economic deregulation days of reckoning for microeconomists economic deregulation of american industry is one of the most important experiments in economic policy of our time 1 in 1977 17 percent of u s gnp was produced by fully regulated industries 2 by 1988 following ten years of partial and complete economic deregulation of large parts of the transportation communications energy and financial industries that total had been cut significantly to 6 6 percent of gnp 3 the political forces behind the decision to change the market conditions under which roughly 600 billion of u s output is produced were strong and varied but according to political scientists martha derthick and paul quirk 1985 p 36 deregulation would never have occurred if economists especially microeconomists had not generally supported it through their research 4 in retrospect it is fair to ask were microeconomists able to develop a theoretical and empirical framework to explain regulation and its effects and to form predictions of deregulation s effects were they able to predict the actual effects of deregulation this paper surveys the evidence to address these questions and of

issues every plan to reform health care financing must confront this paper focuses on three main issues of fundamental health care reform first should experience rating the linkage of premiums to actual loss experience be retained despite widespread support for experience rating among economists the paper argues that it should be abandoned for reasons of efficiency and equity second would abandonment of experience rating cause much redistribution the paper shows that redistribution among industries could require significant transitional adjustments third should companies or individuals be subject to an insurance mandate the paper calls for combining individual mandates which have long term advantages with employer mandates which have short run pluses

the generalized multinomial logit model accounting for scale and coefficient heterogeneity the mixed or heterogeneous multinomial logit mixl model has become popular in a number of fields especially marketing health economics and industrial organization in most applications of the model the vector of consumer utility weights on product attributes is assumed to have a multivariate normal mvn distribution in the population thus some consumers care more about some attributes than others and the iia property of multinomial logit mnl is avoided i e segments of consumers will tend to switch among the subset of brands that possess their most valued attributes the mixl model is also appealing because it is relatively easy to estimate recently however some researchers have argued that the mvn is a poor choice for modelling taste heterogeneity they argue that much of the heterogeneity in attribute weights is accounted for by a pure scale effect i e across consumers all attribute weights are scaled up or down in tandem this implies that choice behaviour is simply more random for some consumers than others i e holding attribute coefficients fixed the scale of their error term is greater this leads to a scale heterogeneity mnl model s mnl here we develop a generalized multinomial logit model g mnl that nests s mnl and mixl by estimating the s mnl mixl and g mnl models on 10 data sets we provide evidence on their relative performance we find that models that account for scale heterogeneity i e g mnl or s mnl are preferred to mixl by the bayes and consistent akaike information criteria in all 10 data sets accounting for scale heterogeneity enables one to account for extreme consumers who exhibit nearly lexicographic preferences as well as consumers who exhibit very random behaviour in a sense we formalize below

optimal policies for a capacitated two echelon inventory system this paper demonstrates optimal policies for capacitated serial multiechelon production inventory systems extending the clark and scarf 1960 model to include installations with production capacity limits we demonstrate that a modified echelon base stock policy is optimal in a two stage system when there is a smaller capacity at the downstream facility this is shown by decomposing the dynamic programming value function into value functions dependent upon individual echelon stock variables we show that the optimal structure holds for both stationary and nonstationary stochastic customer demand finite horizon and infinite horizon results are included under discounted cost and average cost criteria

estimation of returns to scale using data envelopment analysis a comment banker 1984 introduced the idea that the sum of the intensity variables in the dea activity analysis model can be used to identify returns to scale a counterexample in chang and guh 1991 shows that banker s method may fail this prompted banker and thrall 1992 to develop an alternative approach to estimate scale efficiency using dea seemingly unaware of the work by byrnes fare and grosskopf 1984 fare grosskopf and lovell 1985 1994 and fare and grosskopf 1985 etc on the same topic their new approach is very similar to the methodology originated in these references the purpose of this comment is to make our method known and to contrast it to the banker and thrall 1992 approach

order quantity and timing flexibility in supply chains the role of demand characteristics we study how differences in product demand characteristics affect the strategic value of different types of supply chain flexibility for accurate response we propose a single period inventory modelling framework with two ordering opportunities the second order reflects updated demand information and potentially capitalizes on supply chain flexibility we consider two complementary forms of flexibility quantity flexibility in production and timing flexibility in scheduling in this framework we analyze the total inventory cost of a firm for alternate demand types we model functional products through the standard assumption of independent demand over the period fashion driven innovative products through a bayesian model and innovative products with evolving demand through a martingale process the three demand processes exhibit very different behavior with respect to the value of the alternate forms of flexibility we observe that quantity flexibility is of moderate value for functional goods and of high value for fashion driven products for all lead times quantity flexibility is of low value for goods with evolving demand with long lead times but of high value for short lead times alternately we observe timing flexibility is of highest value for functional goods especially for cases of high holding cost and is of lesser value for fashion driven goods it is of least value for goods with evolving demand both quantity and timing flexibility capabilities are required to significantly reduce the relevant supply chain costs for evolving demand innovative goods when the lead times are long

