does health plan generosity enhance hospital market power we test whether the generosity of employer sponsored health insurance facilitates the exercise of market power by hospitals we construct indices of health plan generosity and the price and volume of hospital services using data from truven marketscan for 601 counties from 2001 to 2007 we use variation in the industry and union status of covered workers within a county over time to identify the causal effects of generosity although ols estimates fail to reject the hypothesis that generosity facilitates the exercise of hospital market power iv estimates show a statistically significant and economically important positive effect of plan generosity on hospital prices in uncompetitive markets but not in competitive markets our results suggest that most of the aggregate effect of hospital market structure on prices found in previous work may be coming from areas with generous plans

choice proliferation simplicity seeking and asset allocation abstract in settings such as investing for retirement or choosing a drug plan individuals typically face a large number of options in this paper we analyze how the size of the choice set influences which alternative is selected we present both laboratory experiments and field data that suggest larger choice sets induce a stronger preference for simple easy to understand options the first experiment demonstrates that in seeming violation of the weak axiom of revealed preference subjects are more likely to select a given sure bet over non degenerate gambles when choosing from a set of 11 options than when choosing from a subset of 3 the second experiment clarifies that large choice sets induce a preference for simpler rather than less risky options lastly using records of more than 500 000 employees from 638 institutions we demonstrate that the presence of more funds in an individual s 401 k plan is associated with a greater allocation to money market and bond funds at the expense of equity funds

on the endogenous allocation of decision powers in federal structures abstract this paper provides a political economy explanation of the degree of centralization in economic policy making to determine which policies are to be centralized regions select representatives who then negotiate the degree of centralization and the regional cost shares of centrally decided policies we show that the resulting degree of centralization is suboptimally low voters strategically delegate to representatives who are averse to public spending and hence prefer decentralized decisions in order to reduce their region s cost share when spillovers are asymmetric strategic delegation is stronger at the periphery than at the center

the strategic interaction between firms and formulary committees effects on the prices of new drugs we study the strategic interaction between the pricing decisions of a pharmaceutical firm and the reimbursement decisions of a government agency which grants reimbursement rights to patients for whom new drugs are most cost effective if the reimbursement decision precedes pricing the agency only reimburses some patients if the drug s private and public health benefits diverge this is there are consumption externalities and the variable cost of the drug exceeds the alternative s contrarily if the firm can commit to a price before reimbursement a strategic effect implies that by setting a sufficiently high price the firm can make the agency more willing to reimburse than without commitment

the medicaid notch labor supply and welfare participation evidence from eligibility expansions i assess the impact of losing public health insurance on labor market decisions of women by examining a series of medicaid eligibility expansions targeted toward young children these targeted expansions severed the historical tie between afdc and medicaid eligibility the reforms allowed a mother s earnings to increase without losing public health insurance for her young children increasing the income limit for medicaid resulted in a decrease in afdc participation and an increase in labor force participation among these women the effects were large for ever married women and negligible for never married women

does public insurance crowd out private insurance the cost of expanding public sector health programs depends critically on the extent to which public eligibility will cover just the uninsured or will crowd out existing private insurance coverage we estimate the extent of crowd out arising from the expansions of medicaid to pregnant women and children over the 1987 1992 period we estimate that approximately 50 percent of the increase in medicaid coverage was associated with a reduction in private insurance coverage this occurred largely because employees took up employer based insurance less frequently there is also some evidence that employers contributed less for insurance and that workers dropped coverage of dependents

welfare implications of the interaction between habits and consumption externalities we analyze the welfare properties of the equilibrium path of a growth model where both habits and consumption externalities affect the utility of consumers our analysis highlights the crucial role played by complementarities between externalities and habits in order to generate an infficient dynamic equilibrium in particular we show that the competitive equilibrium is inefficient when consumption externalities and habit adjusted consumption are not perfect substitutes

an economic model of representative democracy this paper develops an approach to the study of democratic policy making where politicians are selected by the people from those citizens who present themselves as candidates for public office the approach has a number of attractive features first it is a conceptualization of a pure form of representative democracy in which government is by as well as of the people second the model is analytically tractable being able to handle multidimensional issue and policy spaces very naturally third it provides a vehicle for answering normative questions about the performance of representative democracy

