housing market responses to transaction taxes evidence from notches and stimulus in the uk we investigate housing market responses to transaction taxes using administrative data on all property transactions in the u k from 2004 to 2012 combined with quasi experimental variation from tax notches and tax stimulus we present two main findings first transaction taxes are highly distortionary across a range of margins causing large distortions to the price volume and timing of property transactions secondly temporary transaction tax cuts are an enormously effective form of fiscal stimulus a temporary elimination of a 1 transaction tax increased housing market activity by 20 in the short run due to both timing and extensive responses and less than half of the stimulus effect was reversed after the tax was reintroduced due to re timing because of the complementarities between moving house and consumer spending these stimulus effects translate into extra spending per dollar of tax cut equal to about 1 we interpret our empirical findings in the context of a housing model with downpayment constraints in which leverage amplifies the effects of transaction taxes

estimating the elasticity of intertemporal substitution using mortgage notches using a novel source of quasi experimental variation in interest rates we develop a new approach to estimating the elasticity of intertemporal substitution eis in the u k the mortgage interest rate features discrete jumps notches at thresholds for the loan to value ltv ratio these notches generate large bunching below the critical ltv thresholds and missing mass above them we develop a dynamic model that links these empirical moments to the underlying structural eis the average eis is small around 0 1 and quite homogeneous in the population this finding is robust to structural assumptions and can allow for uncertainty a wide range of risk preferences portfolio reallocation liquidity constraints present bias and optimization frictions our findings have implications for the numerous calibration studies that rely on larger values of the eis

behavioral hazard in health insurance a fundamental implication of standard moral hazard models is overuse of low value medical care because copays are lower than costs in these models the demand curve alone can be used to make welfare statements a fact relied on by much empirical work there is ample evidence though that people misuse care for a different reason mistakes or behavioral hazard much high value care is underused even when patient costs are low and some useless care is bought even when patients face the full cost in the presence of behavioral hazard welfare calculations using only the demand curve can be off by orders of magnitude or even be the wrong sign we derive optimal copay formulas that incorporate both moral and behavioral hazard providing a theoretical foundation for value based insurance design and a way to interpret behavioral nudges once behavioral hazard is taken into account health insurance can do more than just provide financial protection it can also improve health care efficiency jel codes d03 i12 i13 i30 i38

welfare effects of distortionary fringe benefits taxation the case of employer provided cars in europe many employees receive company cars as fringe benefits induced by taxation we analyze the welfare effects of company car taxation for the netherlands by estimating to what extent car expenditure and private car travel change when employees receive a company car tax treatment of company cars generates an annual welfare loss ranging from 600 to 780 per company car mainly due to a shift toward more expensive cars from 420 to 600 but also due to increased private travel 180 for the whole of europe the annual welfare loss is about 12 billion 2011 by the economics department of the university of pennsylvania and the osaka university institute of social and economic research association

claim timing and ex post adverse selection many health care treatments are not urgent and may be delayed if patients so choose because insurance coverage is typically determined by the treatment date individuals may have incentives to strategically delay treatments to minimize out of pocket costs the strategic delay of treatment a particular form of moral hazard can be an important source of subsequent adverse selection in which ex ante identical individuals select insurance coverage based on their differing accumulation of previously delayed treatments this article investigates these forces empirically in the context of the missing market for dental insurance using rich claim level data my analysis reveals that approximately 40 of individuals strategically delay dental treatments when incentivized to do so and this flexibility in delaying treatment can explain why the market for dental insurance has largely unraveled more generally the counterfactual analysis suggests features such as open enrolment periods and contracting on pre existing conditions may be helpful tools in overcoming adverse selection in insurance contexts where the timing of uncertainty is not contractible

cost sharing design matters a comparison of the rebate and deductible in healthcare since 2006 the dutch population has faced two different cost sharing schemes in health insurance for curative care a mandatory rebate of 255 euros in 2006 and 2007 and since 2008 a mandatory deductible using administrative data for the entire dutch population we compare the effect of both cost sharing schemes on healthcare consumption between 2006 and 2013 we use a regression discontinuity design which exploits the fact that persons younger than eighteen years old neither face a rebate nor a deductible our fixed effect estimate shows that for individuals around the age of eighteen a one euro increase of the deductible reduces healthcare expenditures 18 eurocents more than a euro increase of the rebate these results demonstrate that differences in the design of a cost sharing scheme can lead to substantial different effects on total healthcare expenditure

multidimensional mechanism design for auctions with externalities abstract in an auction with externalities a buyer s type is multidimensional and specifies the payoff he would get for each of the n 1 possible outcomes the seller keeps the object or buyer i i 1 n gets the object we provide a characterization of multidimensional incentive compatible mechanisms similar to that for one dimensional mechanisms although reservation utilities are endogenous and type dependent the participation constraint is binding for only one critical type a main difficulty in a multidimensional setting is the integrability condition we present a geometric characterization for discontinuous conservative vector fields in auctions where the buyers submit scalar bids and the seller transfers the object to one of the buyers for sure a second price auction maximizes revenue with two buyers this auction remains optimal even if the seller can set a reservation price journal of economic literature classification numbers c7 c72

optimal two part tariffs in a model of discrete choice abstract in this paper we study welfare optimal two part tariffs in a model of discrete choice the determinants of the sign and magnitude of the fixed and variable tax are analysed in terms of the nature and degree of consumer heterogeneity the price sensitivities of participation probabilities and conditional demands and the nature of distributional concerns in the absence of distributional concerns the model generalises the corrected ramsey rule for the variable tax and it shows that in the absence of collection or fixed participation costs the fixed fee may be negative the conditions that determine the sign of the participation fee turn out to have an intuitive economic interpretation finally the implications of distributional concerns for the optimal fixed and variable taxes are analysed

