the demand for physician services evidence from a natural experiment this study exploits a natural experiment in belgium to estimate the effect of copayment increases on the demand for physician services it shows how a differences in differences dd estimator of the price effects can be decomposed into effects induced by the common average proportional price increase income effects and by the change in relative prices substitution effects the price elasticity of a uniform proportional price increase is relatively small 0 13 for men and 0 03 for women substitution effects are large especially for women but imprecisely estimated despite the substantial price increases the efficiency gain of the reform if any is modest

signalling in a dynamic labour market this paper analyzes a multiperiod version of the spence job market signalling model in which workers cannot commit to an education choice and firms make wage offers at any point in time the dynamic competition combined with the incomplete information yield a multiplicity of sequential equilibria including ones that sustain implicit collusion even though the length of the game is finite emphasis is placed on equilibria that satisfy the independence of never weak best response criterion of kohlberg and mertens 1986 it is shown that in the limit as the time between offers tends to zero any such equilibrium results in expectation in the unique stable outcome of the static spence model

moral hazard and the demand for physician services first lessons from a french natural experiment abstract this paper presents empirical results on moral hazard in demand for medical care using a longitudinal dataset on 4578 individuals followed during two years the dataset contains two subgroups one for which a copayment rate of 10 for physician visits was introduced in 1994 and an other for which no change occurred during the period of the study this enables us to use these data as coming from a controlled natural experiment we test if the number of visits per agent was modified by this copayment rate the data reject the hypothesis for office visits but do not for home visits this suggests that there is moral hazard in demand for some physician services but also that when non monetary costs are important small changes in monetary price may not induce any major change in behavior

the economics of career concerns part i comparing information structures many incentives in organizations arise not through explicit formal incentive contracts but rather implicitly through career concerns this paper models career concerns through agents trying to manipulate the market assessment of their future productivity the information flow from current actions to market assessment is therefore crucial in determining the nature of these incentives improved information may either increase or reduce incentives the impact of information provides a major distinction between the explicit and implicit incentives model the paper derives general results on comparisons of information structures which serve as counterparts to the standard results on information structures in the principal agent model sufficient statistic impact of a blackwell garbling comparison of inclusive information structures 1999 the review of economic studies limited

managerial incentive problems a dynamic perspective the paper studies how a person s concern for a future career may influence his or her incentives to put in effort or make decisions on the job in the model the person s productive abilities are revealed over time through observations of performance there are no explicit output contingent contracts but since the wage in each period is based on expected output and expected output depends on assessed ability an implicit contract links today s performance to future wages an incentive problem arises from the person s ability and desire to influence the learning process and therefore the wage process by taking unobserved actions that affect today s performance the fundamental incongruity in preferences is between the individual s concern for human capital returns and the firm s concern for financial returns the two need be only weakly related it is shown that career motives can be beneficial as well as detrimental depending on how well the two kinds of capital returns are aligned it is well understood by now that informational externalities may place special demands on the organization of economic exchange simple price mediated markets will frequently fail in the presence of asymmetric information in that case more elaborate contractual arrangements have to be used as substitutes for the price system lately considerable effort has been devoted to the analysis of contracting under incomplete information with the objective to understand the range of economic institutions that emerge in response to the failure of the price system the analysis of moral hazard has played a prominent role in this development moral hazard problems arise when for some reason or another transacting parties cannot contract contingent on the delivery of the good for instance in buying labour services it may be that the amount of labour supplied is not directly observable precluding a simple exchange of wage for labour as a partial remedy to this problem an imperfect mutually observed signal about the supply of labour can be used as a proxy in the contract frequently output is taken as such a proxy the drawback is that output is often influenced by other factors than labour input which induce undesirable risk into the contract one is therefore faced with a tradeoff between allocating risk associated with incomplete observability and providing incentives for a proper supply of labour gaining insight into this tradeoff is important not only for understanding contracting in the small e g managerial incentive schemes but also because it is closely related to the fundamental tension between equity and efficiency in the society as a whole while our understanding of moral hazard has advanced a lot in past years it is clear that much work remains an important question that has received little attention until

health insurance tradeoffs revisited abstract in two recent papers journal of health economics 18 2 141 152 journal of health economics 18 6 811 824 nyman raised some questions about the welfare calculations and conclusions in our earlier paper manning and marquis health insurance the tradeoff between risk pooling and moral hazard vol 15 1996 this note discusses the erroneous criticisms in his papers first although we estimated a marshallian demand curve our calculations are based on compensating variations that incorporate the gains from risk pooling second our estimates of second best insurance plans indicate that some cost sharing is optimal in contradiction to his assertion that our results raise questions about the desirability of insurance coverage the comment also deals with other issues raised by nyman

persuasion and learning by countersignaling abstract we model countersignaling i e very high types refraining from signaling arising from the tradeoff between persuasion and learning in a signaling game we assume that the agent has imperfect private information regarding his her productivity which the signaling action provides additional verifiable information about a higher type agent benefits more from providing such objective albeit imprecise proof for the market but may also gain less from learning about his her productivity when the latter effect dominates the former for the very high types the equilibrium exhibits countersignaling very high and low types pool on refraining from signaling and only the medium types signal under certain conditions the countersignaling equilibrium is the unique pure strategy perfect sequential equilibrium

the economics of moral hazard revisited pauly s 1968 pauly m 1968 the economics of moral hazard comment american economic review 58 531 537 analysis of the welfare loss from insurance assumes that medical care consumption is not determined by income but recent studies suggest it is this study argues that 1 pauly s analysis overstates the welfare loss because it includes the effect of income on consumption 2 the relevant income effect is derived from income transfer from the healthy to the ill that occur when the probability of illness is less than 1 and 3 the welfare loss can be considered the transaction cost of insurance

