quality competition with motivated providers and sluggish demand we study incentives for quality provision in markets where providers are motivated semi altruistic prices are regulated and firms are funded by a combination of block grants and unit prices competition is based on quality and demand adjusts sluggishly health or education are sectors in which the mentioned features are the rule we show that the presence of motivated providers makes dynamic competition tougher resulting in higher steady state levels of quality in the closed loop solution than in the benchmark open loop solution if the price is sufficiently high however this result is reversed if the price is sufficiently low and below unit costs sufficiently low prices also imply that a reduction in demand sluggishness will lead to lower steady state quality prices below unit costs will nevertheless be welfare optimal if the providers are sufficiently motivated

financing and funding health care optimal policy and political implementability health care financing and funding are usually analyzed in isolation this paper combines the corresponding strands of the literature and thereby advances our understanding of the important interaction between them we investigate the impact of three modes of health care financing namely optimal income taxation proportional income taxation and insurance premiums on optimal provider payment and on the political implementability of optimal policies under majority voting considering a standard multi task agency framework we show that optimal health care policies will generally differ across financing regimes when the health authority has redistributive concerns we show that health care financing also has a bearing on the political implementability of optimal health care policies our results demonstrate that an isolated analysis of optimal provider payment rests on very strong assumptions regarding both the financing of health care and the redistributive preferences of the health authority

reputational concerns with altruistic providers we study a model of reputational concerns when doctors differ in their degree of altruism and they can signal their altruism by their observable quality when reputational concerns are high following the introduction or enhancement of public reporting the less altruistic bad doctor mimics the more altruistic good doctor otherwise either a separating or a semi separating equilibrium arises the bad doctor mimics the good doctor with probability less than one pay for performance incentive schemes are unlikely to induce crowding out unless some dimensions of quality are unobservable under the pooling equilibrium a purchaser can implement the first best quality by appropriately choosing a simple payment scheme with a fixed price per unit of quality provided this is not the case under the separating equilibrium therefore policies that enhance public reporting complement pay for performance schemes

comparing the welfare effects of public and private health care subsidies in the united kingdom we use a calibrated analytical model to compare the welfare costs gross of externalities of increasing subsidies for public and private health care in the uk the model incorporates wait costs for rationed public care burdens that subsidies impose on the tax system and distributional weights for different households welfare costs are significantly higher for expanding public health care over a range of parameter scenarios both policies reduce average wait times but for public health care this is offset by new waiting costs incurred on extra treatments and the burden on the tax system is much larger for expanding public health care

modelling the dynamics of a public health care system evidence from time series data the english national health service nhs was established in 1948 and has therefore yielded some long time series data on health system performance waiting time for inpatient care have been a persistent policy concern since the creation of the nhs after developing a simple theoretical framework of the dynamic interaction between key indicators of health system performance we investigate empirically the relationship between hospital activity waiting time and population characteristics using aggregate time series data for the nhs over the period 1952 to 2003 structural vector autoregression s var suggests that in the long run higher activity is associated with lower waiting times elasticity 0 9 an increase in the elderly population is associated with higher waiting time elasticity 1 3 in the short run higher lagged waiting time leads to higher activity elasticity 0 12 we also find that shocks in waiting times are countered by higher activity so the effect is only temporary

risk adjustment and prevention widespread integration of market based incentives into healthcare systems calls for and has elicited increasing adoption of risk adjustment by deterring selection risk adjustment helps to assure fair and efficient payments among health insurers or capitated provider groups however since conventional risk adjustment allocates funds among regions or insurers according to current population health status it does not reward indeed it penalizes preventive efforts that improve population health this prevention penalty of risk adjustment represents a hidden cost of unclear magnitude undermining provider incentives for health promotion we develop a theoretical model of selection and prevention demonstrating this problem with conventional risk adjustment and suggesting a simple alternative risk adjustment should be linked to pay for performance for prevention l integration generalisee d incitatifs mercantiles dans les systemes de soins de sante appelle et a engendre l adoption croissante d ajustements au risque en decourageant la selection l ajustement au risque aide a assurer des paiements justes et equitables entre les assureurs ou les groupes de fournisseurs finances par capitation cependant comme les ajustements conventionnels au risque allouent des fonds entre les regions ou les assureurs selon le statut sanitaire present de la population ils ne recompensent pas et meme penalisent les efforts de prevention qui ameliorent la sante des populations cette penalisation de la prevention dans les ajustements au risque represente un cout cache d une magnitude mal etablie qui mine l incitation des fournisseurs a s occuper de promotion de la sante on developpe un modele theorique de selection et de prevention mettant en lumiere ce probleme dans l utilisation de l ajustement au risque conventionnel et on suggere une solution de rechange ou l ajustement au risque est reliea une remuneration a la performance pour la prevention