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

critical number policies for inventory models with periodic data we consider an infinite horizon in problem with stochastic demands where the data vary periodically karlin karlin s 1960a dynamic inventory policy with varying stochastic demands management sci 6 231 258 karlin s 1960b optimal policy for dynamic inventory process with stochastic demands subject to seasonal variations j siam8 611 629 shows that a periodic critical number policy is optimal and presents an algorithm for computing the critical numbers assuming discounted costs here we develop an alternative conceptually simpler approach to these problems the results include a proof of the optimality of such policies for the average cost case and a qualitative description of the behavior of the optimal policy as smoothing fluctuations in the data

managing a noncooperative supply chain with limited capacity we consider a two stage serial supply chain with capacity limits where each installation is operated by managers attempting to minimize their own costs a multiple period model is necessitated by the multiple stages capacity limits stochastic demand and the explicit consideration of inventories with appropriate salvage value functions a markov equilibrium policy is found intuitive profit dominance allows for existence of a unique equilibrium solution which is shown to be a modified echelon base stock policy this equilibrium policy structure is sustained in the infinite horizon a numerical study compares the behavior of the decentralized system with the first best integrated capacitated system the performance of this decentralized system relative to the integrated system across other parameters can be very good over a broad range of values this implies that an acceptable system performance may be attained without the imposition of a contract or other coordinating mechanism which themselves may encounter difficulties in implementation in the form of negotiation execution or enforcement of these agreements we find instances where tighter capacities may actually enhance channel efficiency we also examine the effect of capacity utilization on the system suboptimality

a periodic review production planning model with uncertain capacity and uncertain demand optimality of extended myopic policies increasing product complexity manufacturing environment complexity and an increased emphasis on product quality are all factors leading to uncertainties in production processes these uncertainties are in the form of unplanned machine maintenance varying production yields and rework among others in planning for production an adequate model must incorporate these uncertainties into the representation of the production process this paper treats the aggregate planning problem for a single product with random demand and random capacity in the single period problem random capacity does not affect the optimal policy but results in a unimodal nonconvex cost function in the multiple period and infinite horizon settings order up to policies that are dependent on the distribution of capacity are shown to be optimal in spite of a nonconvex cost in the infinite horizon setting an intuitive description of the situation leads to the notion of a class of extended myopic policies requiring the consideration o

hospital profits the effects of reimbursement policies this paper provides a theoretical and empirical analysis of the effect of cost based reimbursement cbr on hospital costs and charges it takes issue with previous analyses which have treated cbr as paying economic costs plus a mark up and have concluded that the mark up is too small to significantly distort hospital decision making the basic thesis here is that if reimbursement is based on costs accounting costs become a price to cost paying patients and will be optimized to maximize revenue a hospital serving both cost and charge paying private patients can set two price schedules accounting profits ratio of charges to costs are not a measure of economic profit but of relative prices to these two groups of patients in the absence of constraints from regulation or patient co payment the optimum level of accounting costs would be infinite in practice the medicare reimbursement formula links allowable costs to charges received from charge paying patients this formula creates incentives for the hospital to raise charges above the single price profit maximizing monopoly level this inflationary effect of the medicare formula does not presuppose that medicare pays less than full cost the empirical analysis of hospital laboratory costs and charges generally supports the predictions for other departments the conclusions are consistent but more tentative because of data limitations overall evidence suggests minimal cross subsidy between cost and charge paying patients comparisons of cost and charge levels in for profit voluntary non profit and government hospitals are presented but it is emphasized that inferences about relative efficiency and profitability cannot be drawn from accounting data given the incentives created by cbr

computing economies of vertical integration economies of scope and economies of scale using partial frontier nonparametric methods abstract so far in the nonparametric literature only full frontier nonparametric methods have been applied to search for economies of scope and scale particularly the data envelopment analysis method dea however these methods present some drawbacks that might lead to biased results this paper proposes a methodology based on more robust partial frontier nonparametric methods to look for scope and scale economies through this methodology it is possible to assess the robustness of these economies and in particular to assess the influence that extreme data or outliers might have on them the influence of the imposition of convexity on the production set of firms was also investigated this methodology was applied to the water utilities that operated in portugal between 2002 and 2008 there is evidence of economies of vertical integration and economies of scale in drinking water supply utilities and in water and wastewater utilities operating mainly in the retail segment economies of scale were found in water and wastewater utilities operating exclusively in the wholesale and in some of these utilities diseconomies of scope were also found the proposed methodology also allowed us to conclude that the existence of some smaller utilities makes the minimum optimal scales go down

quality vs quantity in military procurement it is often argued that the same expenditures on military procurement would produce a more effective defense if larger numbers of less sophisticated and thus cheaper weapons were purchased this paper shows that such a result can occur even if the military derives no private consumption value from technically sophisticated weapons rather the organization of the decision making process itself can produce this result this suggests some possible solutions through organizing decision making in a different fashion copyright 1990 by american economic association

on testing the utility hypothesis in order to be able to conduct a test of the core utility hypothesis that is not confounded with tests of subsidiary hypotheses that economic agents all have the same preferences and that their preferences are weakly separable it is necessary to use data that are disaggregated and complete in order to carry out a utility hypothesis test with complete data revealed preference theory must first be extended the generalised axiom of revealed preference is extended to include labour supply and portfolio choice then a complete disaggregated data set is used to test the utility hypothesis and two preference separability hypotheses

optimal policies for multiechelon inventory problems with markov modulated demand this paper considers a multistage serial inventory system with markov modulated demand random demand arises at stage 1 stage 1 orders from stage 2 etc and stage n orders from an outside supplier with unlimited stock the demand distribution in each period is determined by the current state of an exogenous markov chain excess demand is backlogged linear holding costs are incurred at every stage and linear backorder costs are incurred at stage 1 the ordering costs are also linear the objective is to minimize the long run average costs in the system the paper shows that the optimal policy is an echelon base stock policy with state dependent order up to levels an efficient algorithm is also provided for determining the optimal base stock levels the results can be extended to serial systems in which there is a fixed ordering cost at stage n and to assembly systems with linear ordering costs