news shocks in the data olympic games and their macroeconomic effects we examine the macroeconomic effects of bidding for the olympic games using panel data for 188 countries during the period 1950 2009 our findings confirm that economies react to news shocks investment consumption and output significantly increase 9 to 7 years before the actual event in bidding countries hosting countries also experience significant increases in investment consumption and output 5 to 2 years before the hosting of the games mapping the olympics into a macroeconomic model we show that we can match our empirical findings if we assume that an olympic bid represents news about increases in government investment

tiebout equilibria in local public good economies with spillovers abstract this paper analyzes the effects of spillovers on the equilibrium population distribution across jurisdictions in a local public good economy with free mobility spillovers are parametrized by a matrix ij where ij 0 1 when spillovers are symmetric and close to 0 or 1 pure local public goods and pure public goods all equilibrium jurisdiction structures are symmetric however any population distribution can be sustained in equilibrium for some value of the spillover parameter in the class of utility functions with additive externalities we identify the unique family of utility functions for which equilibria are symmetric except for an isolated value of this is a class of utility functions which are linear in the public good and a power function of the private good u c a 1 c with this specification of utility we show that an increase in results in a more fragmented equilibrium population distribution and that when spillovers are asymmetric and large a jurisdiction which is more centrally located i e benefits more from the public goods provided in other jurisdictions has a larger population in equilibrium

does centralization increase the size of government abstract are fiscal programs larger or smaller if they are run centrally rather than locally in a prospective federation we abstract completely from well understood economic issues and focus instead on the political effects of centralization for fiscal programs with benefits broadly spread in the population such as redistributive transfer schemes social insurance and general government consumption centralization changes the coalition of voters who favor a large program in a direction that depends on the nature of the redistributive instrument for fiscal programs with localized benefits such as provision of local public goods centralization creates opportunities for rent seeking which increases the size of government

fairness spillovers the case of taxation abstract it is standardly assumed that individuals react to perceived unfairness or norm violations in precisely the same area or relationship where the original offense has occurred however grievances over being exposed to injustice may have even broader consequences and also spill over to other contexts causing non compliant behavior there we present evidence that such fairness spillovers can incur large economic costs a belief that there is unfairness in taxation in the sense that the rich do not pay enough taxes is associated with a twenty percent higher level of paid absenteeism from work

imitation contagion or exertion using a tax reform to reveal how colleagues sick leaves influence worker behaviour we analyse the social interaction effects in sick leave behaviour in the workplace using high quality norwegian matched employer employee data with detailed individual information on sick leaves during the 2004 2006 period we find that social interaction effects in sick leave behaviour in the workplace do exist and that the effects are noticeable in size the strong relationship between the sick leave rates among colleagues is not solely the result of contagious diseases nor is it caused by improved informational quality or by the increased workload for the non absent workers evidence supports the existence of reciprocal worker behaviour that is unrelated to joint leisure seeking activities

endogenous cost effectiveness analysis and health care technology adoption abstract increased health care spending has placed pressure on public and private payers to prioritize spending cost effectiveness ce analysis is the main tool used by payers to prioritize coverage of new therapies we argue that reimbursement based on ce is subject to a form of the lucas critique the goals of ce policies may not materialize when firms affected by the policies respond optimally to them for instance because costs in ce analysis reflect prices set optimally by firms rather than production costs observed ce levels will depend on how firm pricing responds to ce policies observed ce is therefore endogenous when ce is endogenously determined policies aimed at lowering spending and improving overall ce may paradoxically raise spending and lead to the adoption of more resource costly treatments we empirically illustrate whether this may occur using data on public coverage decisions in the united kingdom

regulation of price increases abstract u s federal and state governments rarely regulate healthcare price levels but do regulate price changes for pharmaceuticals hospitals and health insurance previous research showed that limiting price increases can raise launch prices and reduce both profit and social welfare assuming consumers are myopic we show that with forward looking consumers limiting price increases can have the opposite effect that is launch prices fall while profit and social welfare rise ironically inflation regulation can cause inflation to rise but only because firms are reducing launch prices to make the regulation bind and credibly commit to future prices