the effects of hospitals governance on optimal contracts bargaining vs contracting we propose a two stage model to study the impact of different hospitals governance frameworks on the optimal contracts designed by third party payers when patients disease severity is the private information of the hospital in the second stage doctors and managers interact within either a bargaining or a contracting scenario in the contracting scenario managers offer a contract that determines the payment to doctors and doctors decide how many patients to treat in the bargaining scenario doctors and managers strategically negotiate on both the payment to doctors and the number of patients to treat we derive the equilibrium doctors payments and number of treated patients under both scenarios we then derive the optimal contract offered by the government to the hospital in the first stage results show that when the cost of capital is sufficiently low the informational rent is lower and the social welfare is higher in the contracting scenario

quality and quantity in primary care mixed payment models evidence from family health organizations in ontario abstract we study the impact of a mixed capitation model the family health organization fho on quality and quantity outcomes among primary care physicians in ontario using a panel of administrative data covering one year before and two years after the fho model was introduced we find that physicians in the fho model provide about 6 to 7 fewer services and visits per day but are between 7 and 11 more likely to achieve preventive care quality targets these results suggest that the mixed capitation model with contractible quality indicators may be welfare improving relative to the ffs model

price adjustment in the hospital sector we analyse the properties of optimal price adjustment to hospitals when no lump sum transfers are allowed and when prices differ to reflect observable exogenous differences in costs we find that a when the marginal benefit from treatment is decreasing and the cost function is the power function price adjustment for hospitals with higher costs is positive but partial if the marginal benefit is constant the price is identical across providers b if the cost function is exponential or it is separable in monetary and non monetary costs and linear in monetary costs price adjustment is positive even when the marginal benefit is constant c higher inequality aversion of the purchaser increases concentration in prices and lowers concentration in quantities d if some dimensions of costs are private information a higher correlation between the observable and unobservable cost component increases the optimal price for providers whose observable costs are above the average

hospital competition with soft budgets we study the incentives for hospitals to provide quality and expend cost reducing effort when their budgets are soft i e the payer may cover deficits or confiscate surpluses the basic set up is a hotelling model with two hospitals that differ in location and face demand uncertainty where the hospitals run deficits surpluses in the high low demand state softer budgets reduce cost efficiency while the effect on quality is ambiguous for given cost efficiency softer budgets increase quality since parts of the expenditures may be covered by the payer however softer budgets reduce cost reducing effort and the profit margin which in turn weakens quality incentives we also find that profit confiscation reduces quality and cost reducing effort first best is achieved by a strict no bailout and no profit confiscation policy when the regulated price is optimally set however for suboptimal prices a more lenient bailout policy can be welfare improving

econometric studies in health economics a survey of the british literature this paper provides a survey of british applied econometric work in the field of health economics as well as reviewing the literature it suggests some avenues for future research it covers six main areas the supply of health care the demand for health care non medical influences on health market and non price rationing evaluation of health care systems and planning budgeting and monitoring mechanisms

selfish bakers caring nurses a model of work motivation abstract work contributes to people s self image in important ways we propose a model in which effort is unobservable and where individuals have a preference for being important to others this gives the following predictions 1 if a worker s effort is paid by his marginal productivity bakers effort is just like in the standard model 2 if a worker s wage is unaffected by his effort nurses more effort is provided than in the standard model 3 to prevent that shirkers become nurses nurses wages must be kept strictly lower than bakers income at this wage level there will be too few nurses 4 overinvestment in nursing equipment can be justified as a means to attract motivated nurses 5 even with full income compensation both nurses and bakers may experience a net utility loss when losing their job 6 similarly both nurses and bakers may prefer work to welfare even with full income compensation

representative evidence on lying costs abstract a central assumption in economics is that people misreport their private information if this is to their material benefit several recent models depart from this assumption and posit that some people do not lie or at least do not lie maximally these models invoke many different underlying motives including intrinsic lying costs altruism efficiency concerns or conditional cooperation to provide an empirically validated microfoundation for these models it is crucial to understand the relevance of the different potential motives we measure the extent of lying costs among a representative sample of the german population by calling them at home in our setup participants have a clear monetary incentive to misreport misreporting cannot be detected reputational concerns are negligible and altruism efficiency concerns or conditional cooperation cannot play a role yet we find that aggregate reporting behavior is close to the expected truthful distribution suggesting that lying costs are large and widespread further lab experiments show that this result is not driven by the mode of communication

price adjustment in the hospital sector how should the nhs discriminate between providers a comment on miraldo siciliani and street miraldo et al 2011 have analyzed the price adjustment policy of a payer implementing a prospective payment system in the hospital sector in the presence of exogenous cost differences when no lump sum transfers are allowed they focus on deriving conditions for the price adjustment being positive in this paper using a result of miraldo et al we emphasize whether the price adjustment is larger or smaller than the marginal cost we show how the discrimination operates against either the low cost or the high cost hospitals according to the value of the elasticity of the additional marginal cost with respect to the quantity of services

