaneously there are life cycle aspects to both attendance and contributions as azzi and ehrenberg 1975 and ehrenberg 1977 have argued and contributions behavior is affected by tax treatment and by a potential free rider problem as well this paper motivates an econometric specification which recognizes these features and estimates the parameters with a data set of over 2000 protestant church members

preventives versus treatments preventives are sold ex ante before disease status is realized while treatments are sold ex post even if the mean of the ex ante distribution of consumer values is the same as that ex post the shape of the distributions may differ generating a difference between the surplus each product can extract if for example consumers differ only in ex ante disease risk then a monopolist would have more difficulty extracting surplus with a preventive than with a treatment because treatment consumers having contracted the disease no longer differ in disease risk we show that the ratio of preventive to treatment producer surplus can be arbitrarily small in particular when the distribution of consumer values has a zipf shape and the disease is rare the firm s bias toward treatments can be reversed for example if the source of private information is disease severity learned ex post the difference between the producer surplus earned from the products can result in distorted rd the deadweight loss from this distortion can be as large as the entire producer surplus difference calibrations for hiv and heart attacks based on risk factors in the u s population suggest that the distribution of disease risk is sufficiently zipf similar to generate substantial differences between producer surplus from preventives and treatments empirically we find that proxies for the zipf similarity of the disease risk distribution are associated a significantly lower likelihood of vaccine development but not drug development jel codes o31 l11 i18 d42

capital controls and the real exchange rate do controls promote disequilibria abstract the consensus view is that capital controls can effectively lengthen the maturity composition of capital inflows and increase the independence of monetary policy but are not generally effective at reducing net inflows and influencing the real exchange rate this paper studies the adjustment dynamics of the real exchange rate towards its long run equilibrium and presents empirical evidence that capital controls increase the persistence of misalignments allowing the speed of adjustment to vary according to the intensity of restrictions on capital flows it is shown that the real exchange rate converges to its long run level at significantly slower rates in countries with capital controls this result is stronger when the exchange rate is undervalued and is independent of confounding factors such as the exchange rate regime and other forms of heterogeneity affecting the speed of adjustment i also find evidence that controls on capital inflows have greater effects than controls on outflows in addition while the combination of capital controls with a fixed or managed exchange rate regime significantly increases the persistence of misalignments controls appear to loose traction under more flexible exchange rate arrangements

health insurance as a two part pricing contract monopolies appear throughout health care we show that health insurance operates like a conventional two part pricing contract that allows monopolists to extract profits without inefficiently constraining quantity when insurers are free to offer a range of insurance contracts to different consumer types health insurance markets perfectly eliminate deadweight losses from upstream health care monopolies frictions limiting the sorting of different consumer types into different insurance contracts restore some of these upstream monopoly losses which manifest as higher rates of uninsurance rather than as restrictions in quantity utilized by insured consumers empirical analysis of pharmaceutical patent expiration supports the prediction that heavily insured markets experience little or no efficiency loss under monopoly while less insured markets exhibit behavior more consistent with the standard theory of monopoly

the purchasing power parity debate originally propounded by the 16th century scholars of the university of salamanca the concept of purchasing power parity ppp was revived in the interwar period in the context of the debate concerning the appropriate level at which to re establish international exchange rate parities broadly accepted as a long run equilibrium condition in the post war period it first was advocated as a short run equilibrium by many international economists in the first few years following the breakdown of the bretton woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s accordingly over the last three decades a large literature has built up that examines how much the data deviated from theory and the fruits of this research have provided a deeper understanding of how well ppp applies in both the short run and the long run since the mid 1990s larger datasets and nonlinear econometric methods in particular have improved estimation as deviations narrowed between real exchange rates and ppp so did the gap narrow between theory and data and some degree of confidence in long run ppp began to emerge again in this respect the idea of long run ppp now enjoys perhaps its strongest support in more than 30 years a distinct reversion in economic thought

fertility and the real exchange rate we use a quinquennial data set covering 87 countries between 1975 and 2005 to investigate empirically the relationship between fertility and the real effective exchange rate theoretically a country experiencing a decline in its fertility rate can be expected to experience a real depreciation we test and confirm this hypothesis controlling for a number of other potential determinants we find a statistically significant and robust link between fertility and the exchange rate our point estimate is that a decline in the fertility rate of one child per woman is associated with a depreciation of approximately 15 in the real effective exchange rate on utilise une base de donnees quinquennales pour 87 pays entre 1975 et 2005 afin d etudier empiriquement la relation entre fecondite et taux de change reel effectif theoriquement un pays qui fait l experience d un declin dans le taux de fecondite peut s attendre a une depreciation reelle on teste et on confirme que c est le cas en controlant un certain nombre d autres determinants potentiels il existe une relation significative et robuste entre fecondite et taux de change un declin du taux de fecondite d un enfant par femme est associea une depreciation d a peu pres 15 dans le taux de change reel effectif

pareto optimal redistribution and private charity abstract when private charity exists and is motivated by utility interdependence a non pareto optimal outcome the free rider problem typically arises nevertheless incremental fiscal redistribution cannot achieve a paretian welfare improvement so long as private charity continues at positive levels donors respond to incremental fiscal redistribution by reducing their voluntary contributions by exactly a dollar for every dollar transferred in this way no net transfer is achieved unless incremental fiscal redistribution is pursued to the point where private contributions have been driven to zero alternatively a net transfer may be achieved by fiscal measures which affect donors marginal incentives to donate

health insurance market reform and employee compensation the case of pure community rating in new york abstract pure community rating which was enacted to improve access to health insurance in new york s small group market in 1993 prevents carriers from charging different premiums based on the ages of a firm s workers if small firms were adjusting compensation packages prior to reform to offset higher health care costs of older workers then community rating could lead to greater relative wages for older workers post reform and not necessarily induce adverse selection that results in changes in who is insured i present evidence showing that relative wages of older workers in small firms increased in comparison with other states and with large firms within new york following reform