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

moral hazard in health insurance what we know and how we know it we describe research on the impact of health insurance on healthcare spending moral hazard and use this context to illustrate the value of and important complementarities between different empirical approaches one common approach is to emphasize a credible research design we review results from two randomized experiments as well as some quasi experimental studies this work has produced compelling evidence that moral hazard in health insurance exists that is individuals on average consume less healthcare when they are required to pay more for it out of pocket as well as qualitative evidence about its nature these studies alone however provide little guidance for forecasting healthcare spending under contracts not directly observed in the data therefore a second and complementary approach is to develop an economic model that can be used out of sample we note that modeling choices can be consequential different economic models may fit the reduced form but deliver different counterfactual predictions an additional role of the more descriptive analyses is therefore to provide guidance regarding model choice

discriminatory public procurement policy and cost reduction incentives abstract discriminating in favor of domestic suppliers in the award of government procurement contracts is a widespread practice in this paper we extend the previous analysis of mcafee and mcmillan 1989 government procurement and international trade journal of international economics 26 291 308 and branco 1994 favoring domestic firms in procurement contracts journal of international economics 37 65 80 by considering in the same model the bidding competition stimulation effect and the favoritism effect we prove that the optimal policy can be implemented by a modified vickrey auction or by a complex modified first price auction we also consider that firms can reduce their cost by a nonobservable effort we show that taking moral hazard into account does not modify the awarding rule but that the government must use the payment rule to require a greater level of effort from the favored firm

committing to transparency to resist corruption this paper examines firms incentives to commit to a transparent behavior that precludes bribery in a competitive procedure modeled as an asymmetric information beauty contest managed by a corrupt agent in his evaluation of firms offers for a public contract the agent has some discretion to favor a firm in exchange of a bribe it is shown that a conditional commitment mechanism can eliminate corruption when it is pure extortion otherwise when corruption can affect allocation and the market s profitability is small a low quality firm may prefer not to commit in that situation the existence of a separating equilibrium in which only the high quality firms commit is guaranteed when commitment decisions are kept secret but requires some conditions on firms beliefs when commitment decisions are publicly announced generally a unilateral commitment mechanism that rewards commitment with a bonus performs less well a mechanism combining both conditional commitment and a bonus has the potential to fully eliminate corruption

moral hazard in health insurance do dynamic incentives matter using data from employer provided health insurance and medicare part d we investigate whether healthcare utilization responds to the dynamic incentives created by the nonlinear nature of health insurance contracts we exploit the fact that because annual coverage usually resets every january individuals who join a plan later in the year face the same initial spot price of healthcare but a higher expected end of year future price we find a statistically significant response of initial utilization to the future price rejecting the null that individuals respond only to the spot price we discuss implications for analysis of moral hazard in health insurance

workers marginal costs of commuting abstract this paper applies a dynamic search model to estimate workers marginal costs of commuting including monetary and time costs using data on workers job search activity as well as moving behaviour for the netherlands we provide evidence that on average workers marginal costs of one hour of commuting are about 17 euro

the moral hazard effects of consumer responses to targeted cost sharing this paper examines the effects of the reference pricing program implemented by the california public employees retirement system calpers in 2012 the program uses targeted cost sharing to incentivize patient price shopping we find that the program leads to a 10 3 increase in the use of low price providers and reduces the average cost per procedure by 12 5 we further estimate that the program reduces medical spending by 218 8 per procedure which we estimate is approximately 53 7 of the excessive spending that is due to patient choice of higher price providers caused by insurance coverage at the expense of a 94 3 or 12 5 reduction in consumer surplus the cost savings from the reference pricing program is about two to three times as large as the reduction from implementing a high deductible health plan while the accompanying consumer surplus reduction is much smaller under reference pricing

comparison friction experimental evidence from medicare drug plans consumers need information to compare alternatives for markets to function efficiently recognizing this public policies often pair competition with easy access to comparative information the implicit assumption is that comparison friction the wedge between the availability of comparative information and consumers use of it is inconsequential because information is readily available and consumers will access this information and make effective choices we examine the extent of comparison friction in the market for medicare part d prescription drug plans in the united states in a randomized field experiment an intervention group received a letter with personalized cost information that information was readily available for free and widely advertised however this additional step providing the information rather than having consumers actively access it had an impact plan switching was 28 percent in the intervention group versus 17 percent in the comparison group and the intervention caused an average decline in predicted consumer cost of about 100 per year among letter recipients roughly 5 percent of the cost in the comparison group our results suggest that comparison friction can be large even when the cost of acquiring information is small and may be relevant for a wide range of public policies that incorporate consumer choice