capacitated multi item inventory systems with random and seasonally fluctuating demands implications for postponement strategies we address multi item inventory systems with random and seasonally fluctuating and possibly correlated demands the items are produced in two stages each with its own lead time in the first stage a common intermediate product is manufactured the production volumes in the first stage are bounded by given capacity limits we develop an accurate lower bound and close to optimal heuristic strategies of simple structure the gap between them evaluated in an extensive numerical study is on average only 0 45 we use the model to investigate the benefits of various delayed product differentiation postponement strategies as well as other strategic questions including i the benefits of flexible versus dedicated production facilities ii the trade off between capacity and inventory investments and iii the trade off between capacity investments and service levels

inventory control with limited capacity and advance demand information manufacturers make production decisions and carry inventory to satisfy uncertain demand when holding and shortage costs are high carrying inventory could be even more expensive for acapacitated production system recent developments in information technology and sales strategies enabled firms to acquire collect or induce advance demand information we address a periodic review stochastic capacitated finite and infinite horizon production system faced by a manufacturer who has the ability to obtain advance demand information we establish optimal policies and characterize their behavior with respect to capacity fixed costs advance demand information and the planning horizon with a numerical study we quantify the value of advance demand information and additional capacity for specific problem instances we illustrate how advance demand information can be a substitute for capacity and inventory

optimal production and inventory policy for multiple products under resource constraints we show that a modified base stock policy is optimal for multiproduct infinite horizon production inventory systems where demand for the products is random and the products share a finite resource every period we characterize the optimal policy for the case of homogeneous products because of the difficulty in computing the optimal base stock levels for the heterogeneous case we propose a heuristic that is simple enough for practical applications we present numerical results that suggest that the heuristic yields near optimal solutions

do physicians financial incentives affect medical treatment and patient health we investigate whether physicians financial incentives influence health care supply technology diffusion and resulting patient outcomes in 1997 medicare consolidated the geographic regions across which it adjusts physician payments generating area specific price shocks areas with higher payment shocks experience significant increases in health care supply on average a 2 percent increase in payment rates leads to a 3 percent increase in care provision elective procedures such as cataract surgery respond much more strongly than less discretionary services non radiologists expand their provision of mris suggesting effects on technology adoption we estimate economically small health impacts albeit with limited precision

inventory control with markovian capacity and the option of order rejection we consider a stochastic inventory control problem with markovian capacity and the option of order rejection we show its optimal policy to be the combination of a capacity dependent modified base stock production policy and a capacity dependent critical point order acceptance policy when capacity is stochastically monotone we show that the policy parameters change over the current capacity level in an intuitive way all these results can be extended to the infinite horizon case with or without cost discounting our computational study substantiates the benefits from both exploiting the markovian behavior of the capacity and rejecting orders when necessary

risk sharing in supply chains using order bands analytical results and managerial insights abstract this work generalizes and extends a number of basic production inventory models we study a periodic review non stationary markovian production inventory model with stochastic demand and holding and penalty costs all state dependent where goods can be procured from up to two suppliers each supplier quotes a state dependent minimum order quantity moq order capacity c and unit price we concentrate on a base stock policy that is defined by a vector of numbers one for each lead time indexed by the states of the markov chain in certain cases our policy is optimal for the general case we show that there is no simple optimal policy we use infinitesimal perturbation analysis to compute inventory levels within this class for an application motivated by international trade for this application we find that the imposition of minimum and or maximum order quantities provides an effective mechanism for risk sharing the customer guarantees the supplier a minimum order every period at an increased unit price and in exchange the supplier grants an increase in capacity this can more effectively match supply with demand making the entire supply chain more profitable

full scale real tests of consumer behavior using experimental data abstract this paper reports on the results of three experiments based on the neoclassical theory of consumer behavior all these experiments were carried out with the aim of simulating real world behavior nonparametric tests applying the theory of revealed preference show that a significant number of individuals exhibit inconsistent behavior if nearly optimizing behavior is postulated then most of these inconsistencies disappear but random choices produce almost the same results the hypothesis of a representative consumer statistical average behavior seems a more fruitful approach

large deviations based asymptotics for inventory control in supply chains we consider a model of a capacitated single class supply chain consisting of production facilities stages in tandem external demand is met from the available finished goods inventory maintained in front of the most downstream facility unsatisfied demand is backlogged every stage orders from its upstream facility thus production is constrained by the local production capacity and the availability of upstream inventory we propose production policies in two separate cases 1 when each facility has information about its local inventory only and 2 when each facility has knowledge of the total downstream inventory in case 1 the proposed policy guarantees that stockout probabilities at each stage stay bounded below given constants service level constraints in case 2 the proposed policy minimizes total expected inventory cost subject to desirable service level constraints in both cases the parameters of the proposed policies are obtained analytically based on large deviations asymptotics which leads to drastic computational savings compared to simulation an important feature of our model is that it accommodates autocorrelated demand and service processes both critical features of modern failure prone manufacturing systems we demonstrate that detailed distributional information on demand and service processes which is incorporated into large deviations asymptotics is critical in inventory control decisions we discuss extensions to a multiclass setting and to a model where unsatisfied demand is lost instead of backordered

