delivering bad news market responses to negligence abstractone of the goals of the legal liability system is to ensure that sellers provide appropriate care reputation effects may also deter negligence the little available research evidence suggests that reputation effects are minimal however we develop a theory tailored to an environment such as medicine in which sellers are of heterogeneous quality and face two types of demand private consumers who exhibit downward sloping demand for example private health insurance and government consumers who exhibit perfectly elastic demand at a fixed price for example medicaid insurance the theory predicts that high quality sellers who suffer reputation losses will see their caseloads shift from private to government patients while low quality sellers will lose government patients and may gain private patients combining individual patient level data from florida for the years 1994 2003 with physician level litigation data we find evidence that physicians experience reputation effects that are consist

the impact of mandatory disclosure laws on product choices an analysis of the salad dressing market abstract the nutrition labeling and education act nlea requires most food products to include a nutrition label prior to the nlea labeling was voluntary this study uses nutrition label information and supermarket scanner data pre and post nlea to examine the impact of moving from a voluntary to a mandatory labeling regime on consumer product choice the voluntary unraveling of information is shown to be an important market mechanism prior to the nlea all low fat salad dressings had a nutrition label while the majority of the higher fat dressings did not however there remained large variation in fat content among dressings that did not voluntarily label those with the highest fat levels experienced a significant decline in sales after they were required to disclose the results indicate that even in markets with credible low cost mechanisms to disclose mandatory labeling can have an impact on consumer behavior and health

the relationship between the markets for health insurance and medical malpractice insurance this article evaluates the interdependence of medical malpractice insurance markets and health insurance markets prior research has addressed the performance of these markets individually without specifically quantifying the extent to which they are linked increasing levels of health insurance losses could increase the scale of potential malpractice claims boosting medical malpractice losses or could embody an improvement in medical care quality which will reduce malpractice losses our results for a state panel data set from 2002 to 2009 demonstrate that health insurance losses are negatively related to medical malpractice insurance losses an additional dollar of health insurance losses is associated with a 0 01 0 05 reduction in medical malpractice losses these findings have potentially important implications for assessments of the net cost of health insurance policies

market forces and aircraft safety thecaseofthedc 10 the may 25th 1979 chicago dc 10 crash provides the opportunity to test an important proposition in the theory of consumer product safety can market forces provide safety when products are too complex to permit buyer prepurchase inspection this paper combines economic theory with modern finance theory to measure the cost of the crash to shareholders of the plane s manufacturer mcdonnell douglas the results indicate that the dc 10 crash resulted in a 200 million loss to mcdonnell douglas stockholders and that this amount exceeds any reasonable estimate of regulatory or liability costs

does medical malpractice law improve health care quality we assess the potential for medical liability forces to deter medical errors and improve health care treatment quality identifying liability s influence by drawing on variations in the manner by which states formulate the negligence standard facing physicians using hospital discharge records from the national hospital discharge survey and clinically validated quality metrics inspired by the agency for health care research and quality we find evidence suggesting that treatment quality may improve upon reforms that expect physicians to adhere to higher quality clinical standards we do not find evidence however suggesting that treatment quality may deteriorate following reforms to liability standards that arguably condone the delivery of lower quality care similarly we do not find evidence of deterioration in health care quality following remedy focused liability reforms such as caps on non economic damages awards

do product innovation and news about the r d process produce large price changes and overreaction the case of pharmaceutical stock prices do extreme price changes of pharmaceutical stocks reflect unexpected scientific information produced during the drug rd i e food and drug administration fda approvals in 6 of these cases news of a scientific nature in

the motivation and bias of bureaucrats many individuals are motivated to exert effort because they care about their jobs rather than because there are monetary consequences to their actions the intrinsic motivation of bureaucrats is the focus of this paper and three primary results are shown first bureaucrats should be biased second sometimes this bias takes the form of advocating for their clients more than would their principal while in other cases they are more hostile to their interests for a range of bureaucracies those who are biased against clients lead to more efficient outcomes third self selection need not produce the desired bias instead selection to bureaucracies is likely to be bifurcated in the sense that it becomes composed of those who are most preferred by the principal and those who are least preferred

do doctors practice defensive medicine defensive medicine is a potentially serious social problem if fear of liability drives health care providers to administer treatments that do not have worthwhile medical benefits then the current liability system may generate inefficiencies much larger than the costs of compensating malpractice claimants to obtain direct empirical evidence on this question we analyze the effects of malpractice liability reforms using data on all elderly medicare beneficiaries treated for serious heart disease in 1984 1987 and 1990 we find that malpractice reforms that directly reduce provider liability pressure lead to reductions of 5 to 9 percent in medical expenditures without substantial effects on mortality or medical complications we conclude that liability reforms can reduce defensive medical practices

pricing of fluctuations in electricity markets abstract in an electric power system demand fluctuations may result in significant ancillary cost to suppliers furthermore in the near future deep penetration of volatile renewable electricity generation is expected to exacerbate the variability of demand on conventional thermal generating units we address this issue by explicitly modeling the ancillary cost associated with demand variability we argue that a time varying price equal to the suppliers instantaneous marginal cost may not achieve social optimality and that consumer demand fluctuations should be properly priced we propose a dynamic pricing mechanism that explicitly encourages consumers to adapt their consumption so as to offset the variability of demand on conventional units through a dynamic game theoretic formulation we show that under suitable convexity assumptions the proposed pricing mechanism achieves social optimality asymptotically as the number of consumers increases to infinity numerical results demonstrate that compared with marginal cost pricing the proposed mechanism creates a stronger incentive for consumers to shift their peak load and therefore has the potential to reduce the need for long term investment in peaking plants