estimating the tradeoff between risk protection and moral hazard with a nonlinear budget set model of health insurance insurance induces a tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard empirical work traditionally estimates each side of the tradeoff separately potentially yielding mutually inconsistent results i develop a nonlinear budget set model of health insurance that allows for both simultaneously nonlinearities in the budget set arise from deductibles coinsurance rates and stoplosses that alter moral hazard as well as risk protection i illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm

optimal taxation of car ownership car use and public transport insights derived from a discrete choice numerical optimization model in this paper we study the taxation of car ownership car use and public transport in the presence of externalities within the framework of a discrete continuous choice model we first derive optimal taxes in a simplified setting emphasizing the specific role of fixed car ownership taxes and the relevance of public transport demand by non car owners for the optimal tax structure a numerical optimisation model is then constructed to study welfareoptimal public transport fares and two part tariffs on ownership and use of gasoline and diesel cars in belgium results are as follows first we find that the current differences in tax treatment between diesel and gasoline car ownership and use cannot be justified on the basis of external cost and budgetary considerations efficient pricing requires substantial increases in the relative user tax on diesel cars as compared to gasoline cars optimal fixed taxes are substantially below current levels and only marginally differ between car fuel types second if for political or technical reasons variable car taxes cannot be optimally adjusted large differences in fixed car taxes do result the same holds if the government uses kilometre taxes as the main variable tax instrument third the results of a series of marginal tax reform exercises suggest that a shift form gasoline towards diesel taxation is welfare improving both for fixed and variable taxes somewhat surprisingly a shift from fixed towards variable taxes is not necessarily welfare improving it is for diesel but not for gasoline cars

what does a deductible do the impact of cost sharing on health care prices quantities and spending dynamics measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets we study consumer responsiveness to medical care prices leveraging a natural experiment that occurred at a large self insured firm which required all of its employees to switch from an insurance plan that provided free health care to a non linear high deductible plan the switch caused a spending reduction between 11 79 13 80 of total firm wide health spending we decompose this spending reduction into the components of i consumer price shopping ii quantity reductions and iii quantity substitutions finding that spending reductions are entirely due to outright reductions in quantity we find no evidence of consumers learning to price shop after two years in high deductible coverage consumers reduce quantities across the spectrum of health care services including potentially valuable care e g preventive services and potentially wasteful care e g imaging services we then leverage the unique data environment to study how consumers respond to the complex structure of the high deductible contract we find that consumers respond heavily to spot prices at the time of care and reduce their spending by 42 when under the deductible conditional on their true expected end of year shadow price and their prior year end of year marginal price in the first year post plan change 90 of all spending reductions occur in months that consumers began under the deductible with 49 of all reductions coming for the ex ante sickest half of consumers under the deductible despite the fact that these consumers have quite low shadow prices there is no evidence of learning to respond to the true shadow price in the second year post switch

insurance induced moral hazard a dynamic model of within year medical care decision making under uncertainty health insurance may lead individuals to overconsume medical care many studies explore this moral hazard using models that aggregate medical care decisions up to the annual level using employer employee matched data from the medical expenditure panel survey meps i estimate moral hazard using a dynamic model of within year medical care consumption that allows for endogenous health transitions variation in medical care prices and individual uncertainty within a health insurance year i then estimate moral hazard under a second set of conditions that are consistent with the assumptions of most annual decision making models the within year decision making model produces a moral hazard estimate that is 19 2 larger than the alternative model i highlight the importance of controlling for within year dynamics in a model of medical care consumption using a counterfactual policy simulation that implements the individual mandate provision of the 2010 patient protection and aordable care act i nd that full implementation of the policy decreases the percentage of uninsured individuals in the population being analyzed from 11 8 to 6 0 furthermore when all uninsured individuals are forced into coverage their predicted annual medical care expenditure increases by 45 5

prescription drug use under medicare part d a linear model of nonlinear budget sets abstract medicare part d enrollees face a complicated decision they dynamically choose prescription drug consumption in each period given difficult to find prices and a nonlinear budget set we use part d claims data to estimate a flexible model of consumption that accounts for nonlinear prices dynamic responses and salience we use reduced form price responses from a linear regression of consumption on coverage range prices to compare performance under several models of behavior we find small price elasticities substantial myopia and that salient characteristics impact consumption beyond their effect on prices a hyperbolic discounting model with salience fits the data best

the rand health insurance experiment three decades later we re present and re examine the analysis from the famous rand health insurance experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending we begin by summarizing the experiment and its core findings in a manner that would be standard in the current age we then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms finally we re consider the famous rand estimate that the elasticity of medical spending with respect to its out of pocket price is 0 2 emphasizing the challenges associated with summarizing the experimental treatment effects from non linear health insurance contracts using a single price elasticity

using differences in knowledge across neighborhoods to uncover the impacts of the eitc on earnings we develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy s marginal incentives as counterfactuals for behavior in the absence of the policy we apply this method to characterize the impacts of the earned income tax credit eitc on earnings using administrative tax records covering all eitc eligible lers from 19962009 we begin by developing a proxy for local knowledge about the eitc schedule the degree of sharp bunching at the exact income level that maximizes eitc refunds by individuals who report self employment income the degree of self employed sharp bunching varies signi cantly