a non stationary periodic review production inventory model with uncertain production capacity and uncertain demand abstract in this paper we consider a nonstationary periodic review dynamic production inventory model with uncertain production capacity and uncertain demand the maximum production capacity varies stochastically it is known that order up to or base stock critical number policies are optimal for both finite horizon problems and infinite horizon problems we obtain upper and lower bounds of the optimal order up to levels and show that for an infinite horizon problem the upper and the lower bounds of the optimal order up to levels for the finite horizon counterparts converge as the planning horizons considered get longer furthermore under mild conditions the differences between the upper and the lower bounds converge exponentially to zero

non parametric tests of consumer behaviour the neoclassical model of consumer behaviour postulates that a consumer s choice behaviour can be described as deriving from utility maximization subject to a budget constraint one is then naturally led to ask what this model implies about observed behaviour this question has been addressed from two quite distinct approaches the first approach originating in the work of slutsky 1915 and antonelli 1886 derives necessary and sufficient conditions involving the derivatives of the demand functions the second approach originating in the work of samuelson 1938 1947 1948 derives algebraic conditions on the demand functions implied by maximizing behaviour

optimal commodity trading with a capacitated storage asset this paper considers the so called warehouse problem with both space and injection withdrawal capacity limits this is a foundational problem in the merchant management of assets for the storage of commodities such as energy sources and natural resources when the commodity spot price evolves according to an exogenous markov process this work shows that the optimal inventory trading policy of a risk neutral merchant is characterized by two stage and spot price dependent basestock targets under some assumptions these targets are monotone in the spot price and partition the available inventory and spot price space in each stage into three regions where it is respectively optimal to buy and inject do nothing and withdraw and sell in some cases of practical importance one can easily compute the optimal basestock targets the structure of the optimal policy is nontrivial because in each stage the merchant s qualification of high selling and low buying commodity prices in general depends on the merchant s inventory availability this is a consequence of the interplay between the capacity and space limits of the storage asset and brings to light the nontrivial nature of the interface between trading and operations a computational analysis based on natural gas data shows that mismanaging this interface can yield significant value losses moreover adapting the merchant s optimal trading policy to the spot price stochastic evolution has substantial value this value can be almost entirely generated by reacting to the unfolding of price uncertainty that is by sequentially reoptimizing a model that ignores this source of uncertainty

the interaction between forms of insurance contract and types of technical change in medical care a simple three parameter description of medical technology is introduced to investigate the relationships between technical change welfare and type of insurance contract the value of a particular change in technology depends on the existing form of contract the marginal equilibrium expected utility to consumers of different types of technical change hinges on the manner in which the insurance arrangement is designed to mitigate moral hazard these results open the way for a positive model of the effects of insurance arrangements on the types of technology that are adopted and the effects of technical changes on the prevalent forms of insurance contract

risk selection and the specification of the conventional risk adjustment formula we argue that a sharp distinction must be made between the empirical problem of finding the best equation for explaining medical expenditures and the normative question of deriving capitations which give health plans the appropriate incentives we propose a procedure taken from the social choice literature to go from the estimated equations to the capitations if the estimated equations are not additively separable in legitimate and illegitimate risk adjusters it is impossible to remove all incentives for risk selection while respecting at the same time a straightforward requirement of horizontal equity this has immediate implications for the choice of the functional form moreover in so far as the conventional risk adjustment literature only includes so called legitimate risk adjusters in the estimations its results may suffer from omitted variables bias we illustrate our general methodological points with empirical results obtained from a cross section of 321 111 belgian patients

a capacitated production inventory model with periodic demand for a single product single stage capacitated production inventory model with stochastic periodic cyclic demand we find the optimal policy and characterize some of its properties we study the finite horizon the discounted infinite horizon and the infinite horizon average cases a simulation based optimization method is provided to compute the optimal parameters based on a numerical study several insights into the model are also provided

value of information in capacitated supply chains we incorporate information flow between a supplier and a retailer in a two echelon model that captures the capacitated setting of a typical supply chain we consider three situations 1 a traditional model where there is no information to the supplier prior to a demand to him except for past data 2 the supplier knows the s s policy used by the retailer as well as the end item demand distribution and 3 the supplier has full information about the state of the retailer order up to policies continue to be optimal for models with information flow for the finite horizon the infinite horizon discounted and the infinite horizon average cost cases study of these three models enables us to understand the relationships between capacity inventory and information at the supplier level as well as how they are affected by the retailer s s s values and end item demand distribution we estimate the savings at the supplier due to information flow and study when information is most beneficial

employee choice of health insurance a new specification of health insurance plan choice is developed that uses a nonparametric functional form for the loss function used to evaluate insurance premiums and uncertain out of pocket expenditure the approach is implemented on data resulting from one firm s implementation of a new health plan with three distinct health insurance options health expenditure differences greater than 500 percent are observed indicating extremely strong biased selection plan choices are consistent with a convex loss function for small losses which suggests that consumers underweight high loss low probability outcomes relative to low loss high probability ones copyright 1989 by mit press

inventory control in a fluctuating demand environment we present an inventory model where the demand rate varies with an underlying state of the world variable this variable can represent economic fluctuations or stages in the product life cycle for example we derive some basic characteristics of optimal policies and develop algorithms for computing them in addition we show that certain monotonicity patterns in the problem data are reflected in the optimal policies