an empirical examination of quality certification in a lemons market i introduction researchers have long understood that a variety of mechanisms may be used to overcome problems of adverse selection stigler 1961 224 notes that s ome forms of economic organization may be explicable chiefly as devices for eliminating uncertainties in quality and akerlof 1970 cites independent groups such as the consumers union and united laboratories that test and certify the quality of goods there is however little empirical evidence that illustrates the effectiveness of such mechanisms in this article we examine the effect certification has on a market characterized by adverse selection using data from the market for young thoroughbreds we compare the performance of sales where auction houses provide certification services with sales where certification is absent the thoroughbred racehorse market consists of two distinct types of public auctions certified and noncertified sales in a certified sale auction houses physically inspect the horses nominated to their sales selling only the horses they conclude are from the upper end of the quality distribution in noncertified sales auction houses sell all horses nominated to a sale our empirical strategy is to perform tests that indicate whether adverse selection affects market outcomes in either certified or noncertified sales a finding that adverse selection is present in noncertified sales but absent in certified sales is consistent with the hypothesis that certification alleviates problems of adverse selection we adopt three approaches to test for the presence of adverse selection 1 the first approach is in the spirit of chiappori and salanie 2000 who examine the relationship between unobservable factors from participation and performance equations we model adverse selection as a case of sample selection bias and examine the correlation between errors in participation and price equations 2 to accomplish this we use a unique data set that allows us to estimate how breeder decisions to sell or retain horses affect market prices the data set consists of a 10 random sample of all thoroughbreds born in 1993 and includes both horses retained by their breeders who own a horse at the time of its birth and horses that breeders chose to sell our second test follows genesove 1993 and chezum and wimmer 1997 by examining the relationship between seller characteristics and price theoretically when observable seller characteristics are correlated with seller incentives to select goods adversely prices should reflect these differences chezum and wimmer observe that some breeders sell all of their horses whereas others retain a portion to race they find that market prices are inversely related to the extent of a breeder s involvement in racing concluding that adverse selection affects market outcomes we extend this work in two respects first we isolate the effect seller characteristics have on price through the decision to sell or retain a horse second we compare the effect seller characteristics have on observed prices in certified and noncertified sales our last test follows bond 1982 who attempts to identify adverse selection in the market for used trucks by comparing the repair records of trucks that were sold with the records of trucks retained by their original owners because the horses in our sample had not begun their racing careers at the time they were sold we use data on racetrack earnings as an ex post measure of quality and compare the quality of horses sold in noncertified sales with certified horses and horses retained by their breeders the results from each approach are consistent with certification alleviating problems of adverse selection we find that holding observable attributes constant horses that would receive unusually high market prices in noncertified sales are even more valuable in other options and are less likely to be sold in a noncertified sale

investing in skill to stay on or not to stay on there is now a large measure of consensus amongst economists that there is relatively little that governments can do to affect the underlying growth rate of the economy through macroeconomic policy changes the emphasis has changed to supply side measures and one of the most favoured both in the united states and the uk is improvement in education and training in the us the emphasis has been on securing improvements in basic schooling which is seen as the major deficiency chubb and moe 1990 in the uk the main focus has been on our low staying on rates whitfield and wilson 1991 micklewright et al 1989 limited training opportunities prats and wagner 1983 and poor access to higher education des 1991

demand inducement and the physician patient relationship the physician patient relationship is a paradigm for any expert client relationship the physician both diagnoses the patient s illness and recommends a treatment this dual role gives the physician incentive to recommend treatments whose costs outweigh their medical benefits these socially inefficient treatments correspond to the notion of physician induced demand the level of inducement chosen by the physician is shown to depend on the price and potential medical benefits of treatment and the relative diagnostic skills of physician and patient this model offers several testable hypotheses some of which are confirmed by related studies

generalized quantity competition for multiple products and loss of efficiency we study a generalized model of quantity cournot oligopolistic competition the impact of competition on social surplus and firms profit is analyzed firms produce multiple differentiated products and face production constraints we compare the social surplus produced by competing firms and by colluding firms with the maximum achievable total surplus in the market similarly we quantify the loss of profit that firms incur by competing instead of colluding our goal is to understand how the presence of competition affects the firms and society as a whole but also to determine what are the key drivers of the inefficiencies that arise due to competition