measuring the sensitivity of parameter estimates to estimation moments we propose a local measure of the relationship between parameter estimates and the moments of the data they depend on our measure can be computed at negligible cost even for complex structural models we argue that reporting this measure can increase the transparency of structural estimates making it easier for readers to predict the way violations of identifying assumptions would affect the results when the key assumptions are orthogonality between error terms and excluded instruments we show that our measure provides a natural extension of the omitted variables bias formula for nonlinear models we illustrate with applications to published articles in several fields of economics

corruption and competition in procurement auctions we investigate the effect of corruption on competition in procurement our assumption is that the bureaucrat i e the agent that administers the market if corrupt may provide an opportunity for bid readjusments in exchange for a bribe as firms expect to be paying a bribe a mechanical effect of corruption is to increase the contract price by an amount corresponding to the anticipated bribe we show however that a key effect of corruption is to facilitate collusion in price between firms and thereby to generate a price increase that goes far beyond the bribe received by the bureaucrat we discuss the effect of other forms of bureaucratic discretion in the procurement process and analyze conditions under which unilateral anticorruption controls restore price competition

energy consumption for space heating a discrete continuous approach energy demand for space heating is estimated using a discrete continuous choice model which focuses on the relationship between the choice of heating equipment and energy consumption the model is estimated on norwegian micro data and the two stages of the model are estimated simultaneously the capital cost and the operating cost of the heating systems are both found to have a significant impact on the choice of heating system furthermore the results show that household characteristics are important variables in residential energy models energy price elasticities and income elasticities are also estimated

the response of drug expenditure to nonlinear contract design evidence from medicare part d we study the demand response to non linear price schedules using data on insurance contracts and prescription drug purchases in medicare part d we exploit the kink in individuals budget set created by the famous donut hole where insurance becomes discontinuously much less generous on the margin to provide descriptive evidence of the drug purchase response to a price increase we then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non linear budget set we use the model for counterfactual analysis of the increase in spending from filling the donut hole as will be required by 2020 under the affordable care act in our baseline model which considers spending decisions within a single year we estimate that filling the donut hole will increase annual drug spending by about 150 or about 8 percent about one quarter of this spending increase reflects anticipatory behavior coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole we also present descriptive evidence of cross year substitution of spending by individuals who reach the kink which motivates a simple extension to our baseline model that allows in a highly stylized way for individuals to engage in such cross year substitution our estimates from this extension suggest that a large share of the 150 drug spending increase could be attributed to cross year substitution and the net increase could be as little as 45 per year

sinking swimming or learning to swim in medicare part d under medicare part d senior citizens choose prescription drug insurance offered by numerous private insurers we examine nonpoor enrollees actions in 2006 and 2007 using panel data our sample reduced overspending by 298 on average with gains by 81 percent of them the greatest improvements were by those who overspent most in 2006 and by those who switched plans decisions to switch depended on individuals overspending in 2006 and on individualspecific effects of changes in their current plans the oldest consumers and those initiating medications for alzheimer s disease improved by more than average suggesting that real world institutions help overcome cognitive limitations

estimating demand elasticities using nonlinear pricing abstract nonlinear pricing is prevalent in industries such as health care public utilities and telecommunications however this pricing scheme introduces bias into estimating elasticities for welfare analysis or policy changes i develop a local elasticity estimation method that uses nonlinear price schedules to isolate consumers expenditure choices from selection and simultaneity biases this method improves over previous approaches by using commonly available observational data and requiring only a single general monotonicity assumption using claims level data on health insurance with two nonlinearities i am able to measure two separate elasticities and find that elasticity declines from 0 26 to 0 09 by the second nonlinearity these estimates are then used to calculate moral hazard deadweight loss this method enables estimation of many policies with nonlinear pricing which previous tools could not address

china s land market auctions evidence of corruption this paper studies the urban land market in china in 2003 2007 in china all urban land is owned by the state leasehold use rights for land for re development are sold by city governments and are a key source of city revenue leasehold sales are viewed as a major venue for corruption prompting a number of reforms over the years reforms now require all leasehold rights be sold at public auction there are two main types of auction regular english auction and an unusual type which we call a two stage auction the latter type of auction seems more subject to corruption and to side deals between potential bidders and the auctioneer absent corruption theory suggests that two stage auctions would most likely maximize sales revenue for properties which are likely to have relatively few bidders or are cold which would suggest negative selection on property unobservables into such auctions however if such auctions are more corruptible that could involve positive selection as city officials divert hotter properties to a more corruptible auction form the paper finds that overall sales prices are lower for two stage auctions and there is strong evidence of positive selection the price difference is explained primarily by the fact that two stage auctions typically have just one bidder or no competition despite the vibrant land market in chinese cities

tiered co payments pricing and demand in reference price markets for pharmaceuticals health insurance companies curb price insensitive behavior and the moral hazard of insureds by means of cost sharing such as tiered co payments or reference pricing in drug markets this paper evaluates the effect of price limits below which drugs are exempt from co payments on prices and on demand first using a difference in differences estimation strategy we find that the new policy decreases prices by 5 percent for generics and increases prices by 4 percent for brand name drugs in the german reference price market second estimating a nested logit demand model we show that consumers appreciate co payment exempt drugs and calculate lower price elasticities for brand name drugs than for generics this explains the different price responses of brand name and generic drugs and shows that price related co payment tiers are an effective tool to steer demand to low priced drugs

an indirect utility model of car ownership and private car use abstract in this paper a model is developed for the simultaneous determination of private car ownership and private car use measured as the annual number of kilometers this model is a micro economic utility model in which the fixed and variable car costs enter through the budget restriction this allows us to do micro simulations of increasing those costs which is a policy issue in the netherlands it turns out that in this model both fixed and variable car costs are effective measures for reducing traffic growth the former working primarily through decreasing car ownership levels the latter having a more direct effect on car use