coordination mechanisms of supply chain systems supply chain management scm has become an important management paradigm as supply chain members are often separate and independent economic entities a key issue in scm is to develop mechanisms that can align their objectives and coordinate their activities so as to optimize system performance in this paper we provide a review of coordination mechanisms of supply chain systems in a framework that is based on supply chain decision structure and nature of demand this framework highlights the behavioral aspects and information need in the coordination of a supply chain the identification of these issues points out several directions of future research in this area

who is more rational we report on the results of a large scale field experiment that enables us to test for consistency with utility maximizing behavior and to investigate the correlation between individual behavior and demographic and economic characteristics we conducted the experiment with the centerpanel a representative sample of over 2 000 dutch households using procedures similar to those used by choi et al 2007b in a setting with risk we find a high level of consistency in the individual level decisions there is also considerable heterogeneity in subjects consistency scores high income and high education subjects display greater levels of consistency men are more consistent than women and young subjects are more consistent than those who

measuring economies of vertical integration in network industries an application to the water sector this paper provides a framework that aims at distinguishing the technological economies of vertical integration from the vertical economies resulting from an inefficient input allocation due to upstream market imperfections to illustrate our analysis we use consistent panel data econometric methods to estimate cost functions on a sample of north american water utilities contrary to what has been found for other network industries electricity and gas for instance we show that the global and technological economies of vertical integration are not significant except for the smallest utilities

efficiency decomposition and aggregation in network data envelopment analysis abstract network data envelopment analysis dea is extended from conventional dea to explore the internal structure of network production systems so that the efficiencies are measured more appropriately there are two approaches for discussing the relationships between the system and division efficiencies efficiency decomposition and efficiency aggregation this paper develops a relational model from the viewpoint of efficiency decomposition to derive the relationships between the system and division efficiencies for network systems the system efficiency can be decomposed into a weighted average of the division efficiencies adjusted by a factor and the efficiency of the system is less than the weighted average of those of the divisions the major league baseball example that has been discussed in the literature is used to illustrate the idea presented in this paper the results of the efficiency decomposition model are compared to those obtained from an efficiency aggregation model that defines the aggregate efficiency of the divisions to be the system efficiency this system efficiency is found to be very close to a measure contained in the proposed model the proposed model can thus be used for both efficiency decomposition and aggregation

the price ain t right hospital prices and health spending on the privately insured we use insurance claims data for 27 6 percent of individuals with private employer sponsored insurance in the us between 2007 and 2011 to examine the variation in health spending and in hospitals transaction prices we document the variation in hospital prices within and across geographic areas examine how hospital prices influence the variation in health spending on the privately insured and analyze the factors associated with hospital price variation four key findings emerge first health care spending per privately insured beneficiary varies by a factor of three across the 306 hospital referral regions hrrs in the us moreover the correlation between total spending per privately insured beneficiary and total spending per medicare beneficiary across hrrs is only 0 14 second variation in providers transaction prices across hrrs is the primary driver of spending variation for the privately insured whereas variation in the quantity of care provided across hrrs is the primary driver of medicare spending variation consequently extrapolating lessons on health spending from medicare to the privately insured must be done with caution third we document large dispersion in overall inpatient hospital prices and in prices for seven relatively homogenous procedures for example hospital prices for lower limb mris vary by a factor of twelve across the nation and on average two fold within hrrs finally hospital prices are positively associated with indicators of hospital market power even after conditioning on many demand and cost factors hospital prices in monopoly markets are 15 3 percent higher than those in markets with four or more hospitals

reimbursing health plans and health providers efficiency in production versus selection the tradeoff between an insurer s or medical provider s incentives to select good risks and to produce efficiently is governed by the supply price analog to the demand price tradeoff between moral hazard and risk aversion under a variety of models the optimum supply price is a mixture of capitation and fee for service payments empirical literature shows that pure capitation payment leaves strong incentives for selection that are acted upon the presence of contracting costs in a rothschild stiglitz model means a limited pooling equilibrium can exist and that poor risks will not be at their preferred outcome

competition and efficiency in the end stage renal disease program abstract estimated coefficients for medical service production or cost functions are subject to a competitive amenity bias which may result in the failure to identify factors that affect economic efficiency our investigation of productivity of dialysis facilities did indeed indicate both the likelihood of bias and some qualitative results these results suggest that it will be difficult to estimate cost and that variation in the level of reimbursement will in competitive markets affect the level of amenity delivered to patients incurred cost amenity and patient well being will all vary positively with the reimbursement level determining the right level of reimbursement requires a policy decision on how much total amenity society wishes to deliver to beneficiaries of public programs

how revealing is revealed preference this lecture address the following two key criticisms of the empirical application of revealed preference theory when the rp conditions do not reject they do not provide precise predictions and when they do reject they do not help characterize the nature of irrationality or the degree direction of changing tastes recent developments in the application of rp theory are shown to have rendered these criticisms unfounded a powerful test of rationality is available that also provides a natural characterization of changing tastes tight bounds on demand responses and on the welfare costs of relative price and tax changes are also available and are shown to work well in practice

simultaneous capacity and production management of short life cycle produce to stock goods under stochastic demand this paper derives the optimal simultaneous capacity and production plan for a shortlife cycle produce to stock good under stochastic demand capacity can be reduced as well as added at exogenously set unit prices in both cases studied with and without carryover of unsold units a target interval policy is optimal there is a usually different target interval for each period such that capacity should be changed as little as possible to bring the level available into that interval our contribution in the case of no carry over is a detailed characterization of the target intervals assuming demands increase stochastically at the beginning of the life cycle and decrease thereafter in the case of carry over we establish the general result and show that capacity and inventory are economic substitutes the target intervals decrease in the initial stock level and the optimal unconstrained base stock level decreases in the capacity level in both cases optimal service rates are not necessarily constant over time a numerical example illustrates the results