heterogeneity in choice inconsistencies among the elderly evidence from prescription drug plan choice abstract this paper investigates the degree to which choice inconsistencies documented in the context of medicare part d plan choice vary across consumers and geographic regions our main finding is that there is surprisingly little variation regardless of age gender predicted drug expenditures or the predictability of drug demand consumers underweight out of pocket costs relative to premiums and fail to consider the individualized consequences of plan characteristics as a result they frequently choose plans which are dominated in the sense that an alternative plan provides better risk protection at a lower cost we find limited evidence that the sickest individuals had more difficulty with plan choice and we document that much of the variation in potential cost savings across states comes from variation in choice sets not variation in consumers ability to choose

static and dynamic effects of health policy evidence from the vaccine industry public policies designed to increase utilization of existing technologies may also affect incentives to develop new technologies this paper investigates this phenomenon by examining policies designed to increase usage of preexisting vaccines i find that these policies were associated with a 2 5 fold increase in clinical trials for new vaccines for several diseases the induced innovation is socially wasteful though small in magnitude in one case however the dynamic social welfare benefits from induced innovation exceed the policies static benefits from increasing vaccination with existing technology these findings underscore the importance of including technological progress in economic analysis of public policy

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

cross border externalities and cooperation among representative democracies abstract this paper analyzes the provision of public goods with cross border externalities by representative democracies the level of provision of each country is decided by a policy maker elected by majority rule at the country level we compare the case in which policy makers set their policies noncooperatively with the case in which they set their policies through coasian cooperation cooperation induces policy makers to internalize cross border externalities but it also induces strategic voters to elect a policy maker who cares less about the public good to reduce their public good contribution the former effect increases public good provision while the latter reduces it we show that once voters incentives are taken into account whether cooperation is beneficial depends neither on voters preferences nor on the magnitude of spillovers nor on the size bargaining power or efficiency of each country instead it depends only on the curvature of the demand for the public good cooperation increases decreases public good provision when the demand function is more less convex than the unit elastic demand function hence the desirability of international cooperation depends mostly on the type of public good considered

on government centralization and fiscal referendums abstract several authors have argued that a centralization of fiscal powers in a federation is less likely to occur if citizens have to approve a change in the assignments of responsibilities by a popular referendum this outcome may be due to the fact that logrolling is more difficult under direct than under representative democracy it may also be caused by citizens fear that a centralization of fiscal authority facilitates the extraction of rents by the government or the legislature in this paper we test the hypothesis that centralization is less likely under referendum decision making in the unique institutional setting of switzerland using a panel of swiss cantons from 1980 to 1998 the empirical analysis provides evidence that referendums induce less centralization of fiscal activities

delegation in a general equilibrium model of customs unions abstract a difference in the objectives of members of a customs union may be a unifying rather than a divisive force if countries outside the union behave strategically one union member may want to delegate to its partner the ability to set the common external tariff we demonstrate these results in the context of a pure exchange general equilibrium trade model we show that if tariffs are strategic substitutes the union country which is relatively less well endowed in the exported good may be willing to delegate to its partner which behaves more aggressively in setting the union s policy the delegation decision is reversed if tariffs are strategic complements the model extends the standard results on the appropriate level of the union policy by adding another dimension that of the optimal decision making agent

pharmaceutical r d spending and threats of price regulation do threats of pharmaceutical price regulation affect subsequent research and development r d spending this study uses the clinton administration s health security act hsa of 1993 as a natural experiment to study this issue we link events surrounding the hsa to pharmaceutical stock price changes and then examine the cross sectional relation between firms stock price changes and their subsequent unexpected r d spending changes re sults show that the hsa had significant negative effects on stock prices and firm level r d spending conservatively the hsa reduced r d spending by about 1 billion even though it never became law