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

procurement under public scrutiny auctions versus negotiations we compare two commonly used mechanisms in public procurement auctions and negotiations the execution of the procurement mechanism is delegated to an agent of the buyer the agent has private information about the buyer s preferences and may collude with one of the sellers we provide a general characterization of both mechanisms based on public scrutiny requirements and show contrary to conventional wisdom that an intransparent negotiation always yields higher social surplus than a transparent auction moreover there exists a lower bound on the number of sellers such that the negotiation also generates a higher buyer surplus

bunching at the kink implications for spending responses to health insurance contracts abstract a large literature in empirical public finance relies on bunching to identify a behavioral response to non linear incentives and to translate this response into an economic object to be used counterfactually we conduct this type of analysis in the context of prescription drug insurance for the elderly in medicare part d where a kink in the individual s budget set generates substantial bunching in annual drug expenditure around the famous donut hole we show that different alternative economic models can match the basic bunching pattern but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts these findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest

the econometrics of nonlinear budget sets traditional empirical analysis of consumer demand has usually made the assumption of linear budget sets that is the consumer is assumed to purchase any desired quantity at a constant price subject to a budget constraint the major exception to this framework is the analysis of demand when some goods are rationed 2 in the rationed case the price is constant up to a quantity limit in contrast to the rationed case here i consider the situation where the price varies with the amount of the good purchased empirical situations with nonconstant prices come readily to mind and of course they have received much recent attention from theorists since mirrlees 44 paper on optimal nonlinear taxation the following examples are meant to give a partial listing of cases when nonlinear budget sets occur i electricity prices many electric utilities engage in declining block pricing that is the marginal price of successive kwh s of electricity decrease at a given number of points determined by total demand thus the budget set is piecewise linear houthakker 36 was the first to propose an approach to this problem taylor 51 analyzes the problem at length and hausman kinnucin and mcfadden 31 use an instrumental variables estimator to provide consistent estimates of the demand function

health care demand elasticities by type of service we estimate within year price elasticities of demand for detailed health care services using an instrumental variable strategy in which individual monthly cost shares are instrumented by employer year plan month average cost shares a specification using backward myopic prices gives more plausible and stable results than using forward myopic prices using 171 million person months spanning 73 employers from 2008 to 2014 we estimate that the overall demand elasticity by backward myopic consumers is 0 44 with higher elasticities of demand for pharmaceuticals 0 44 specialists visits 0 32 mris 0 29 and mental health substance abuse 0 26 and lower elasticities for prevention visits 0 02 and emergency rooms 0 04 demand response is lower for children in larger firms among hourly waged employees and for sicker people overall the method appears promising for estimating elasticities for highly disaggregated services although the approach does not work well on services that are very expensive or persistent

using notches to uncover optimization frictions and structural elasticities theory and evidence from pakistan we develop a framework for nonparametrically identifying optimization frictions and structural elasticities using notches discontinuities in the choice sets of agents introduced by tax and transfer policies notches create excess bunching on the low tax side and missing mass on the high tax side of a cutoff and they are often associated with a region of strictly dominated choice that would have zero mass in a frictionless world by combining excess bunching observed response attenuated by frictions with missing mass in the dominated region frictions it is possible to uncover the structural elasticity that would govern behavior in the absence of frictions and arguably capture long run behavior we apply our framework to tax notches in pakistan using rich administrative data while observed bunching is large and sharp optimization frictions are also very large as the majority of taxpayers in dominated ranges are unresponsive to tax incentives the combination of large observed bunching and large frictions implies that the frictionless behavioral response to notches is extremely large but the underlying structural elasticity driving this response is nevertheless modest this highlights the inefficiency of notches by creating extremely strong price distortions they induce large behavioral responses even when structural elasticities are small

ask your doctor direct to consumer advertising of pharmaceuticals we measure the impact of direct to consumer television advertising dtca by drug manufacturers our identification strategy exploits shocks to local advertising markets generated by the political advertising cycle and a regulatory intervention affecting a single product we find evidence of significant business stealing effects among branded advertised drugs in addition we show positive spillovers from drug advertisements to non advertised competitors in the same class we decompose the effect and show it is primarily due to new customers finally we provide evidence that dtca is cost effective from a societal standpoint in our setting