optimal joint inventory and transshipment control under uncertain capacity in this paper we address the optimal joint control of inventory and transshipment for a firm that produces in two locations and faces capacity uncertainty capacity uncertainty e g due to downtime quality problems yield etc is a common feature of many production systems but its effects have not been explored in the context of a firm that has multiple production facilities we first characterize the optimal production and transshipment policies and show that uncertain capacity leads the firm to ration the inventory that is available for transshipment to the other location and characterize the structure of this rationing policy then we characterize the optimal production policies at both locations which are defined by state dependent produce up to thresholds we also describe sensitivity of the optimal production and transshipment policies to problem parameters and in particular explain how uncertain capacity can lead to counterintuitive behavior such as produce up to limits decreasing for locations that face stochastically higher demand we finally explore through a numerical study when the optimal policy is most likely to yield significant benefits compared to simple policies

the efficiency of the public intervention on the environment evidence based on non parametric and parametric approaches abstract this paper evaluates the efficiency of the allocation of public resources aimed at complying with the european environmental directives a full and partial frontier data envelopment analysis dea is applied to a panel of decision making units i e a set of regions with a specific focus on the air water and biodiversity sectors the malmquist productivity index allows one to analyse regional productivity change while a post dea based upon simar wilson approach allows one to explore the factors that affect the performance overall a specific group of regions outperform for air water intervention while the reverse outcome is obtained for biodiversity the findings also show a rather low technological change especially for biodiversity the post dea indicates that an increase in the tourism and agricultural activity exerts a negative impact on the air water public efficiency while has a positive influence on biodiversity higher education in technical subjects also increases performance

does medicare save lives health insurance characteristics shift at age 65 as most people become eligible for medicare we measure the impacts of these changes on patients who are admitted to hospitals through emergency departments for conditions with similar admission rates on weekdays and weekends the age profiles of admissions and comorbidities for these patients are smooth at age 65 suggesting that the severity of illness is similar on either side of the medicare threshold in contrast the number of procedures performed in hospitals and total list charges exhibit small but statistically significant discontinuities implying that patients over 65 receive more services we estimate a nearly 1 percentage point drop in 7 day mortality for patients at age 65 equivalent to a 20 reduction in deaths for this severely ill patient group the mortality gap persists for at least 9 months after admission

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

the incidence of mandated maternity benefits i consider the labor market effects of mandates which raise the costs of employing a demographically identifiable group the efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group specific wages i study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans raising the relative cost of insuring women of childbearing age i find substantial shifting of the costs of these mandates to the wages of the targeted group correspondingly i find little effect on total labor input for that group jel 118 j32 h51 in an era of tight fiscal budget constraints mandating employer provision of workplace benefits to employees is an attractive means for a government to finance its policy agenda consequently in recent years there has been a growth of interest in mandated benefits as a tool of social policy for example the centerpiece of president bill clinton s health care proposal is mandated employer provision of health insurance and more than 20 states have man

using scheduled ordering to improve the performance of distribution supply chains we study a supply chain with one supplier and many retailers that face exogenous end customer demands the supplier and the retailers all try to minimize their own inventory related costs in contrast to the retailers newsvendor type ordering behavior under which retailers may place orders freely in every period we propose two scheduled ordering policies the scheduled balanced ordering policy sbop and the scheduled synchronized ordering policy ssop under both the sbop and ssop retailers are allowed to order freely only in one period of an ordering cycle and receive fixed shipments in other periods retailers take turns to order freely under the sbop while under the ssop all retailers order freely in the same period with the average supply chain cost per period as the performance measure we identify mathematical conditions under which scheduled ordering policies outperform the newsvendor type ordering through a large scale numerical study we find that scheduled ordering policies are most effective when i the supplier s holding and expediting costs are high and the retailer s backorder cost is small ii the end customer demand variance and correlation are high and iii the supplier s capacity is high in addition we observe that the behavior of the ssop often complements that of the sbop whereas the sbop is better than ssop when the supplier s capacity is low and when the end customer demand correlation level is high the ssop is better when the opposite conditions prevail

economies of diversification in the banking industry abstract this paper defines a new measure economies of diversification to examine the cost effect of product line expansion this measure is a special case of expansion path subadditivity and contains economies of scope as a special case a nonparametric frontier technique which isolates the effects of inefficiency and scale is used to measure economies of diversification applied to a set of 468 u s depository institutions operating in 1984 we find slight diseconomies of diversification diseconomies of diversification and inefficiency due to the overutilization of resources are found to be more important determinants of bank costs than is the failure to operate at optimal scale