the impressive contribution of canadian economists to fiscal federalism theory and policy the study of fiscal federalism has been central to the research of canadian economists since the rowell sirois report to mark the 50th anniversary of the founding of the canadian economics association it is fitting to take stock of their contributions we focus on the period since 1982 and emphasize the main scholarly publications of an inclusive array of canadian economists and economists in canadian universities our attention is devoted to applications in the context of federal and provincial governments setting aside related issues in municipal government finance we briefly discuss instances where the fiscal federalism literature has informed policy debates including through policy research institutes government commissions and international organizations la contribution impressionnante des economistes canadiens a la theorie et a la politique du federalisme fiscal l etude du federalisme fiscal a ete un element central de la recherche des economistes canadiens depuis la commission rowell sirois au moment de celebrer le 50eme anniversaire de la fondation de l association canadienne d economique le moment est approprie pour prendre la mesure de leurs contributions on se concentre sur la periode apres 1982 et on souligne les principales publications savantes d un ensemble inclusif d economistes canadiens et d economistes dans les universites canadiennes une attention particuliere est portee aux applications dans le contexte federal et provincial mettant de cote les enjeux relies a la finance municipale on discute brievement des instances ou la litterature sur le federalisme fiscal a eclaire les debats de politiques publiques y compris a travers les instituts de recherche sur les politiques publiques les commissions gouvernementales et les organisations internationales

r d in the pharmaceutical industry a world of small innovations it is commonly argued that in recent years pharmaceutical companies have targeted their research and development r d at small improvements of existing compounds instead of riskier drastic innovations in this paper we show that the bias in the pharmaceutical industry toward small innovations might be driven by the low sensitivity of the demand in particular small innovations get a proportionally larger reward because pharmaceutical firms target them at the inelastic segments of the demand as a consequence firms find it relatively more profitable to invest in small innovations we also study the effect on r d incentives of marketing strategies and regulatory instruments aimed at controlling pharmaceutical expenditure

observable contracts strategic delegation and cooperation the role of commitments in noncooperative games is well acknowledged and documented one way to achieve commitments is by letting delegates represent the players of a game in this paper the authors study a delegation game in which the players can use agents strategically to play on their behalf and the contracts they sign with them are common knowledge they show that in such cases every pareto optimal outcome of the game can become the unique subgame perfect nash equilibrium of the delegation game the authors demonstrate this result by discussing the cournot type duopolistic game copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

a fairness approach to income tax evasion abstract the tax that a taxpayer wishes to evade is determined on the basis of his perception of the fairness of his fiscal treatment with respect to both governmental supply of public goods and the perceived behaviour of other taxpayers the coercive powers of the state and the taxpayer s attitude toward risk determine the extent to which this desired level is undertaken in practice this approach is able to produce implications for the relationship between public expenditure tax rates and tax evasion which are more consistent with empirical evidence than the results of the conventional portfolio choice approach

fair income tax fairness is a key concept in redistribution issues in this paper we study how particular requirements of fairness can shed light on the design of the optimal income tax schedule we consider a population of heterogeneous individuals or households who differ in two respects first they have unequal skills and therefore unequal earning abilities second they differ in terms of their preferences about consumption and leisure and as a consequence typically make different labour time choices both kinds of differences generate income inequalities we study how to justify and compute a redistribution income tax in this context redistribution through an income tax usually entails distortions of incentives but the resulting efficiency loss has to be weighed against potential improvements in the fairness of the distribution of resources we address this efficiency equity trade off here by constructing social preferences which obey the standard pareto principle in addition to fairness conditions

price discrimination and bargaining empirical evidence from medical devices many important issues in business to business markets involve price discrimination and negotiated prices situations where theoretical predictions are ambiguous this paper uses new panel data on buyer supplier transfers and a structural model to empirically analyze bargaining and price discrimination in a medical device market while many phenomena that restrict price discrimination are suggested as ways to decrease hospital costs e g mergers group purchasing organizations and transparency i find that 1 non discriminatory pricing actually works against hospitals because competition is more intense under price discrimination and 2 results depend ultimately on a previously unexplored bargaining effect