should sellers prefer auctions a laboratory comparison of auctions and sequential mechanisms when bidders incur a cost to learn their valuations bidder entry can impact auction performance two common selling mechanisms in this environment are an english auction and a sequential bidding process theoretically sellers should prefer the auction because it generates higher expected revenues whereas bidders should prefer the sequential mechanism because it generates higher expected bidder profits we compare the two mechanisms in a controlled laboratory environment varying the entry cost and find that contrary to the theoretical predictions average seller revenues tend to be higher under the sequential mechanism whereas average bidder profits are approximately the same we identify three systematic behavioral deviations from the theoretical model 1 in the auction bidders do not enter 100 of the time 2 in the sequential mechanism bidders do not set preemptive bids according to the predicted threshold strategy and 3 subsequent bidders tend to overenter in response to preemptive bids by first bidders we develop a model of noisy bidder entry costs that is consistent with these behaviors and we show that our model organizes the experimental data well data as supplemental material are available at http dx doi org 10 1287 mnsc 2013 1800

the taxation of drivers and the choice of car fuel type in this paper the choice of the car fuel type is studied in the dutch situation three types are important gasoline diesel and lpg with 80 of the cars using gasoline incentives for using diesel or lpg are provided by the tax system that implies higher fixed cost but lower variable cost for users of these fuel types we start by studying fuel type choice on the basis of a logit model and move on to estimate demand functions for kilometres driven for social purposes while correcting for the possible selectivity bias we find that diesel and lpg are in general regarded as inferior alternatives but that monetary incentives are sufficiently strong to overcome this hurdle for drivers with a large demand for kilometres we also find that there are significant effects of the lower variable cost for diesel and lpg drivers on their demand for kilometres the conclusions are confirmed by estimation of a structural model in which fuel type choice and demand for kilometres are consistently explained on the basis of one set of preferences and unobserved heterogeneity is taken into account

competitive procurement with corruption we study competitive procurement administered by a corrupt agent who is willing to manipulate his evaluation of contract proposals in exchange for bribes with complete information and no corruption the efficient firm will win the contract for sure if the agent is corrupt and has large manipulation power however bribery makes it costly for the efficient firm to secure a sure win so in equilibrium the efficient firm loses the contract with positive probability the optimal scoring rule for the buyer deemphasizes quality relative to price and does not fully handicap and may even favor the efficient firm

adjustment costs firm responses and micro vs macro labor supply elasticities evidence from danish tax records we show that the effects of taxes on labor supply are shaped by interactions between adjustment costs for workers and hours constraints set by firms we develop a model in which firms post job offers characterized by an hours requirement and workers pay search costs to find jobs we present evidence supporting three predictions of this model by analyzing bunching at kinks using danish tax records first larger kinks generate larger taxable income elasticities second kinks that apply to a larger group of workers generate larger elasticities third the distribution of job offers is tailored to match workers aggregate tax preferences in equilibrium our results suggest that macro elasticities may be substantially larger than the estimates obtained using standard microeconometric methods

privatization as an agency problem auctions versus private negotiations abstract this paper investigates the design of privatization mechanisms in emerging market economies characterized by political constraints that limit the set of viable privatization options our objective is to explain the striking diversity of mechanisms observed in practice and the frequent use of an apparently sub optimal privatization mechanism private negotiations we develop a simple model in which privatization is to be carried out by a government agent who plays favorites among bidders but is potentially disciplined by losing his private benefits of staying in office if the political environment is such that the privatization agent himself aims at raising the fair value for the company then privatization auctions and private negotiations are equally successful in raising public revenues if however political considerations distort the agent s incentives it may be that a seemingly transparent auction will raise less revenue than opaque private negotiations we also show that information disclosure laws may have negative welfare implications they may help the privatization agent to collude with some of the bidders to the disadvantage of non colluding bidders

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

optimal procurement mechanisms we analyze optimal mechanisms in environments where sellers are privately informed about quality a methodology is provided for deriving conditions that are necessary and sufficient to determine when two simple trading environments maximize either social or private surplus the commonly used auction mechanism is frequently inefficient in procurement environments often the optimal mechanism is simply to order potential suppliers and to tender take it or leave it offers to each sequentially we completely characterize the environments in which either mechanism is optimal in doing so we develop a general methodology that determines when and if a given trading institution is optimal

sunk cost fallacy in driving the world s costliest cars we develop a behavioral model of durable good usage with mental accounting for sunk costs it predicts higher than rational usage that attenuates at a rate that increases with sunk costs singapore government policy varied the sunk cost of buying a new car using singapore data we estimate the elasticity of driving with respect to sunk costs to be 0 048 which implies that government policy between 2009 and 2013 was associated with 86 kilometers per month or 5 6 more driving the results are robust to specifying sunk costs as relative to buyer income and estimation with hong kong data we believe this to be the first field evidence of the sunk cost fallacy in usage of a major durable good the online appendix is available at https doi org 10 1287 mnsc 2016 2651 this paper was accepted by john list behavioral economics