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

ramsey pricing and supply side incentives in physician markets in this paper i develop a theory of optimal prices using a relative value scale where there are fixed costs of medical practice i consider a regulator constrained to set prices in excess of marginal cost in markets where physicians can create demand at the margin under these conditions basing prices on physician costs alone is shown to be suboptimal instead prices should anticipate the behavior of physicians by setting profit margins highest for services least susceptible to demand creation this is equivalent to a form of ramsey pricing used in this case to minimize the deadweight loss of oversupply

a production inventory system with markovian capacity and outsourcing option we study the optimal production inventory outsourcing policy for a firm with markovian in house production capacity that faces independent stochastic demand and has the option to outsource we find very simple optimal policy forms under fairly reasonable assumptions in addition when the capacity markov process is stochastically monotone the policy parameters decrease in the firm s current capacity level under additional assumptions all these results extend to the infinite horizon and undiscounted cost cases we analyze comparative statics and the necessity of some technical conditions and discuss when the outsourcing option is more valuable

average cost single stage inventory models an analysis using a vanishing discount approach an important problem in the theory of dynamic programming is that of characterizing sufficient conditions under which the optimal policies for markov decision processes mdps under the infinite horizon discounted cost criterion converge to an optimal policy under the average cost criterion as the discount factor approaches 1 in this paper we provide for stochastic inventory models a set of such sufficient conditions these conditions unlike many others in the dynamic programming literature hold when the action space is noncompact and the underlying transition law is weakly continuous moreover we verify that these conditions hold for almost all conceivable single stage inventory models with few assumptions on cost and demand parameters as a consequence of our analysis we partially characterize for the first time optimal policies for the following inventory systems under the infinite horizon average cost criterion which have thus far been a challenge a capacitated systems with setup costs b uncapacitated systems with convex ordering costs plus a setup cost and c systems with lost sales and lead times

a scale elasticity measure for directional distance function and its dual theory and dea estimation abstract in this paper we focus on scale elasticity measure based on directional distance function for multi output multi input technologies explore its fundamental properties and show its equivalence with the input oriented and output oriented scale elasticity measures we also establish duality relationship between the scale elasticity measure based on the directional distance function with scale elasticity measure based on the profit function finally we discuss the estimation issues of the scale elasticity based on the directional distance function via the dea estimator

economies of scope in the health sector the case of portuguese hospitals abstract background economies of scope are defined as the potential cost savings arising from the joint production of two or more outputs rather than their separate production given the importance of the health sector for the community measuring the existence of potential economies of scope contributes to the improvement of this sectors sustainability objective s to identify economies of scope in portuguese hospitals using frontier based methods methods this paper develops 1 a generalized algorithm to obtain locally convex frontiers using the directional order ldo frontier method and 2 a generalized economies of scope based ratio that allows the introduction of any inefficiency source data this paper uses the 2002 2009 dataset for portuguese hospitals concerning the provision of obstetrics gynaecology and paediatrics ogp and psychiatric psy services results considerable economies and diseconomies of scope were found in the portuguese public hospitals a considerable dependence on the production line and on the merger status of the hospital was observed diseconomies of scope were more likely for larger hospitals i e those with more than 6000 inpatient discharges and or 7500 medical appointments per year conclusions even merged hospitals can exploit economies of scope however when they become outsized entities such efforts become more difficult

analysis of batch ordering inventory models with setup cost and capacity constraint abstract stochastic periodic review batch ordering inventory problems appear in many industrial settings however few literature deals with the optimal ordering polices for such problems no mention to the inclusion of the fixed ordering cost and the production capacity in this paper we consider a single item periodic review batch ordering inventory system with the consideration of the setup cost and the capacity constraint for each order over a finite planning horizon by proposing several new convex notions we show that a batch based s s policy is optimal for the unlimited ordering capacity case while for the limited ordering capacity case a modified r q policy is optimal for the setting with zero ordering setup cost and a batch based x y band policy for the setting with positive ordering setup cost moreover we analytically study the sensitivity of the policy parameters with respect to the capacity and batch order size and derive the bounds on the optimal policy parameters we further extend our analysis to the infinite horizon setting and show that the structure of the optimal policy remains similar finally the numerical experiments provide some insights into the impact of model parameters on the benefit of reducing the batch size and increasing the ordering capacity and indicate that ignoring batch requirement may lead to a significant cost increment

stability in the federal employees health benefits program recently the federal employees health benefits program has been the subject of much discussion in washington as a result of the rather large premium increases in 1982 and 1983 the delayed open season of 1981 and the benefit reductions enrollees responded in may 1982 to the changes a record number switched plans it appears that enrollees were simply responding to the new premiums and benefits in this paper we describe the economic incentives faced by enrollees in the fehbp we find that due to the strong incentives for enrollees to leave certain high cost plans continued instability should be expected in fact the disparity between expected benefits and premium is so great for some plans e g the blue cross high option that their survival is questionable this lack of stability raises important questions about the viability of some pro competition proposals involving multiple insurer systems

are patient regarding preferences stable evidence from a laboratory experiment with physicians and medical students from different countries abstract we quantify patient regarding preferences by fitting a bounded rationality model to data from an incentivized laboratory experiment where chinese medical doctors german medical students and chinese medical students decide under different payment schemes we find a remarkable stability in patient regarding preferences when comparing subject pools and we cannot reject the hypothesis of equal patient regarding preferences in the three groups the results suggest that a health economic experiment can provide knowledge that reach beyond the student subject pool and that the preferences of decision makers in one cultural context can be of relevance in a very different cultural context

does contracting out increase the efficiency of government programs evidence from medicaid hmos state governments contract with health maintenance organizations hmos to coordinate medical care for nearly 20 million medicaid recipients identifying the causal effect of hmo enrollment on government spending and health care quality is difficult if as is often the case recipients have the option to enroll in a plan to estimate the average effect of hmo enrollment this paper exploits county level mandates introduced during the last several years in the state of california that required most medicaid recipients to enroll in a managed care plan the empirical results demonstrate that the resulting switch from fee for service to managed care was associated with a substantial increase in government spending but no corresponding improvement in infant health outcomes the findings cast doubt on the hypothesis that hmo contracting has reduced the strain on government budgets