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

strategic institutional choice voters states and congressional term limits states choices on term limits are quantified as a multiple categorical variable capturing variation in the type of limits passed measures of relative political influence in congress explain much of this variation using 1992 data on the american states the model controls for unobserved heterogeneity due to voter access to direct democracy in some states at 2002 values for congressional tenure and federal spending the model predicts approximately eight to ten additional states would choose to limit their own members terms but cannot under a supreme court ruling we discuss implications for institutional federalism and the potential passage of similar political institutions across the states

the politics of 1992 fiscal policy and european integration the internal market in europe will greatly increase the international mobility of resources how will this affect fiscal policy in different countries we consider taxation of capital in a two country model where a democratically chosen government in each country chooses tax policy higher capital mobility changes the politico economic equilibrium in two ways on the one hand it leads to more tax competition between the countries this economic effect tends to lower tax rates in both countries on the other hand it alters voters preferences and makes them elect a different government this political effect offsets the increased tax competition although not completely

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

perverse reverse price competition average wholesale prices and medicaid pharmaceutical spending abstract generic drugs comprise an increasing share of total prescriptions dispensed in the u s rising from nearly 50 in 1999 to 75 in 2009 the generic drug market has typically been viewed at the wholesale level as a competitive market with price approaching marginal costs however the large presence of third party payers as final purchasers may distort prices at the retail level relative to what a standard model of price competition would predict in this paper we investigate how generic drug producers compete in the presence of the procurement rules of the medicaid program medicaid reimbursement to pharmacies like that of other payers is based on a benchmark price called the average wholesale price awp the awp is reported by generic producers themselves and until recently has been subject to essentially no independent verification as a result generic producers have had an incentive to compete for pharmacy market share by reporting awps that exceed actual average wholesale prices as this spread leads to larger pharmacy profits in 2000 after a federal government audit of actual wholesale prices of generic products states were advised to reduce medicaid reimbursement by as much as 95 for about 400 generic and off patent drug products we use variation induced by the timing of this policy along with its differential impact on drug products medicaid reimbursement to estimate the impact of this exogenous price change on the market share of targeted products our findings indicate that pharmacies did respond to the perverse incentives of the medicaid program by dispensing products with the highest awps overall the medicaid market share fell by about 45 for targeted drug products as a result of the policy

tax competition and tax coordination in a median voter model this paper analyzes the welfare effects of capital tax coordination in a simple model of fiscal competition where fiscal policy is subject to majority voting and households differ with respect to their labor and capital income it turns out that a coordinated capital tax increase may raise or reduce welfare depending on the relative magnitude of i economic distortions induced by a labor tax and ii political distortions resulting from the influence of the median voter on fiscal policy decisions a negative welfare effect is more likely the smaller the marginal excess burden of the labor tax and the smaller the ratio of the median voter s labor income to average labor income we also use empirical estimates of the marginal excess burden of taxation to determine the welfare effects of tax coordination it turns out that a negative welfare effect of coordinated tax increases may emerge in our model for empirically reasonable parameters

behavior of the firm under regulatory constraint a recent article by akira takayama discusses an earlier paper by harvey averch and leland l johnson on fair rate of return regulation of public utilities although takayama p 255 agrees with averch and johnson s general conclusions that a firm will tend to increase its investment with the introduction of an active constraint on its rate of return he criticizes the a j argument as being confusing ambiguous and in error takayama then attempts a clarification and presents a new formulation which leads to the a j result quoted above this comment will discuss several of takayama s criticisms in addition to showing that the so called a j effect cannot be derived from the basic assumptions made by both averch and johnson and takayama 1 we will show that the very assumptions used to prove the a j effect by defining the region of x require an assumption that the a j effect exists in the first place