trust in large organizations several authors suggest that trust is an important determinant of cooperation between strangers in a society and therefore of performance of social institutions we argue that trust should be particularly important for the performance of large organizations in a cross section of countries evidence on government performance participation in civic and professional societies importance of large firms and the performance of social institutions more generally supports this hypothesis moreover trust is lower in countries with dominant hierarchical religions which may have deterred networks of cooperation trust hold up remarkably well on a cross section of countries this abstract was borrowed from another version of this item

the economics of career concerns part ii application to missions and accountability of government agencies the paper uses a simple multitask career concern model in order to analyse the incentives of government agencies officials incentives are impaired by the agency pursuing multiple missions a lack of focus is even more problematic in the case of fuzzy missions that is when outsiders are uncertain about the exact nature of the missions actually pursued by the agency consequently agencies pursuing multiple missions receive less autonomy the paper further shows that professionalization creates a sense of mission for the agency and that the specialization of officials raises their incentives last the paper compares its predictions with the stylized facts on government bureaucracies 1999 the review of economic studies limited

career concerns of mutual fund managers we examine the labor market for mutual fund managers using data from 1992 1994 we find that termination is more performance sensitive for younger managers we identify possible implicit incentives created by the termination performance relationship the shape of the termination performance relationship may give younger managers an incentive to avoid unsystematic risk direct effects of portfolio composition may also give younger managers an incentive to herd into popular sectors consistent with these incentives we find that younger managers hold less unsystematic risk and have more conventional portfolios promotion incentives and market responses to managerial turnover are also studied

optimal reimbursement health insurance and the theory of ramsey taxation this paper explores the trade off between risk sharing and the incentives to consume increased medical care inherent in reimbursement insurance the results for the theory of reimbursement insurance are compared with those on ramsey taxation it is shown that there is a close formal analogy and interpretations are given

health insurance the tradeoff between risk pooling and moral hazard choosing optimal health insurance coverage involves a trade off between the gain from risk reduction and the deadweight loss from moral hazard this paper examines this trade off empirically by estimating both the demand for health insurance and the demand for health services it relies on data from a randomized controlled trial of cost sharing s effects on the use of health services and on the health status for a general non elderly population

overconfidence and excess entry an experimental approach psychological studies show that most people are overconfident about their own relative abilities and unreasonably optimistic about their futures e g shelly e taylor and j d brown 1988 neil d weinstein 1980 when assessing their position in a distribution of peers on almost any positive trait like driving ability ola svenson 1981 income prospects or longevity a vast majority of people say they are above the average although of course only half can be if the trait is symmetrically distributed this paper explores whether optimistic biases could plausibly and predictably influence economic behavior in one particular setting entry into competitive games or markets many empirical studies show that most new businesses fail within a few years for example using plant level data from the u s census of manufacturers spanning 1963 1982 timothy dunne et al 1988 estimated that 61 5 percent of all entrants exited within five years and 79 6 percent exited within 10 years most of these exits are failures see also dunne et al 1989a 1989b d shapiro and r s khemani 1987

an empirical model of the demand for health care in belgium the paper presents an empirical model of the demand of health care in belgium the analysis pertains to 17 categories of medical care and to two subgroups of health insurance beneficiaries namely the active and the widows orphans pensioners and invalids the estimation results show that income and relative prices matter in the demand for medical care supplier induced demand is also detected for a number of medical care categories other explanatory variables in the model include the size of the child population climatic conditions and a time trend representing technological advances in health care

the failure of competition in the credit card market the bank credit card market containing 4 000 firms and lacking regulatory barriers casually appears to be a hospitable environment for the model of perfect competition nevertheless this article reports that credit card interest rates have been exceptionally sticky relative to the cost of funds moreover major credit card issuers have persistently earned from three to five times the ordinary rate of return in banking during the periods 1983 88 the failure of the competitive model appears to be partly attributable to consumers making credit card choices without taking account of the very high probability that they will pay interest on their outstanding balances copyright 1991 by american economic association

analysis of transition data by the minimum chi square method an application to welfare spells in belgium in this paper we analyze transition data by means of the minimum chi square mcs method instead of the more commonly used maximum likelihood ml method the analysis includes exits to multiple destinations and unmeasured heterogeneity in the empirical application turnover in the welfare system in belgium is found to be very high median duration is 4 5 months for men and 7 months for women although these figures overstate turnover in that exits out of welfare include those occurring as a consequence of recipients moving to another municipality while remaining on welfare

education and the allocation of talent i study how education affects the allocation of talent into different sectors of the economy i focus on two forces first education adds to a worker s information capital and thus may change her self confidence second performance contracts give a worker incentives to choose a sector according to her abilities the baseline model predicts that workers with intermediate ability educate while the most able skip education in an extension i compare the u k and the u s bachelor s degrees and moreover discuss hybrid educational systems common in europe that offer both u k and u s types of bachelor s degrees

labor market signaling and self confidence wage compression and the gender pay gap i extend spence s signaling model by assuming that some workers are overconfident they underestimate their marginal cost of acquiring education and some are underconfident firms cannot observe workers productive abilities and beliefs but know the fractions of high ability overconfident and underconfident workers i find that biased beliefs lower the wage spread and compress the wages of unbiased workers i show that gender differences in self confidence can contribute to the gender pay gap if education raises productivity men are overconfident and women underconfident then women will on average earn less than men finally i show that biased beliefs can improve welfare