the effect of medicare part d on pharmaceutical prices and utilization prescription drug expenditures represent the most rapidly growing component of health care spending increasing from 5 percent of health care spending in 1980 to more than 10 percent by 2005 centers for medicare and medicaid services cms 2007a further almost 60 percent of all prescriptions in the united states are filled for beneficiaries of medicare medicaid and other government programs rapid innovation in new pharmaceuticals has contributed substantially to quality of life and longevity in the us frank lichtenberg 1996 these facts combined indicate that government procurement schemes are critical both in determining government expenditure on pharmaceuticals and in stimulating innovation of new treatments in this paper we show that the institutions and mechanisms used by the government to pur chase prescription drugs can strongly affect market outcomes by institutions we have in mind large buyer groups structured incentives for patients to consume certain products and the devel opment and use of formularies a formulary is a mechanism that allows a buyer to identify a therapeutically similar treatment as a viable substitute for a patented treatment and to create price competition due to the ability to substitute away from the more expensive product when bargaining with the seller of a patented product the ability to shift demand to a substitute drug is a powerful negotiating tool our paper provides evidence for what we consider a surprising outcome in the case of the new prescription drug program for medicare enrollees moving consumers from cash paying status to membership in an insured group lowers optimal prices for branded prescription drugs below what they otherwise would be this is surprising because the standard effect of insurance is to create inelastic demand and therefore elicit higher prices from a seller with market power duggan and scott morton 2006 however the insurers that we study bundle insurance with a formulary and other mechanisms to create elastic demand an individual consumer typically does not know which drugs are acceptable therapeutic substitutes the consumer s physician typi cally has poor knowledge of prices especially negotiated prices and any one consumer is too small a share of demand to negotiate with a pharmaceutical company a prescription drug plan can potentially surmount all three hurdles our evidence leads us to conclude that the formulary and other mechanisms perform the spe cial role of allowing buyers to move market share among drugs with patent protection thereby raising cross price elasticities and lowering purchase prices or reducing price increases for branded drugs this result contrasts with the common intuition that an uninsured consumer

expenditure response to health insurance policies evidence from kinks in rural china abstract this paper utilizes administrative data to analyze expenditure responses to the health insurance policy in rural china and clear visual evidence of bunching is observed at the kink point a static response model with optimization frictions estimates that a complete elimination of the reimbursement would cause the total expenditure per visit to decrease by 34 5 and approximately one third of the studied population makes decisions with errors heterogeneous expenditure responses and optimization frictions are observed across demographic groups cost benefit and counterfactual analyses indicate that the current policy generates the greatest welfare gains

what to expect when you are expecting are health care consumers forward looking a fundamental question in health insurance markets is how do health care consumers dynamically optimize their medical utilization under non linear insurance contracts our paper tests the neoclassical prediction that a fully forward looking agent only responds to their expected end of year price our unique identification strategy studies families during the year of childbirth who will likely satisfy their annual deductible thereby knowing their expected end of year price we find that during the year of a childbirth fathers increase medical spending by 11 per month after their deductible is satisfied rejecting the null of fully forward looking consumers this behavior cannot be explained by fathers increasing utilization in response to the childbirth itself furthermore this myopia translates to a 21 24 decrease in total annual medical spending relative to the counterfactual of fully forward looking behavior and is concentrated in elective procedures we find no response in low value or urgent care our findings suggest the need for modeling non linear incentives while accounting for myopic behavior when studying the medical utilization responses to health insurance

adverse selection and inertia in health insurance markets when nudging hurts this paper investigates consumer inertia in health insurance markets where adverse selection is a potential concern we leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk we use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia when aggregated these improved individual level choices substantially exacerbate adverse selection in our setting leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection jel d82 g22 i13 a number of potential impediments stand in the way of efficient health insur ance markets the most noted of these is adverse selection first studied by akerlof 1970 and rothschild and stiglitz 1976 in insurance markets prices reflect the expected risk costs of the insured pool whether the reason is price regulation or private information when insurers cannot price all risk characteristics riskier consumers choose more comprehensive health plans this causes the equilibrium prices of these plans to rise and healthier enrollees to select less comprehensive coverage than they would otherwise prefer

reprint of bunching at the kink implications for spending responses to health insurance contracts abstract a large literature in empirical public finance relies on bunching to identify a behavioral response to non linear incentives and to translate this response into an economic object to be used counterfactually we conduct this type of analysis in the context of prescription drug insurance for the elderly in medicare part d where a kink in the individual s budget set generates substantial bunching in annual drug expenditure around the famous donut hole we show that different alternative economic models can match the basic bunching pattern but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts these findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest

structural estimation of a principal agent model moral hazard in medical insurance despite the importance of principal agent models in the development of modern economic theory there are few estimations of these models i recover the estimates of a principal agent model and obtain an approximation to the optimal contract the results show that out of pocket payments follow a concave profile with respect to costs of treatment i estimate the welfare loss due to moral hazard taking into account income effects i also propose a new measure of moral hazard based on the conditional correlation between contractible and noncontractible variables

auctions and corruption an analysis of bid rigging by a corrupt auctioneer in many auctions the auctioneer is an agent of the seller this invites corruption we analyze a model in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid whichever is more profitable the interplay between these two types of corruption gives rise to a complex bidding problem that we tackle with numerical methods our results indicate that corruption does not only redistribute surplus away from the seller but also distorts efficiency we furthermore explain why both the auctioneer and bidders have a vested interest in maintaining corruption