the consequences of the growth of health insurance premiums in the united states two thirds of the nonelderly population is covered by employerprovided health insurance ehi according to a kaiser family foundation national survey 2003 the cost of ehi has increased by over 59 percent since 2000 with no accompanying increase in the scale or scope of benefits these increases in health insurance premiums may have significant effects on labor markets including changes in the number of jobs hours worked per employee wages and compensation packages indeed it is possible that a significant portion of the increase in the uninsured population may be a consequence of employers shedding this benefit as health insurance premiums rise understanding how labor market characteristics affect adjustments to increased health insurance costs is of vital policy importance some proposals to cover the uninsured rely on employer mandates requiring employers to cover eligible workers other proposals provide tax credits for the purchase of non employer health insurance the effects of these proposals on employment wages and health insurance coverage will be driven by the elasticities of labor supply and demand institutional constraints on wages and compensation packages and how much workers value the increase in health insurance costs since employers provide such coverage voluntarily if workers fully value these benefits and are able to sort between firms based on their preferences then in the absence of other institutional constraints they will bear the cost of the increase via reduced wages with no accompanying change in employment employment costs or employee utility there are many reasons to believe however that firms are limited in their ability to offset increases in the price of health insurance premiums through lower compensation so that increases in the cost of providing health insurance may affect both employment and the structure of work identifying the magnitude of these effects empirically is difficult both because of data availability and because of multiple avenues for causality in this paper we uncover the causal effect of increases in the cost of benefits on labor market outcomes by exploiting an exogenous source of variation in the cost of providing health insurance the recent medical malpractice crisis in which malpractice costs for physicians grew dramatically in some states but not in others the growth in malpractice payments affects malpractice insurance premiums and health insurance premiums but it should not affect other aspects of employment see baicker and chandra 2005b using this source of variation we examine the effect of increases in health insurance premiums on employment patterns earnings and health insurance coverage we find that the cost of increases in health insurance premiums is borne in large part by workers through increased unemployment and also through decreased hours for those workers moved from full time jobs with benefits to parttime jobs without these results have strong implications for the distributional impact of health care reforms both authors economics department dartmouth college 6106 rockefeller hall hanover nh 03755 dartmouth medical school and national bureau of economic research e mails kbaicker dartmouth edu achandra dartmouth edu we thank alan garber seth seabury jonathan skinner and douglas staiger for helpful conversations that have influenced this research program and derek neal aaron yelowitz and conference participants at the berger conference for very insightful comments we are grateful for funding from nia p01 ag19783 02 the opinions in this paper are those of the authors and should not be attributed to the nia or nber 1 based on tabulations of population under age 65 from the march current population survey for 1988 2003 2 there is a wide literature estimating the wage fringe trade off a 1 increase in the value of fringes may be offset by a 1 reduction in wages or a 1 1 tax rate reduction for tax favored benefits for example jonathan gruber 1994 demonstrates that the passage of the pregnancy discrimination act in 1978 resulted in employers shifting the entire cost of the mandate onto employees

the price of stability for undirected broadcast network design with fair cost allocation is constant abstract we consider broadcast network design games in undirected networks in which every player is a node wishing to receive communication from a distinguished source node s and the cost of each communication link is equally shared among the downstream receivers according to the shapley value we prove that the price of stability of such games is constant thus closing a long standing open problem raised in anshelevich et al 2008 our result is obtained by means of homogenization a new technique that in any intermediate state locally diverging from a given optimal solution t is able to restore local similarity by exploiting cost differences between nearby players in t

the labor market effects of rising health insurance premiums we estimate the effect of rising health insurance premiums on wages employment and the distribution of part time and full time work using variation in medical malpractice payments driven by the recent medical malpractice crisis we estimate that a 10 increase in health insurance premiums reduces the aggregate probability of being employed by 1 2 percentage points reduces hours worked by 2 4 and increases the likelihood that a worker is employed only part time by 1 9 percentage points for workers covered by employer provided health insurance this increase in premiums results in an offsetting decrease in wages of 2 3

the price of anarchy in supply chains quantifying the efficiency of price only contracts in this paper we quantify the efficiency of decentralized supply chains that use price only contracts with a price only contract a buyer and a seller agree only on a constant transaction price without specifying the amount that will be transferred it is well known that these contracts do not provide incentives to the parties to coordinate their inventory capacity decisions we measure efficiency with the price of anarchy poa defined as the largest ratio of profits between the integrated supply chain that is fully coordinated and the decentralized supply chain we characterize the efficiency of various supply chain configurations push or pull inventory positioning two or more stages serial or assembly systems single or multiple competing suppliers and single or multiple competing retailers

the impact of external parties on brand name capital the 1982 tylenol poisonings and subsequent cases an examination of the 1982 tylenol poisonings reveals stock market losses to johnson johnson that far exceed direct costs and losses shared with other pain reliever producers this evidence provides support for the klein and leffler 1981 theory of brand names as quality assuring mechanisms of the subsequent cases only the 1986 tylenol poisonings were associated with significant stock market losses prior to the 1982 and 1986 tylenol poisonings tylenol was the number one pain reliever whereas the other pain relievers that were poisoned had a much lower level of brand name capital to lose

market incentives for safe commercial airline operation using a sample of nearly all fatal u s airline accidents between 1960 and 1985 this paper attempts to quantify the costs that airlines incur due to crashes the potential costs include those due to loss of life and equipment tort liability increased regulatory oversight and loss of demand as consumers turn away from products perceived to be unsafe examination of the deviations from expected demand following accidents reveals little or no effect prior to airline deregulation and weak indication of a response to recent crashes these results are consistent with the changes in an airline s equity value following an accident which are statistically significant but quite small relative to the total social cost of the accident

modelling the transition from school and the demand for training in the united kingdom this paper analyses the choices made by school leavers and the demand for training in the youth labour market using a large cross section database on all school leavers in lancashire in 1991 we model using a multinomial logit their first destination six months after the end of compulsory schooling we model six choices outcomes non vocational continuing education vocational continuing education youth training employment with on the job training employment with general skills training and unemployment our results show that the first destination from school is affected by a range of individual school and local labour market variables in addition to academic ability we report three effects that are not well known a young person is more likely to leave school the bigger the school the lower its academic performance and the lower his or her expected lifetime earnings our results might be interpreted as evidence of a segmented youth labour market it is also inappropriate to model the decision to stay on in continuing education as a simple binary choice