quality competition with profit constraints abstract firms in markets such as health care and education are often profit constrained due to regulation or their non profit status and they are often viewed as being altruistic towards consumers we use a spatial competition framework to study incentives for cost containment and quality provision by altruistic firms facing profit constraints if prices are regulated profit constraints lead to lower cost containment efforts but higher quality if and only if firms are sufficiently altruistic under price competition profit constraints reduce quality and cost containment efforts but lead to lower prices if and only if firms are sufficiently altruistic profit constrained firms cost containment efforts are below the first best while their quality might be too high or too low if prices are regulated profit constraints can improve welfare and be a complement or substitute to a higher regulated price depending on the degree of altruism

a model of nominal contracts a model is produced in which labor contracts that prespecify unindexed nominal wage payments arise endogenously these contracts function as a self selection mechanism under appropriately different attitudes toward price level risk which can either arise directly from preferences or be induced by different patterns of asset holdings nominal contracts allow high productivity workers to signal their type by their willingness to accept unindexed contracts this explanation of nominal contracts does not require that money be used in any particular set of transactions and nominal contracts enhance the risk faced by all parties accepting them

a game theoretic model of the relationship between prices and waiting times abstract issue the role of prices charged to patients as a policy instrument for altering waiting times method a game theoretic model is used to examine the determinants of waiting times results under certain circumstances an increase in the price charged to patients at some institutions will lower the waiting times at all institutions conclusions the results provide a set of policy implications and testable predictions that arise under a certain set of assumptions alternative assumptions as well as the policy implications and testable predictions associated with them are also examined

an analytic approach to credit risk of large corporate bond and loan portfolios abstract we derive an analytic approximation to the credit loss distribution of large portfolios by letting the number of exposures tend to infinity defaults and rating migrations for individual exposures are driven by a factor model in order to capture co movements in changing credit quality the limiting credit loss distribution obeys the empirical stylized facts of skewness and heavy tails we show how portfolio features like the degree of systematic risk credit quality and term to maturity affect the distributional shape of portfolio credit losses using empirical data it appears that the basle 8 rule corresponds to quantiles with confidence levels exceeding 98 the limit law s relevance for credit risk management is investigated further by checking its applicability to portfolios with a finite number of exposures relatively homogeneous portfolios of 300 exposures can be well approximated by the limit law a minimum of 800 exposures is required if portfolios are relatively heterogeneous realistic loan portfolios often contain thousands of exposures implying that our analytic approach can be a fast and accurate alternative to the standard monte carlo simulation techniques adopted in much of the literature

jumping the queue an experiment on procedural preferences abstract we present a three player queuing game to study procedural preferences in a laboratory experiment together with markets queues and waiting lists are universal procedures for allocating goods and services we designed our queuing game to disentangle motivations of outcome oriented egoistic preferences outcome oriented distributional inequality aversion preferences and outcome independent procedural preferences in a series of treatments we introduce a market element and allow two of the three players to bargain over a queue jump thus violating the queuing procedure a third player is able to engage in peer punishment to sanction queue jumping we provide evidence that a simple model of procedural preferences is able to explain the behavior of a share of the subjects in our experiment

purchasing health care services from providers with unknown altruism cost sharing rules for paying physicians have been advanced as a way of generating incentives for the provision of quality care while recognizing their potential negative effects on production efficiency however the optimal sharing rate typically depends on the degree to which the physician acts in the interest of the patient what we identify as the physician s altruism since the degree of altruism is likely to vary across physicians and to be private information the standard rules for setting the cost sharing rate are unlikely to be optimal this paper derives conditions for the optimal non linear cost sharing mechanism in the presence of asymmetric information about altruism and shows how it can sometimes be implemented through a menu of linear cost sharing schemes the model can be used to rationalize the design of the fund holder system for general practictioners that operated in the 1990s in the united kingdom

households willingness to pay for public housing in the presence of price controls nonmarket housing allocation mechanisms such as queueing prevent households from revealing their marginal willingness to pay for housing through market prices we derive the households marginal willingness to pay using the intuitive idea that the length of the queue for a specific house reflects the households willingness to pay for housing characteristics we apply our methodology to public housing in the amsterdam metropolitan area and show that on average the households marginal willingness to pay for a unit of public housing is close to its marginal costs this suggests that the welfare loss of public housing through distortions in housing supply is rather limited and is mainly through distortions in housing demand we provide indirect evidence of the latter by showing that queueing induces inefficient matching of households and housing

rationing by waiting lists an implication in a recent article cotton lindsay and bernard feigenbaum 1984 present and test a model of rationing by waiting lists its novel feature is the recognition that being on some types of waiting list involves no opportunity cost and that consumers surplus cannot be dissipated by waiters undertaking costly activities that will help secure the good or service in question in this sense time does not act as a price although it imposes costs although lindsay s earlier version 1980 of this model has already been misinterpreted by some commentators 1 its heart is a waiting list that is equilibrated by attacking the assumption that the demand curve remains unchanged throughout the wait waiting time matters because the value of the good or service decays the longer it is delivered after order day while not wishing to take issue with this insight there are a number of points that need to be borne in mind when assessing the significance of the model especially in relation to the authors application to britain s national health service nhs