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

the political economy of policy centralization direct versus representative democracy abstract this paper analyzes policy centralization outcomes in a two jurisdiction model of public good provision choices with heterogeneous policy preferences and interjurisdictional policy spillovers under two alternative political procedures direct referendum and representative democracy we show that policy centralization is more likely to occur if the choice to centralize is made by elected policymakers rather than by referendum in these situations centralized policies converge to the preferred level of the jurisdiction that least favours centralization rather than to a compromise between the two jurisdictions preferred levels

innovation and the welfare effects of public drug insurance rewarding inventors with inefficient monopoly power has long been regarded as the price of encouraging innovation prescription drug insurance escapes that trade off and achieves an elusive goal lowering static deadweight loss without reducing incentives for innovation as a result of this feature the public provision of drug insurance can be welfare improving even for risk neutral and purely self interested consumers the design of insurers cost sharing schedules can either reinforce or mitigate this result schedules that impose higher consumer cost sharing requirements on more expensive drugs help ensure that insurance subsidies translate into higher utilization rather than pure increases in manufacturer profits moreover some degree of price negotiation with manufacturers is likely to be welfare improving but the optimal degree depends on the size of such transactions costs as well as the social cost of weakening innovation incentives by lowering innovator profits these results have practical implications for the evaluation of public drug insurance programs like the us medicaid and medicare part d programs along with european insurance schemes

pricing patent loss and the market for pharmaceuticals dustry the drug price competition and patent term restoration act of 1984 very clearly reflects the determination of policy makers to simultaneously address issues of price control and technical progress the 1984 act increased returns to innovation by extending the period of patent protection to take into account the time between receipt of a patent and food and drug administration fda approval of a drug for sale in the market the 1984 act also reduced the testing requirements for approval of new generic brands of existing chemical entities thus reducing entry barriers in markets where patents have expired the expected outcome from eased entry conditions for generic substitutes was substantially enhanced price competition and lower prices for brand name drugs in fact prices for brand name drugs have tended to increase following entry by generics wagner and duffy 28 examined price changes for top selling generics and name brands they show substantial price increases in brand name prices accompanying large reductions in generic prices as entry of generics occurs grabowski and vernon 9 examined data on 18 major orally administered rug products subject to generic competition between 1983 and 1987 and found that the name brand price increased by an average of 7 one year subsequent to generic entry and 11 two years following generic entry

tax structure and government expenditures with tax equity concerns abstract we augment a standard tax model by concerns about tax equity people get upset when labour is taxed more heavily than capital even the slightest concern for tax equity invalidates the common tenet that capital remains tax exempt in small open economies this holds for exogenous as well as for endogenous government expenditures and irrespective of whether concerns with tax equity only cause emotional discomfort or also impact on work incentives if concerns with tax equity get more intense the economy may choose higher taxes on labour and move to the downward sloped part of its laffer curve for endogenous government spending stronger concerns with tax equity may lead to a larger size of the public sector

health insurance choice and risk preferences under cumulative prospect theory an experiment we investigate how consumers choose insurance contracts when using a measure of decision quality based on individual risk preferences for this we use a laboratory experiment with a sequential design first subjects face insurance choices then we elicit risk preferences allowing for different latent decision making theories i e cumulative prospect theory and expected utility theory we find that the vast majority are cumulative prospect theory types analyzing whether subjects choose contracts consistent with their risk preferences we find that about 14 of all participants show inconsistent behavior and low decision quality yet the majority shows consistent behavior and good decision quality our results suggest that one explanation for inconsistent choices is the application of heuristics

coordination in heterogeneous federal systems abstract we compare centralized and decentralized policy making in a federation in which policy heterogeneity is inherently costly and preferences vary across jurisdictions all jurisdictions agree that some harmonization is desirable but no one agrees on the direction of harmonization this type of collective choice problem arises when members of a federal system have to coordinate nonbudgetary policies such as laws regulations standards or diplomatic policies contrary to the common wisdom decentralization becomes optimal when coordination becomes very important when coordination costs are symmetric decentralization dominates centralization irrespective of the magnitude of externalities and the heterogeneity of preferences in the case of discontinuous network effects standardization never pareto dominates decentralization

the medium term impact of medicare part d on pharmaceutical prices medicare part d began coverage of prescription drugs in 2006 using data from the first year of the program we found that part d reduced pharmaceutical prices for medicare recipients with these effects driven by enrollees previously without drug coverage in this paper we extend our analysis through 2009 the fourth year of the program to investigate whether plans continued to extract price concessions in return for favorable formulary placement or if consumer inertia or other factors caused prices to bounce back after their initial decline we find price declines persisted through at least the third year of the program