an investigation of real versus perceived csp in s p 500 firms firms are spending billions annually in the name of corporate social responsibility csr whilst markets are increasingly willing to reward good and responsible firms they lack the instruments to measure corporate social performance csp to convince investors and other stakeholders firms invest heavily in building a reputation for good corporate behaviour this article argues that reputations for csp are often unrepresentative of true csp and investigates how differences in perceived and actual as measured by the fortune and kld databases respectively can partly be explained by firm characteristics amongst other things it finds that overrated firms are more likely to be relatively big profitable operating in non polluting but competitive industries and with no history of wrong doings to their primary stakeholders they will also typically spend a lot of effort satisfying the claims of their secondary stakeholders above all the results emphasise the need for researchers to recognise that the databases measure different phenomenon and are not interchangeable

the impact of liability on the physician labor market abstract this study examines the impact of malpractice reforms on physician behavior using a new measure of liability risk and a nationally representative individual level data set on physician behavior we match our liability measure to data on physician behavior from the physician practice costs and income survey ppcis data from the ppcis bracket a period of substantial state level legal reform between 1983 and 1988 which provides identifying variation in our liability measure we estimate the impact of liability reform on hours worked we find an estimated elasticity of hours worked to liability exposure of 285 for the full sample of physicians the effect for physicians ages 55 or older is much larger we find an elasticity of 1 224 for this category we find that an increase in 1 of expected liability is associated with a 70 1 05 increase in malpractice premiums

ski lift pricing with applications to labor and other markets the market for ski runs or amusement rides often features admission tickets with no explicit price per ride therefore the equilibrium i nvolves queues which are systematically longer during peak periods s uch as weekends moreover the prices of admission tickets are much l ess responsive than the length of queues to variations in demand eve n when these variations are predictable despite the queues and stick y prices the authors show that the outcomes are nearly efficient und er plausible conditions they then show that similar results obtain f or some familiar congestion problems and for profit sharing schemes i n the labor market copyright 1987 by american economic association

consumption externalities and diffusion in pharmaceutical markets antiulcer drugs we examine the role of consumption externalities in the demand for pharmaceuticals at both the brand level and over a therapeutic class of drugs externalities emerge when use of a drug by others affects its value and or conveys information about efficacy and safety to patients and physicians this can affect the rate of market diffusion for a new entrant and can lead to dominance of one drug despite the availability of close substitutes we use data for h2 antagonist antiulcer drugs to estimate a dynamic demand model and quantify these effects the model has three components an hedonic price equation that measures how the aggregate usage of a drug as well as conventional attributes affect brand valuation equations relating equilibrium market shares to quality adjusted prices and marketing levels and diffusion equations describing the dynamic adjustment process we find that consumption externalities influence both valuations and rates of diffusion and that they operate at the brand and not the therapeutic class level

social optimality and cooperation in nonatomic congestion games abstract congestion externalities may result in nonoptimal equilibria for these to occur it suffices that facilities differ in their fixed utilities or costs as this paper shows the only case in which equilibria are always socially optimal regardless of the fixed components in that in which the costs increase logarithmically with the size of the set of users therefore achieving a socially optimal choice of facilities generally requires some form of external intervention or cooperation for heterogeneous populations in which the fixed utilities or costs vary across users as well as across facilities this raises the question of utility or cost sharing the sharing rule proposed in this paper is the harsanyi transferable utility value of the game which is based on the users marginal contributions to the bargaining power of coalitions

rating the raters are reputation concerns powerful enough to discipline rating agencies abstract credit rating agencies cras are accused of bearing a strong responsibility for contributing to the subprime crisis by having been deliberately too lax in the ratings of some structured products in response to this accusation cras argue that such an attitude would be too dangerous for them since their reputation is at stake the objective of this article is to examine the validity of this argument within a formal model are reputation concerns sufficient to discipline rating agencies we show that the reputation argument only works when a sufficiency large fraction of the cra income comes from other sources than rating complex products by contrast when rating complex products becomes a major source of income for the cra we show that it is always too lax with a positive probability and inflates ratings with probability one when its reputation is good enough we provide some empirical support for this prediction by showing that ceteris paribus the proportion of subprime residential mortgage backed securities rmbs that were rated aaa by the three main cras indeed increased over the last eight years we analyze the policy implications of our findings and advocate for a new business model of cras that we call the platform pays model

bounds on the welfare loss from moral hazard with limited liability we study a principal agent problem with discrete outcome and effort level spaces the principal and the agent are risk neutral and the latter is subject to limited liability quantifying welfare loss as the ratio between the first best social welfare and that arising from the principal s optimal pay for performance contract we provide simple parametric bounds for problem instances with moral hazard relying on that we compute the worst case welfare loss ratio among all problem instances with a fixed number of effort and outcome levels as a function of the number of possible effort levels and the likelihood ratio evaluated at the highest outcome as extensions we look at linear contracts and at cases with multiple identical tasks our work constitutes an initial attempt to quantify the losses arising from moral hazard when the agent is subject to limited liability and shows that these losses are non negligible in the worst case