the impact of rent control on rents in the free sector in most cases rent control covers only a part of the housing stock this note provides a simple analysis of the impact which rent control and non price rationing exert on the rent in the free sector it is shown that depending on the rationing mechanism rents in the free sector can be higher or lower than in the absence of rent controls

the evolution of wages in the united kingdom evidence from micro data we use data on male employees from the u k family expenditure survey for the years 1968 86 to investigate the behavior of wages over time and across cohorts we find that differentials between manual workers and professional managerial ones are lower at labor market entry for younger cohorts but increasing faster with age in the 1980s than in the past the returns to experience appear to be very low in the united kingdom particularly for manual and clerical workers although the improved education of younger workers may partly explain this finally we show that individual wages in the united kingdom are highly procyclical

the market for elective surgery joint estimation of supply and demand this paper develops models of the demand for and supply of elective non emergency surgery using a panel of quarterly data for 200 english hospitals over the period 1995 2002 unusually distinct measures of supply outpatients seen and inpatient admissions and demand outpatient referrals and decisions to admit are available for each observation these offer the opportunity to estimate separate empirical models of supply and demand using ordinary least squares ols regression methods however the strong correlation between the residuals of these models suggests some merit in the deployment of seemingly unrelated regression sur methods although both static and dynamic sur estimations leave the results largely qualitatively unchanged sur estimation can have a considerable quantitative effect relative to the ols results for example sur estimation generates a lower elasticity of inpatient demand with respect to waiting time than that obtained via ols the results offer an important justification for more careful econometric modelling of hospital behaviour than has traditionally been employed in the health economics literature

contracting for health services when patient demand does not reflect quality this paper analyses contracts to keep down costs while maintaining quality of health services when patient demand does not reflect quality there is then a natural role for forms of contract that have emerged during the reforms of the nhs in britain that differ from pure fixed price or cost reimbursement contracts the optimal form depends on whether the provider is entirely self interested or benevolent in having genuine concern for patient welfare with fully benevolent providers there are roles for block and cost and volume contracts with partially benevolent providers some degree of cost sharing is typically optimal

rationing by waiting lists an empirical investigation abstract many social systems rely on a waiting list rather than price as a rationing device we present a model of the waiting list for elective surgery in the british national health service waiting time is allowed to influence both supply of and demand for surgery the resulting models of supply and demand are estimated empirically using over 4000 observations the results indicate low elasticity of demand with respect to waiting time suggesting that increased resources may reduce waiting times without greatly stimulating utilization the policy implications are important for the british national government when choosing the level of public expenditure to be devoted to health care

professional norms and physician behavior homo oeconomicus or homo hippocraticus abstract physicians treatment decisions determine the level of health care spending to a large extent the analysis of physician agency describes how doctors trade off their own and their patients benefits with a third party such as the collective of insured individuals or the taxpayers bearing the costs professional norms are viewed as restraining physicians self interest and as introducing altruism towards the patient we present a controlled experiment that analyzes the impact of professional norms on prospective physicians trade offs between their own profits the patients benefits and the payers expenses for medical care our data support the notion that professional norms derived from the hippocratic tradition shift weight to the patient in physicians decisions while decreasing their self interest and efficiency concerns

the coexistence of stable equilibria under least squares learning abstract in this paper we consider firms that learn about market conditions by estimating the demand function using past market data we show that learning may lead to suboptimal outcomes even when the estimated demand function perfectly fits the observations used in the regression and firms thus perceive to have learned the demand function correctly we consider the salop model with three firms and two types of consumers that differ in their sensitivity to product differences firms do not know the demand structure and they apply least squares learning to learn the demand function in each period firms estimate a linear perceived demand function and they play the perceived best response to the previous period price of the other firms this learning rule can lead to three different outcomes a self sustaining equilibrium the nash equilibrium or an asymmetric learning equilibrium in this last equilibrium one firm underestimates the demand for low prices and it attracts consumers with high sensitivity only this type of equilibrium has not been found in the literature on least squares learning before both the nash equilibrium and the asymmetric learning equilibrium are locally stable therefore the model has coexisting stable equilibria