internal consistency of choice internal consistency of choice has been a central concept in economics decision theory and social choice this idea is essentially confused we cannot determine whether a choice function is consistent without referring to something external to choice e g objectives values the standard results have to be reexamined in this light kenneth j arrow s general possibility theorem is extended in this paper without demanding any internal consistency of social choice or any notion of social rationality copyright 1993 by the econometric society

driving forces for consolidation or fragmentation of the us water utility industry a cost function approach with endogenous output abstract this paper empirically analyzes the structure of the us water industry using a multiproduct flexible cost function model with the amount of water delivered to final consumers recognized as endogenous the cross sectional econometric analysis focuses on measures of cost economies in water production and their variation with network characteristics the estimates reveal considerable scale economies in terms of volume particularly for small utilities that tend to have less output density these economies are however counteracted by simultaneous increases in customers and service area size especially for large utilities overall our results indicate that consolidation of small utilities might generate cost efficiencies depending on the concurrent expansion of the network but consolidation of already large utilities without corresponding increases in output density is not likely to be cost effective

dynamic learning and context dependence in sequential attribute based stated preference valuation questions a hybrid stated preference model is presented that combines the referendum contingent valuation response format with an experimentally designed set of attributes a sequence of valuation questions is asked to a random sample in a mailout mail back format econometric analysis shows greater discrimination between alternatives in the final choice in the sequence and the vector of preference parameters shifts lead and lag choice sets have a structural influence on current choices and unobserved factors induce positive correlation across the responses these results indicate that people learn about their preferences for attributebased environmental goods by comparing attribute levels across choice sets

the threat of cream skimming in the post reform nhs the allocation of budgets to general practitioners to enable them to purchase selected hospital services has been one of the most imaginative elements of the recent national health service reforms in britain however reliance on historic costs budgeting has weakened the efficiency incentives of fund holding while perpetuating the large variations in resource use endemic in general practice on the other hand policy changes aimed to introduce elements of capitation funding although welcome raise the spectre of cream skimming the paper explores the potential for protection against cream skimming offered by incorporating chronic health factors into the formula

a decomposition approach for a class of capacitated serial systems we study a class of two echelon serial systems with identical ordering production capacities or limits for both echelons demands are assumed to be integer valued for the case where the lead time to the upstream echelon is one period the optimality of state dependent modified echelon base stock policies is proved using a decomposition approach for the case where the upstream lead time is two periods we introduce a new class of policies called two tier base stock policies and prove their optimality some insight about the inventory control problem in n echelon serial systems with identical capacities at all stages and arbitrary lead times everywhere is also provided we argue that a generalization of two tier base stock policies which we call multitier base stock policies are optimal for these systems we also provide a bound on the number of parameters required to specify the optimal policy

bullwhip effect measurement and its implications the bullwhip effect or demand information distortion has been a subject of both theoretical and empirical studies in the operations management literature in this paper we develop a simple set of formulas that describe the traditional bullwhip measure as a combined outcome of several important drivers such as finite capacity batch ordering and seasonality our modeling framework is descriptive in nature as it features certain plausible approximations that are commonly employed in practical inventory systems the results are nonetheless compelling and can be used to explain various conflicting observations in previous empirical studies building on the theoretical framework we discuss the managerial implications of the bullwhip measurement we show that the measurement can be completely noninformative about the underlying supply chain cost performance if it is not linked to the operational details such as decision intervals and leadtimes specifically we show that an aggregated measurement over relatively long time periods can mask the operational level bullwhip in addition we show that masking also exists under product or location aggregation in some illustrative cases

direct versus indirect standardization in risk adjustment direct and indirect standardization procedures aim at comparing differences in health or in health care expenditures between subgroups of the population after controlling for observable morbidity differences there is a close analogy between this problem and the issue of risk adjustment in health insurance traditional methods of risk adjustment are analogous to indirect standardization they are equivalent to the so called conditional egalitarian mechanism in social choice in general they do not remove incentives for risk selection even if the effect of non morbidity variables is correctly taken into account a method of risk adjustment based on direct standardization does remove the incentives for risk selection but at the cost of violating a neutrality condition stating that insurers should receive the same premium subsidy for all members of the same risk group direct standardization is equivalent to the egalitarian equivalent or proportional mechanism in social choice the conflict between removing incentives for risk selection and neutrality is unavoidable if the health expenditure function is not additively separable in the morbidity and efficiency variables

choosing among alternative cost function specifications an application to italian multi utilities abstract the paper investigates the cost properties of a sample of italian utilities providing in combination gas water and electricity services the estimates from a multi product composite cost function rev econ stat 74 1992 221 are compared with the ones coming from other traditional functional forms such as the standard translog st the generalized translog gt and the separable quadratic sq the results show that the composite model provides a better description of data and highlight the presence of global scope and scale economies for the median firm of the sample

moral hazard and risk spreading in partnerships partnerships provide a classic example of the tradeoff between risk spreading and moral hazard the degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences for which data are typically unavailable we use a unique dataset on medical group practice to investigate this tradeoff risk aversion leads to compensation arrangements which spread risk through greater sharing of revenues we find that compensation arrangements with greater degrees of revenue sharing significantly reduce physician effort the results imply that changing the method of physician payment from fee for service to capitation will dramatically reduce physician effort