liability insurance under the negligence rule we analyze the e ciency properties of the negligence rule with liability insurance when the tort feasor s behavior is imperfectly observable both by the insurer and the court e ciency is shown to depend on the extent to which the evidence is informative on the evidentiary standard for nding negligence and on whether insurance contracts can condition directly on the same evidence as used by courts to assess behavior when evidence is not directly contractible the negligence rule with compensatory damages is generally ine cient

dynamics and rationality in ordered externality games abstract we describe a class of games in which the players payoffs depend only on their own play and an externality which we call ordered externality games oegs these include service facilities with customer self selection and cost sharing games we then analyze the dynamics of these games assuming best reply cournot dynamics finally we prove that any oeg which is convergent under best reply dynamics is also convergent under adaptive learning this allows us to compute the convergence properties of an oeg easily journal of economic literature classification numbers c63 c70

fragility of the commons under prospect theoretic risk attitudes abstract we study a common pool resource game where the resource experiences failure with a probability that grows with the aggregate investment in the resource to capture decision making under such uncertainty we model each player s risk preference according to the value function from prospect theory we show the existence and uniqueness of a pure nash equilibrium when the players have heterogeneous risk preferences and under certain assumptions on the rate of return and failure probability of the resource greater competition vis a vis the number of players increases the failure probability at the nash equilibrium we quantify this effect by obtaining bounds on the ratio of the failure probability at the nash equilibrium to the failure probability under investment by a single user we further show that heterogeneity in attitudes towards loss aversion leads to higher failure probability of the resource at the equilibrium

estimating marginal returns to medical care evidence from at risk newborns a key policy question is whether the benefits of additional medical expenditures exceed their costs we propose a new approach for estimating marginal returns to medical spending based on variation in medical inputs generated by diagnostic thresholds specifically we combine regression discontinuity estimates that compare health outcomes and medical treatment provision for newborns on either side of the very low birth weight threshold at 1500 grams first using data on the census of us births in available years from 1983 2002 we find that newborns with birth weights just below 1500 grams have lower one year mortality rates than do newborns with birth weights just above this cutoff even though mortality risk tends to decrease with birth weight one year mortality falls by approximately one percentage point as birth weight crosses 1500 grams from above which is large relative to mean infant mortality of 5 5 just above 1500 grams second using hospital discharge records for births in five states in available years from 1991 2006 we find that newborns with birth weights just below 1500 grams have discontinuously higher charges and frequencies of specific medical inputs hospital costs increase by approximately 4 000 as birth weight crosses 1500 grams from above relative to mean hospital costs of 40 000 just above 1500 grams under an assumption that observed medical spending fully captures the impact of the very low birth weight designation on mortality our estimates suggest that the cost of saving a statistical life of a newborn with birth weight near 1500 grams is on the order of 550 000 in 2006 dollars

product reliability and firm value the experience of american and japanese automakers 1973 1992 in a typical month several recall campaigns of motor vehicles are announced by automobile manufacturers they are carried out to correct defective vehicles whether safetyor pollution related recalls imply that the products made available to consumers are not what they were supposed to be a question arises then as to whether and how much the offending automakers are affected by these recall campaigns the answer to this question has been ambiguous in the literature we have two purposes in this paper first on the basis of a longer and broader database we offer additional and more conclusive evidence that documents significant and negative market reactions to automobile recall announcements our finding therefore helps to resolve the ambiguity in the literature on this question second we offer new evidence on japanese automobile companies they too suffer from significant and negative stock market reactions but the incidence of recalls is less frequent perhaps as a result the magnitude of the stock market reaction to each recall is somewhat larger nevertheless because recalls are much less frequent the total losses

the corporate social responsibility of pharmaceutical product recalls an empirical examination of u s and u k markets the pressure on companies to practice corporate social responsibility csr has gained momentum in recent times as a means of sustaining competitive advantage in business the pharmaceutical industry has been acutely affected by this trend while pharmaceutical product recalls have become rampant and increased dramatically in recent years no comprehensive study has been conducted to study the effects of announcements of recalls on the shareholder returns of pharmaceutical companies as product recalls could significantly damage a company s reputation profitability and brand integrity this paper investigates the effect on shareholder wealth and the extent to which the adoption of csr practices by pharmaceutical companies in the united kingdom u k and the united states u s the two largest markets for pharmaceutical products in the world affected market reactions surrounding product recall announcements the analysis of product recall announcements from 1998 to 2004 compiled from the pharmaceutical journal and u s food and drug administration enforcement reports revealed marked differences in the way market participants in the two countries responded to news of product recalls u s investors penalised firms according to the severity of product defects while u k investors were indifferent while u k investors rewarded product recalls by firms which were not usually csr active u s investors punished non csr active firms that performed recalls these observations could pose strategic challenges to pharmaceutical firms operating in both countries

bounding the inefficiency of equilibria in nonatomic congestion games abstract equilibria in noncooperative games are typically inefficient as illustrated by the prisoner s dilemma in this paper we quantify this inefficiency by comparing the payoffs of equilibria to the payoffs of a best possible outcome we study a nonatomic version of the congestion games defined by rosenthal int j game theory 2 1973 65 and identify games in which equilibria are approximately optimal in the sense that no other outcome achieves a significantly larger total payoff to the players games in which optimization by individuals approximately optimizes the social good in spite of the lack of coordination between players our results extend previous work on traffic routing games