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

modelling parallel markets in centrally planned economies the case of the automobile market in poland most empirical work dealing with socialist economies appears to be oriented towards macroeconomic problems or at least to the study of highly aggregated time series examples are provided by howard 1976 lacko 1975 podkaminer 1982 portes and winter 1980 portes et al 1983 1984a b 1985 welfe 1983 and charemza and gronicki 1988 only relatively infrequently has a particular market been the target of detailed empirical investigation a case in point is the study of the hungarian car market by kapitany kornai and szabo 1984 and chapter 15 of this volume

a note on the integration of system dynamics and economic models equilibrium is probably the principal focus of most areas of economic analysis however the policy maker is often interested not only in the equilibrium predictions arising from an economic model but also in the path taken by policy variables as they move towards that equilibrium it is therefore likely that integration into a dynamic framework will frequently enhance the usefulness of an economic model recent developments in computer software mean that system dynamics offers a readily accessible methodology for making this principle operational the approach is illustrated using an example from the british national health service in which a traditional economic model of supply and demand is deployed within a system dynamics model

inequality neighbourhoods and welfare of the poor abstract this paper investigates how neighbourhood effects interacting with income inequality affect poor people s ability to access basic facilities like health care services schooling and so on we model this interaction by integrating consumers income distribution with the spatial distribution of their location and explore the consequences of an increase in income inequality or variations in the neighbourhood characteristics on the welfare of the rich and poor in general and their access to market in particular we find that in general the impact will be non monotonic owing to an interesting trade off between the provision effect and the price effect on the one hand there is the positive provision effect higher valuation of the rich attracts the supplier to enter into the neighbourhood allowing the poor who live sufficiently close by to access the service on the other hand there is the negative price effect the service provider charges a higher price higher is the income or larger is the proportion of the rich in the neighbourhood in the extreme there exists the possibility of complete exclusion of poor from the market the service provider caters only to the rich and the poor has absolutely no market access we have identified the higher income gap between rich and poor as the key factor that exposes the poor to this complete exclusion possibility

hospital competition and quality with regulated prices we analyse the effect of competition on quality in hospital markets with regulated prices considering the effect of both introducing competition monopoly versus competition and increasing competition through either lower transportation costs increased substitutability or a higher number of hospitals with semi altruistic providers and a fairly general cost structure we show that the relationship between competition and quality is generally ambiguous in contrast to the received body of theoretical literature this is consistent with and potentially explains the mixed empirical evidence

assessing competition in hospital care markets the importance of accounting for quality differentiation quality differentiation is especially important in the hospital industry where the choices of medicare patients are unaffected by prices unlike previous studies that use geographic market concentration to estimate hospital competitiveness this article emphasizes the importance of quality differentiation in this spatially differentiated market i estimate a random coefficients discrete choice model that predicts patient flow to different hospitals and find that demand responses to both distance and quality are substantial the estimates suggest that patients do not substitute toward alternative hospitals in proportion to current market shares implying that geographic market concentration is an inappropriate measure of hospital competitiveness

macroeconomic performance and poverty in brazil abstract drawing on brazilian time series data this study finds an inelastic link between poverty and wages over the macroeconomic cycle that is devoid of the asymmetric effects that characterise the phenomenon s response to changes in the rate of unemployment deepening of structural reforms in the second half of the 1990s had no effect on the aforementioned relationships which also varied little by regional level of development finally the connection between poverty and long term income changes was more elastic suggesting an association between the economy s recent disappointing performance in alleviating poverty and its lacklustre growth record over the past two decades

profit or patients health benefit exploring the heterogeneity in physician altruism abstract this paper investigates physician altruism toward patients health benefit using behavioral data from hennig schmidt et al s 2011 laboratory experiment in the experiment medical students in the role of physicians decide on the provision of medical services the experimental setup allows us to identify the influence of profits and patients health benefit on the choice of medical treatment we estimate physician altruism the weight individuals attach to patients health benefit by fitting mixed logit and multinomial logit regression models to the experimental data estimation results provide evidence for physician altruism we find however substantial variation in the degree of physician altruism we also discuss some implications of our results for the design of physician payment schemes in the light of the theoretical literature

optimal price setting in pay for performance schemes in health care abstract the increased availability of process measures implies that the quality of health care is in some areas de facto verifiable optimal price setting for verifiable dimensions of quality is well described in the theoretical literature on incentive design we seek to narrow the large gap that remains between actual price setting behaviour in pay for performance schemes and the incentive design literature we present a stylised model for hospital price setting for process measures of quality and show that optimal hospital prices should reflect the marginal benefit of the expected health gains the weight given to patients benefit relative to profits and the opportunity cost of public funds based on published estimates we derive the optimal prices for three measures of quality that have been incentivised in the english national health service since april 2010 treatment in an acute stroke unit rapid brain imaging and thrombolysis with alteplase we then compare the optimal prices with the actual prices offered to hospitals in england under the best practice tariffs scheme for emergency stroke care

public rationing and private cost incentives this paper considers a public provider s strategic use of rationing in a market served by both public and private providers such a mixed market structure is common in many industries such as health care telecommunication postal service and public utilities the technology in the private sector exhibits increasing returns each firm can expend effort in the form of fixed cost to reduce the marginal cost firms in the contestable private sector compete and the market equilibrium is characterized by average cost pricing the equilibrium private sector market size is too low resulting in deficient cost effort efficient rationing forces more consumers to use the private sector restoring cost incentives and implementing the first best random rationing may reduce cost inefficiency but does not implement the first best