auction design and favoritism abstract the theory of auctions has ignored the fact that often auction designers not the principal design auctions in a multi attribute auction the auction designer may bias his subjective evaluation of quality or distort the relative weights of the various attributes to favor a specific bidder an ancient concern in the procurement of weapons in the auctioning of government contracts and in the purchase of electricity by regulated power companies the paper analyzes the steps to be taken to reduce the possibility of favoritism it is first shown that in the absence of favoritism quality differentials among firms are more likely to be ignored if the auction designer has imperfect information about the firm s costs second if the auction designer may collude with only one bidder the other bidders should be chosen if they are at least as efficient as the former bidder and no hard information about quality differentials is released by the auction designer that would justify fair discrimination in favor of the former bidder last if the auction designer can collude with any bidder the optimal auction tends to a symmetric auction in which quality differentials are ignored the possibility of favoritism reduces the auction designer s discretion and makes the selection process focus on non manipulable monetary dimensions of bids

salience myopia and complex dynamic incentives evidence from medicare part d the standard medicare part d drug insurance contract is non linear with reduced subsidies in a coverage gap resulting in a dynamic purchase problem we consider enrolees who arrived near the gap early in the year and show that they should expect to enter the gap with high probability implying that under a benchmark model with neoclassical preferences the gap should impact them very little we find that these enrolees have flat spending in a period before the doughnut hole and a large spending drop in the gap providing evidence against the benchmark model we structurally estimate behavioural dynamic drug purchase models and find that a price salience model where enrolees do not incorporate future prices into their decision making at all fits the data best for a nationally representative sample full price salience would decrease enrolee spending by 31 entirely eliminating the gap would increase insurer spending 27 compared to 7 for generic drug only gap coverage

auctions versus negotiations which is the more profitable way to sell a company an auction with no reserve price or an optimally structured negotiation with one less bidder we show under reasonable assumptions that the auction is always preferable when bidders signals are independent for affiliated signals the result holds under certain restrictions on the seller s choice of negotiating mechanism the result suggests that the value of negotiating skill is small relative to the value of additional competition the paper also shows how the analogies between monopoly theory and auction theory can help derive new results in auction theory jel d44 g34 there are close analogies between standard price theory and the theory of auctions in an absolute english auction in which the price rises continuously until only one bidder remains and the seller is required to accept the final bid the sale price equals the lowest competitive price at which supply equals demand in the theory of optimal auctions the seller is treated as a monopolist who can choose any

heterogeneity promoting optimal procurement abstract when procurement takes place in the presence of horizontally differentiated contractors the design of the object being procured affects the resulting degree of competition this paper highlights the interaction between the optimal procurement mechanism and the design choice contrary to conventional wisdom the sponsor s design choice instead of homogenizing the market to generate competition promotes heterogeneity

estimating individual driving distance by car and public transport use in sweden how much to drive and how much to use public transport are modelled as three and two level decisions respectively based on micro data for sweden the choices whether to have a car whether to drive given access to a car and how much to drive given that the individual drives at all are then estimated using a three equation model also after correcting for other variables such as income men are driving much more and using less public transport compared to women people living in big cities are less likely to drive but those who do are on average driving about as much as others age and access to company cars are also important determinants for travel behaviour but being a member of an environmental organization is not driving increases with income but to a lower degree compared to most aggregated studies on national level the difference is explained in a model with income dependent structural changes implying that it becomes more difficult to live without a car when average income increases

representing in home and out of home energy consumption behavior in beijing abstract it is expected that in home and out of home energy consumption behavior in a household might be correlated with each other probably due to the existence of household budget constraints ownership and usage of energy saving technologies for in home appliances or vehicles might lead to the increase in out of home or in home energy consumption it is therefore necessary to jointly represent in home and out of home energy consumption in the same modeling framework with this consideration we first build a new type of energy consumption model based on the multiple discrete continuous extreme value mdcev modeling framework next we conducted a questionnaire survey in beijing in 2009 and successfully collected the information about households energy consumption ownership usage of in home appliances and vehicles and households and their members attributes from 1014 households throughout an empirical analysis it is confirmed that the mdcev model is effective to simultaneously describe the in home and out of home energy consumption behavior in addition it is revealed that a set of household and personal attributes affect the ownership and usage of in home appliances and vehicles furthermore it is shown that the unobserved factors play a much more important role in explaining energy consumption behavior than the observed attributes of households and their members

distributional effects of alternative vehicle pollution control policies abstract previous work shows that policies that subsidize new vehicles and tax size miles or gasoline efficiently reduce pollution less is known about their distributional effects this paper examines distributional effects by estimating the joint demand for vehicles and miles using the consumer expenditure survey greater price responsiveness among low income households enhances progressivity of gas or miles taxes across lower incomes and mitigates regressivity across upper incomes taxes on engine size or subsidies to new vehicles are significantly more regressive than gas or miles taxes

intertemporal substitution in health care demand evidence from the rand health insurance experiment abstract nonlinear cost sharing in health insurance encourages intertemporal substitution because patients can reduce their out of pocket costs by concentrating spending in years when they hit the deductible we develop a test for intertemporal substitution and apply it to data from the rand health insurance experiment where people were randomly assigned either to a free care plan or to a cost sharing plan which had coinsurance up to a maximum dollar expenditure mde hitting the mde leading to an effective price of zero has a bigger effect on health care demand than does being in free care because people who hit the mde face low current prices but high future prices and so stock up on health care as a result short lasting price changes induce nearly twice as big a response as do long lasting changes these findings help reconcile disparate estimates of the price elasticity of demand for health care in the existing literature failing to account for intertemporal substitution can lead researchers to overstate cost savings from high deductible health plans by 20 or more