anonymous games with binary actions abstract in many economic decision problems the preferences of economic agents depend on the numbers or proportions of individuals choosing the same decision or other decisions examples include network or congestion externalities location choices of firms the tourist s choice of a vacation destination the visit of public events like concerts or the purchase of goods that are subject to fashion in this article the relating equilibrium characterization and selection questions are formulated and solved in terms of anonymous games with a continuum of players facing a binary decision problem journal of economic literature classification numbers c72 d62

the economic side effects of dangerous drug announcements immediately prior to the passage of the 1962 food and drug administration amendments there were a number of drugs recalled from markets worldwide announcements about the dangerous side effects of these drugs were associated with lower share prices for their manufacturers and the industry as a whole we perform several analyses to sort out alternative explanations for the observed declines we find that dangerous drug announcements had no effect on the sales of other drugs and did not affect the share values of european drug makers doing little business in the united states we also find that share price reductions associated with recalls in the 1970s and 1980s were confined to the manufacturers of the recalled drugs these patterns are consistent with the hypothesis that drug company shareholders viewed the recalls in the early 1960s as signals of an increase in the cost of compliance with new and more stringent drug testing requirements

malpractice law and health care reform optimal liability policy in an era of managed care abstract because fee for service health insurance insulates providers from the costs of treatment decisions it may lead to defensive medicine precautionary treatment with minimal expected medical benefit administered out of fear of legal liability by giving providers higher powered incentives managed care may affect optimal liability policy among elderly medicare beneficiaries with heart disease in 1984 1994 we find that liability reducing tort reforms reduce defensive practices in areas with high and low managed care enrollment but that managed care and liability reform are substitutes we consider some implications of these results for the current debate over the appropriateness of extending malpractice liability to managed care organizations

environmental kuznets curve in china new evidence from dynamic panel analysis this paper applies a panel of 28 provinces of china from 1996 to 2012 to study the impacts of economic development energy consumption trade openness and urbanization on the carbon dioxide waste water and waste solid emissions by estimating a dynamic panel model with the system generalized method of moments gmm estimator and an autoregressive distributed lag ardl model with alternative panel estimators respectively we find that the environmental kuznets curve ekc hypothesis is well supported for all three major pollutant emissions in china across different models and estimation methods our study also confirms positive effects of energy consumption on various pollutant emissions in addition we find some evidence that trade and urbanization may deteriorate environmental quality in the long run albeit not in the short run from policy perspective our estimation results bode well for chinese government s goal of capping greenhouse emissions by 2030 as outlined in the recent china us climate accord while containing energy consumption and harm effects from expanding trade and urbanization remains some environmental challenges that china faces

regulation and firm size fda impacts on innovation this article estimates the highly differential impacts of fda regulations on pharmaceutical firms of various sizes where size is measured as scale of r d expenditures estimation is performed using the method of maximum quasi likelihoods using productivity trends of the united kingdom as a control to isolate fda regulatory effects in the united states it is shown that smaller u s pharmaceutical firms suffered devastating reductions in research productivity because of fda regulations in contrast the largest u s pharmaceutical firms apparently benefited from regulation as sales gains due to reduced competition more than offset their quite moderate declines in research productivity

efficient graph topologies in network routing games abstract a topology is efficient for network games if for any game over it every nash equilibrium is socially optimal it is well known that many topologies are not efficient for network games we characterize efficient topologies in network games with a finite set of players each wishing to transmit an atomic unit of unsplittable flow we distinguish between two classes of atomic network routing games in network congestion games a player s cost is the sum of the costs of the edges it traverses while in bottleneck routing games it is its maximum edge cost in both classes the social cost is the maximum cost among the players costs we show that for symmetric network congestion games the efficient topologies are extension parallel networks while for symmetric bottleneck routing games the efficient topologies are series parallel networks in the asymmetric case the efficient topologies include only trees with parallel edges

quality disclosure and competition we analyze costly quality disclosure with horizontally differentiated products under duopoly and a cartel and characterize the effect of competition on disclosure and welfare we show that expected disclosure is higher under a cartel than under duopoly and the welfare comparison depends on the level of disclosure cost when the disclosure cost is low welfare is higher under a cartel than duopoly but when the disclosure cost is high welfare is higher under duopoly in either market structure disclosure is excessive in terms of total surplus but insufficient in terms of consumer surplus

when does privatization work the impact of private ownership on corporate performance in the transition economies this paper compares the performance of privatized and state firms in the transition economies of central europe while controlling for various forms of selection bias it argues that privatization has different effects depending on the types of owners to whom it gives control in particular privatization to outsider but not insider owners has significant performance effects where privatization is effective the effect on revenue performance is very pronounced but there is no comparable effect on cost reduction overlooking the strong revenue effect of privatization to outsider owners leads to a substantial overstatement of potential employment losses from postprivatization restructuring

market incentives for safe foods an examination of shareholder losses from meat and poultry recalls meat and poultry recalls while voluntary are carried out under governmental oversight if firms have financial incentives to avoid being implicated in a recall situation governmental involvement in recalls may cause firms to internalize social costs when making investment decisions concerning food safety controls to examine these incentives we analyze federally supervised meat and poultry recalls from 1982 to 1998 within an event study results show significant shareholder losses when publicly traded food companies are implicated in a recall involving serious food safety hazards we find no evidence that the stock market reacts negatively when recalls involve less severe hazards each year unsafe foods sicken millions and lead to losses in terms of life and productivity mead et al estimate that foodborne pathogens account for 76 million illnesses and 5 000 deaths in the united states given human error and the limitations of food safety technology food items that pose undue risks to the public will be distributed from time to time when this occurs the firms involved stand to incur expenses related to recovering disposing of or reconditioning potentially contaminated products already placed on the market in addition negative publicity can lead to reductions in product demand and may erode prior investments in reputation and brand capital these firms may also face costs from liability claims associated with an outbreak of food related illnesses or injury our main objective in this paper is to examine reductions in food company valuations that result from food contamination incidents we focus specifically on meat and poultry firms that have shipped products that were later recalled for food safety reasons because preventative actions taken by firms can affect the probability of being implicated in a product recall situation the wealth that is lost when companies are required to recall