an econometric analysis of the demand for private health insurance in england and wales this paper discusses the nature of demand for private health insurance in a health care market in which the consumer can neither opt out of tax payments for nor lose his entitlement to public health care a single equation econometric model of the demand for private health cover is estimated using the 1982 general household survey the results indicate that income and employment status are significant determinants of the probability of health insurance purchase

hospital quality choice and market structure in a regulated duopoly this paper analyzes the optimal structure of a regulated health care industry in a model in which the regulator cannot enforce what hospitals do unverifiable quality of health or does not know what hospitals know incomplete information about production costs or both we show that if quality is unverifiable the choice between monopoly and duopoly does not change with respect to the verifiable case but if there are fixed costs assumed to be quality dependent and the monopoly is the optimal market structure the quality level of the operative hospital decreases asymmetry of information introduces informational rents that can be reduced by increasing the most efficient hospital s market share a monopoly is chosen more often

asymmetric effects of the business cycle on bank credit risk abstract prior empirical research on the relation between credit risk and the business cycle has failed to properly investigate the presence of asymmetric effects to fill this gap we examine this relation both at the aggregate and the bank level exploiting a unique dataset on italian banks borrowers default rates we employ threshold regression models that allow to endogenously establish different regimes identified by the thresholds over below which credit risk is more less cyclical we find that not only are the effects of the business cycle on credit risk more pronounced during downturns but cyclicality is also higher for those banks with riskier portfolios

quality and outside capacity in the provision of health services abstract this paper studies the effects of non contractibility of investment on the choices made by a health authority and a hospital which supplies a specific service non contractibility determines inefficiencies compared with any pareto efficient outcome the quality of the service chosen by the hospital is too low and the health authority relies too much on outside providers

competition and waiting times in hospital markets this paper studies the impact of hospital competition on waiting times we use a salop type model with hospitals that differ in geographical locationand potentially waitingtime andtwotypesofpatients high benefitpatientswhochoosebetweenneighbouring hospitals competitive segment and low benefit patients who decide whether or not to demand treatment from the closest hospital monopoly segment compared with a benchmark case of monopoly we find that hospital competition leads to longer waiting times in equilibrium if the competitive segment is sufficiently large given a policy regime of hospital competition the effect of increased competition depends on the parameter of measurement lower travelling costs increase waiting times higher hospital density reduces waiting times while the effect of a larger competitive segment is ambiguous we also show that if the competitive segment is large hospital competition is socially preferable to monopoly only if the regulated treatment price is sufficiently high 2008 elsevier b v all rights reserved

elasticity estimates from a dynamic model of interrelated demands for private and public acute health care this paper investigates the private public mix in acute health care provision in the uk it uses an interrelated shares model derived from a translog function combined with dynamic adjustment using prices for public care constructed from nhs waiting lists the insurance cost of private care and the retain price index impact intermediate and long run elasticities of demand for private and public care are obtained the role of hospital consultants and of an aging population are also considered

discrete versus continuous state switching models for portfolio credit risk abstract dynamic models for credit rating transitions are important ingredients for dynamic credit risk analyses we compare the properties of two such models that have recently been put forward the models mainly differ in their treatment of systematic risk which can be modeled either using discrete states e g expansion versus recession or continuous states it turns out that the implied asset correlations and default rate volatilities for discrete state switching models are implausibly low compared to empirical estimates from the literature we conclude that care has to be taken when discrete state regime switching models are employed for dynamic credit risk management as a side result of our analysis we obtain indirect evidence that asset correlations may change over the business cycle

is hospital competition socially wasteful we study the consequences of hospital competition for medicare beneficiaries heart attack care from 1985 to 1994 we examine how relatively exogenous determinants of hospital choice such as travel distances influence the competitiveness of hospital markets and how hospital competition interacts with the influence of managed care organizations to affect the key determinants of social welfare expenditures on treatment and patient health outcomes in the 1980s the welfare effects of competition were ambiguous but in the 1990s competition unambiguously improves social welfare increasing hmo enrollment over the sample period partially explains the dramatic change in the impact of hospital competition

pricing derivatives on financial securities subject to credit risk this article provides a new methodology for pricing and hedging derivative securities involving credit risk two types of credit risks are considered the first is where the asset underlying the derivative security may default the second is where the writer of the derivative security may default we apply the foreign currency analogy of jarrow and turnbull 1991 to decompose the dollar payoff from a risky security into a certain payoff and a spot exchange rate arbitrage free valuation techniques are then employed this methodology can be applied to corporate debt and over the counter derivatives such as swaps and caps the purpose of this article is to provide a new theory for pricing and hedging derivative securities involving credit risk two sources of credit risk are identified and analyzed the first is where the asset underlying the derivative security may default paying off less than promised this is the case for example with imbedded options on corporate debt the second is the credit risk introduced by the writer of the derivative security who may also default examples include over the counter writers of options on eurodollar futures swaps and swaptions for pricing derivative securities involving credit risk there are currently two approaches the first views these derivatives as contingent claims not on the financial securities themselves but as compound options on the assets underlying the financial securities this is the case for example with the pricing of imbedded options on corporate debt see merton 1974 1977 black and cox 1976 ho and singer 1982 chance 1990 and kim ramaswamy and sundaresan 1993 or the pricing of vulnerable options see johnson and stulz 1987 in practice however this valuation methodology is difficult to use first the assets underlying the financial security are often not tradeable and therefore their values are not observable this makes application of the theory and estimation of the relevant parameters problematic second as in the case of corporate debt all of the other liabilities of the firm senior to the corporate debt must first and simultaneously be valued this generates significant computational difficulties as a result this approach has not

choice of contracts in the british national health service an empirical study following major reforms of the british national health service nhs in 1990 the roles of purchasing and providing health services were separated with the relationship between purchasers and providers governed by contracts using a mixed multinomial logit analysis we show how this policy shift led to a selection of contracts that is consistent with the predictions of a simple model based on contract theory in which the characteristics of the health services being purchased and of the contracting parties influence the choice of contract form the paper thus provides evidence in support of the practical relevance of theory in understanding health care market reform

the distribution of household income in brazil unequal and immutable summary after a period of rapid growth in the 1970s a macroeconomically turbulent decade of the 1980s the achievement of price stability during the 1990s and an impressive expansion of educational opportunities long term trends do not show an unambiguous increase or decline in brazilian household income inequality however behind the apparently invariable state of affairs one finds a marked decline in the proportion of households with incomes below 1 5 times the poverty line the use of a semi parametric procedure for constructing counterfactual income densities establishes that while advances in education were almost wholly associated with growth in absolute incomes they had little impact on their dispersion

the welfare costs of price controls for cars and color televisions in poland contrasting estimates of rent seeking from recent experience the welfare costs of price controls can vary enormously depending on the method of allocating the goods in shortage and the possible rent seeking costs that may result with full rent dissipation the welfare loss from price controls on polish color televisions in 1989 was about ten times the standard estimates of distortion costs which ignore rent seeking and was more than 100 percent of the value of domestic producers sales the methods of allocating cars however did not result in rent seeking costs the domestic price controls were an unintended implicit subsidy to imports subsidies for cars were estimated at 43 percent and for color televisions at 22 percent

contingent valuation of time spent on nhs waiting lists this paper derives estimates of the consumer bourne costs of waiting lists for nonurgent medical care the methodology used is contingent valuation the paper examines the use of this methodology and presents the experimental context and the estimates derived the estimates indicate the average valuation of a month spent on a waiting list for nonurgent care is approximately 40 pounds but also show that there exist significant interpersonal differences in valuations copyright 1990 by royal economic society

paying for performance and motivation crowding out abstract we investigate how prices affect output when publicly funded providers differ in altruism and enjoy being perceived as good and not as greedy a higher price increases output for low and high altruism providers intermediate altruism providers do not respond or reduce output

dynamic hospital competition under rationing by waiting times abstract we develop a dynamic model of hospital competition where i waiting times increase if demand exceeds supply ii patients choose a hospital based in part on waiting times and iii hospitals incur waiting time penalties we show that whereas policies based on penalties will lead to lower waiting times policies that promote patient choice will instead lead to higher waiting times these results are robust to different game theoretic solution concepts designs of the hospital penalty structure and patient utility specifications furthermore waiting time penalties are likely to be more effective in reducing waiting times if they are designed with a linear penalty structure but the counterproductive effect of patient choice policies is smaller when penalties are convex these conclusions are partly derived by calibration of our model based on waiting times and elasticities observed in the english nhs for a common treatment cataract surgery

computational controversies in disequilibrium and shortage modelling of centrally planned economies abstract most disequilibrium and shortage models of centrally planned economies fall into three categories testable excess demand the portes school disequilibrium indicators and kornai s economics of shortage these models have generated numerous controversies and conflicting empirical results however this paper argues that some disputes are not caused by the theoretical features of the models but rather by the utilisation of different estimation methods that are not directly comparable this suggests that several controversies are more apparent than real and can be resolved through the improvement of computational techniques and statistical hypothesis testing theory

ratings migration and the business cycle with application to credit portfolio stress testing the turmoil in the capital markets in 1997 and 1998 has highlighted the need for systematic stress testing of banks portfolios including both their trading and lending books we propose that underlying macroeconomic volatility is a key part of a useful conceptual framework for stress testing credit portfolios and that credit migration matrices provide the specific linkages between underlying macroeconomic conditions and asset quality credit migration matrices which characterize the expected changes in credit quality of obligors are cardinal inputs to many applications including portfolio risk assessment modeling the term structure of credit risk premia and pricing of credit derivatives they are also an integral part of many of the credit portfolio models used by financial institutions by separating the economy into two states or regimes expansion and contraction and conditioning the migration matrix on these states we show that the loss distribution of credit portfolios can differ greatly as can the concomitant level of economic capital to be assigned