selfish routing in public services it is well observed that individual behaviour can have an effect on the efficiency of queueing systems the impact of this behaviour on the economic efficiency of public services is considered in this paper where we present results concerning the congestion related implications of decisions made by individuals when choosing between facilities the work presented has important managerial implications at a public policy level when considering the effect of allowing individuals to choose between providers we show that in general the introduction of choice in an already inefficient system will not have a negative effect introducing choice in a system that copes with demand will have a negative effect

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

quality disclosure and certification theory and practice this essay reviews the theoretical and empirical literature on quality disclosure and certification after comparing quality disclosure with other quality assurance mechanisms and describing a brief history of quality disclosure we address two sets of theoretical issues first why don t sellers voluntarily disclose through a process of unraveling and given the lack of unraveling is it desirable to mandate seller disclosure second when we rely on certifiers to act as the intermediary of quality disclosure do certifiers necessarily report unbiased and accurate information we further review empirical evidence on these issues with a particular focus on healthcare education and finance the empirical review covers quality measurement the effect of third party disclosure on consumer choice and seller behavior as well as the economics of certifiers jel d18 k32 l15 m31

market forces and commercial aircraft safety this paper investigates the wealth impact on aircraft manufacturers of crashes involving their aircraft the author attempts to separate out the regulatory tort law and endogenous market components of these costs using stock market data the results indicate that on average the manufacturer suffers a wealth loss of 21 3 million as the result of a fatal crash in which the structural integrity of the aircraft is at issue the analysis suggests that not all of this amount can be attributed to regulatory or tort law mechanisms and that market forces play a role in providing air travel safety copyright 1987 by blackwell publishing ltd

the impact of medical liability standards on regional variations in physician behavior evidence from the adoption of national standard rules i explore the association between regional variations in physician behavior and the geographical scope of malpractice standards of care i estimate a 30 50 percent reduction in the gap between state and national utilization rates of various treatments and diagnostic procedures following the adoption of a rule requiring physicians to follow national as opposed to local standards these findings suggest that standardization in malpractice law may lead to greater standardization in practices and more generally that physicians may indeed adhere to specific liability standards in connection with the estimated convergence in practices i observe no associated changes in patient health jel i11 i18 j44 k13 a large literature in health economics and medicine has explored the regional practice patterns of physicians and other medical providers and has endeavored to understand i why some regions spend so much in the care of patients relative to other regions and ii whether high spending regions generate superior health outcomes in this paper i explore a potential contribution to the observed disparities in care that has been suggested by leading theoretical scholars in the area variations literature phelps 1992 but that has yet to be explored empirically laws respecting the geographical nature of the standards of care employed in medical malpractice actions in addition to shedding potentially valuable light on each of the above puzzles this investigation may at the same time offer novel insight into the fundamental question of whether physicians are responsive to the specific standards expected of them under the law a common thread that emerges throughout those studies that have endeavored to explore the causes behind the regional variations phenomenon is the inability

the promise and pitfalls of using imprecise school accountability measures in recent years most states have constructed elaborate accountability systems using school level test scores however because the median elementary school contains only 69 children per grade level such measures are quite imprecise we evaluate the implications for school accountability systems for instance rewards or sanctions for schools with scores at either extreme primarily affect small schools and provide weak incentives to large ones nevertheless we conclude that accountability systems may be worthwhile even in states with aggressive financial incentives the marginal reward to schools for raising student performance is a small fraction of the potential labor market value for students

malpractice law physicians financial incentives and medical treatment how do they interact abstractthe effects of malpractice law and financial incentives on physicians are typically studied independently this paper shows that to make both positive and normative statements about medical malpractice liability one must consider physicians legal and financial incentives jointly i develop a simple model to show that when treatment is unprofitable at the margin mitigation of liability lowers treatment levels conversely when treatment is profitable mitigation of liability raises them motivated by this simple theoretical framework i analyze the impact of a tort reform in texas that mitigated malpractice liability consistent with the theory the rate of cesarean sections among commercially insured mothers for whom the procedure is considered profitable increased by 2 percentage points relative to the rate of cesarean sections among mothers covered by medicaid for whom the procedure is thought to be unprofitable

local smoothness and the price of anarchy in splittable congestion games abstract congestion games are multi player games in which players costs are additive over a set of resources that have anonymous cost functions with pure strategies corresponding to certain subsets of resources in a splittable congestion game each player can choose a convex combination of subsets of resources we characterize the worst case price of anarchy a quantitative measure of the inefficiency of equilibria in splittable congestion games our approximation guarantee is parameterized by the set of allowable resource cost functions and degrades with the degree of nonlinearity of these cost functions we prove that our guarantee is the best possible for every set of cost functions that satisfies mild technical conditions we prove our guarantee using a novel local smoothness proof framework and as a consequence the guarantee applies not only to the nash equilibria of splittable congestion games but also to all correlated equilibria