competition and quality in health care markets a differential game approach we investigate the effect of competition on quality in health care markets with regulated prices taking a differential game approach in which quality is a stock variable using a hotelling framework we derive the open loop solution health care providers set the optimal investment plan at the initial period and the feedback closed loop solution providers move investments in response to the dynamics of the states under the closed loop solution competition is more intense in the sense that providers observe quality in each period and base their investment on this information if the marginal provision cost is constant the open loop and closed loop solutions coincide and the results are similar to the ones obtained by static models if the marginal provision cost is increasing investment and quality are lower in the closed loop solution when competition is more intense in this case static models tend to exaggerate the positive effect of competition on quality

the impact of patient choice and waiting time on the demand for health care results from the london patient choice project in a number of countries where health care is publicly funded policies to introduce greater patient choice are being implemented in most cases patient choice is seen as an instrument to reduce waiting times for elective non emergency hospital services an important issue is whether facilitating greater patient choice will increase the demand for health care and thereby undermine the achievement of reduced waiting times a large scale pilot of choice in the london metropolitan area permits a test of the hypothesis that choice will affect demand this paper estimates a model of the demand for elective surgery using a panel of 150 english acute hospitals over the period 1995 to 2004 for three surgical specialties it examines whether demand shifted following the introduction of the london patient choice project in 2002 the results suggest that the choice project only shifted nhs inpatient demand in orthopaedics and that this shift was inwards

a dynamic model of supply of elective surgery in the presence of waiting times and waiting lists this paper analyses hospitals decisions regarding the supply of elective surgery in a dynamic model in the presence of waiting times and waiting lists we show that periods of increasing decreasing supply and increasing decreasing waiting list may be optimal paths towards the steady state we also analyse the hospitals response to exogenous shocks on the demand and the supply for example an increase in the marginal tariff for the provider generates overshooting in the supply supply jumps upwards when the shock is introduced and then slowly reduces towards the steady state value

price controls and rent seeking behavior in developing countries abstract when the price of a good is controlled a nonprice allocation rule must necessarily be substituted for allocation by price examples are first come first served allocation which gives rise to rationing by waiting and allocation by an explicit system of ration coupons with rationing by waiting consumers are induced to pursue activities that economize on waiting costs such as buying a larger quantity per purchase although such responses are individually rational they are socially self defeating in the sense that they lower equilibrium consumer welfare rationing by coupons can avoid some but typically not all of these losses these ideas are developed with examples of model economies and their practical relevance is illustrated with evidence from developing countries

the welfare costs of rationing by waiting with price controls and rationing by waiting rational consumers increase the quantity boughtperpurchase this individually rational response is socially wasteful and the cost of making it is a deadweight loss this cost plus the value of time spent in queues may exceed the total rent transferred from suppliers to consumers by price controls i e the value of resources spent competing for the rent may exceed the rent itself this point is illustrated by an empirical application to gasoline price controls rent seeking exhausts an estimated 116 percent of the rent trangerred the efficiency of the price system is often illustrated lby pointing to the obvious wastes associated with alternative allocation mechanisms for example the queues that accompany price controls and first come first served allocations although rationing by waiting wastes resources in a dramatically visible fashion the magnitude of the waste and the factors that determine it seldom have been examined empirically moreover existing theory on the subject is incomplete unless the first come first served rule is precisely specified consumers will compete for available supplies in ways other than waiting in the model developed below queues cause consumers to compete by increasing amounts bought per trip to the market the analysis demonstrates that such individually rational adjustments only increase the welfare cost of rationing by waiting and thus are socially self defeating the theoretical model is illustrated empirically by estimating the welfare costs of a market wide ceiling on gasoline prices this application was motivated by the availability of two key pieces of information the value of time spent in gasoline queues and the effect of waiting lines on amounts bought per purchase this information was obtained from a survey of motorists conducted during the era of federal gasoline price regulations to focus on competition among consumers one of the inefficiencies that results from price controls is ignored the supply reduction leading to the

ramsey waits allocating public health service resources when there is rationing by waiting the optimal allocation of a public health care budget across treatments must take account of the way in which care is rationed within treatments since this will affect their marginal value we investigate the optimal allocation rules for public health care systems where user charges are fixed and care is rationed by waiting the optimal waiting time is higher for treatments with demands more elastic to waiting time higher costs lower charges smaller marginal welfare loss from waiting by treated patients and smaller marginal welfare losses from under consumption of care the results hold for a wide range of welfarist and non welfarist objective functions and for systems in which there is also a private health care sector they imply that allocation rules based purely on cost effectiveness ratios are suboptimal because they assume that there is no rationing within treatments