regional rates of return to education and training in britain bennett r glennerster h and nevison d 1995 regional rates of return to education and training in britain reg studies 29 279 295 using a structural utility maximizing human capital model of the post 16 education and training decision the paper explores rates of return and lifetime earnings that might influence an individual s decision to participate in post compulsory education and training the paper presents ex ante regional rates of return to post 16 further and higher education using information from the general household survey in britain based on the empirical results implications for education and training policy are drawn the model demonstrates that there are important differences between expected rates of return to the same qualification in different regions these returns are influenced by the regional labour market and are likely to have important influences on the incentives of individuals to pursue education or to train the paper also demonstrates the generally low level of diff

does regulation of physicians reduce health care spending the medical community argues that physician fear of legal liability increases health care spending theoretically though the effect could be positive or negative and empirical evidence has supported both cases previous studies however have ignored the fact that physicians face risk from industry oversight groups like state level medical licensing boards in addition to civil litigation risk this article addresses this omission by incorporating previously unused data on punishments by oversight groups against physicians known as adverse actions along with malpractice payments data to study state level health care spending my analysis suggests that contrary to conventional wisdom spending does not rise in response to increased risk an increase in adverse actions of 16 the year to year average is associated with statistically significant annual decreases in state spending on hospital care of approximately 22 million and on prescription drugs of nearly 10 million malpractice payments are estimated to have smaller statistically insignificant effects

first do no harm tort reform and birth outcomes in the 1980s and 1990s many states adopted tort reforms it has been argued that these reforms have reduced the practice of defensive medicine arising from excess tort liability we find that this does not appear to be true for a large and important class of cases childbirth in the united states using data from national vital statistics natality files on millions of individual births from 1989 to 2001 we ask whether specific tort reforms affect the types of procedures that are performed and the health outcomes of mothers and their infants we find that reform of the joint and several liability rule or the deep pockets rule reduces complications of labor and procedure use whereas caps on noneconomic damages increase them we show that these results are consistent with a model of tort reform that explicitly allows for variations in patient condition

intra industry information transfers associated with earnings releases abstract the impact that a firm s earnings releases have on the stock prices of other firms in its industry is examined for an identifiable sub set of firms the results are consistent with a significant information transfer occurring between the earnings release firm and the other firms in its industry this subset is identified by examining the impact of the release on the stock price of the announcing firm the magnitude of this impact is more significant for a sample of firms which have a larger percentage of their revenues in the same line of business as the earnings release firm vis a vis a sample with a lower percentage of their revenues from the same line of business alternative interpretations of the empirical results are also discussed the research findings have implications for information content and market efficiency research and for research on policy issues associated with disclosure regulation

perception spillovers across competing brands a disaggregate model of how and when abstract drawing on the accessibility diagnosticity framework and previous literature on branding and order of entry the authors hypothesize that perception spillovers can also occur across directly competing products that do not share a common brand name the authors suggest two mechanisms prior perception spillover and dynamic perception spillover and one moderating variable product brand similarity to test for spillovers across competing brands the authors develop a structural bayesian learning model and estimate it using prescription choice and marketing communication data from a panel of physicians from their model results the authors find evidence of prior and dynamic perception spillovers across competing brands only when brands are sufficiently similar in contrast they find no evidence of spillover effects across brands that are highly dissimilar finally several policy experiments illustrate the strength and significance of competitive spillovers for product diffusion and from the re

using privileged information to manipulate markets insiders gurus and credibility access to private information is shown to generate both the incentives and the ability to manipulate asset markets through strategically distorted announcements the fact that privileged information is noisy interferes with the public s attempts to learn whether such announcements are honest it allows opportunistic individuals to manipulate prices repeatedly without ever being fully found out this leads us to extend sobel s 1985 model of strategic communication to the case of noisy private signals our results show that when truthfulness is not easily verifiable restrictions on trading by insiders may be needed to preserve the integrity of information embodied in prices

legal systems institutional environment and food safety in the aftermath of the recent food scares the united states and the united kingdom face major challenges to maintain a safe food system regulators on opposite sides of the atlantic are facing rapid product and process innovations changes in consumption behaviors expansion of international trade and discovery of new food hazards the u k and the u s demonstrate different approaches to manage safety risks this article will focus on two issues the reasons behind the differences in the american and english policy approaches to food safety and how these differences impact u s safety outcomes a comparative legal framework is provided to understand how food safety is elicited in the economy and the incentive implications of the different institutional settings these two different lenses because they differ so teach us about the fundamental sources of safety the u k s prevalent doctrine is parliamentary sovereignty and leads to a regulatory framework while the u s is based on constitutional supremacy and relies on a legal framework the source of safety under a regulatory framework is the government bureaucracy while the u s legal framework provides an important point of departure the constitutional standing of the firm and the consumer we argue that while the u k system is structured to work through a regulatory framework to enhance the supply of safety in the economy the u s system is much less directed the legal system the subject of this article plays an important role not only in discouraging breach but also in acting as a check on the discretionary authority of the regulator in the end the u s and the u k may have equally safe food systems but what differs is the fundamental source of the safety supply the practical implication is that safety in the food system emerges from several sources not just through regulation therefore direct importation of u k style regulatory approaches may not be effective within a u s constitutional setting