a model of political competition with citizen candidates the authors develop a model of electoral competition in which citizens choose whether or not to run as candidates a winner implements her favorite policy the equilibrium number of candidates depends negatively on the cost of running and positively on the benefits of winning for some parameter values all equilibria under plurality rule have exactly two candidates whose positions are distinct two candidate elections are more likely under plurality rule than under a runoff system the candidates positions are less differentiated under a runoff system there exist equilibria under both systems in which some candidates have no chance of winning

reference pricing competition and pharmaceutical expenditures theory and evidence from a natural experiment abstract we study the impact of regulation on competition between brand names and generics and pharmaceutical expenditures using a unique policy experiment in norway where reference pricing rp replaced price cap regulation in 2003 for a sub sample of off patent products first we construct a vertical differentiation model to analyze the impact of regulation on prices and market shares of brand names and generics then we exploit a detailed panel data set at product level covering several off patent molecules before and after the policy reform off patent drugs not subject to rp serve as our control group we find that rp significantly reduces both brand name and generic prices and results in significantly lower brand name market shares finally we show that rp has a strong negative effect on average molecule prices suggesting significant cost savings and that patients copayments decrease despite the extra surcharges under rp

factor taxation income distribution and capital market integration this paper addresses the optimal mix of capital and wage taxation when policymakers maximize the political support of workers and capitalists subject to a fixed revenue requirement capital market integration increases the efficiency costs of a tax on capital hut simultaneously changes the political equilibrium through its effect on the distribution of factor incomes these distributional effects are directly opposed in the capital importing and the capital exporting region while the capital tax rate will always be lowered in the capital importing region the tax rate in the exporting country will rise when political resistance to market induced changes in the distribution of income is sufficiently high

equilibrium price dispersion in retail markets for prescription drugs this study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market even after one controls for variation due to pharmacy differences pharmacy heterogeneity accounts for at most one third of the observed price dispersion the empirical analysis hinges on the observation that consumers incentives to price shop depend on characteristics of the drug therapy cross sectional patterns in price distributions across drugs are consistent with the predictions of a search model prices for repeatedly purchased prescriptions for which the expected benefits of search are highest exhibit significant reductions in both dispersion and price cost margins

economic integration and the relationship between profit and wage taxes this paper analyzes the development of the ratio of corporate taxes to wage taxes using a simple political economy model with workers and capitalists that own internationally mobile and immobile firms among other results our model predicts that countries reduce their corporate tax rate relative to the wage tax when preferences for public goods increase or when the share of capital employed in multinational firms is rising we further show how an increase in the wage share changes both the relative size of tax bases and the political influence of different income groups the predicted relationships are tested using panel data for 23 oecd countries for the period 1980 through 2004 the results of the empirical analysis support our main hypotheses

sources of inefficiency in a representative democracy a dynamic analysis this paper studies the efficiency of policy choice in representative democracies it extends the citizen candidate model of democratic policy making to a dynamic environment equilibrium policy choices are shown to be efficient in the sense that in each period conditional on future policies being selected through the democratic process there exists no alternative current policy choices which can raise the expected utilities of all citizens however policies that would be declared efficient by standard economic criteria are not necessarily adopted in political equilibrium the paper argues that these divergencies are legitimately viewed as politicalfailures

implementing tax coordination abstract this paper investigates whether tax competition can survive under tax coordination when information is private or nonverifiable we focus on a two jurisdiction model where capital can move across borders and where jurisdictions have different public good requirements but are otherwise identical in this setting coordination may call for a second best allocation supported by differentiated tax rates if however coordination must be achieved via a set of common rules that condition tax rates on jurisdictions choices the second best allocation may not be implementable we show that incentive compatibility requirements will generally affect not only the choice of coordinated rates in states where jurisdictions are different but also the choice of harmonized rates in states where jurisdictions have identical preferences for public consumption

health insurance subsidies and deductible choice evidence from regional variation in subsidy schemes the extent to which premium subsidies can influence health insurance choices is an open question in this paper we explore the regional variation in subsidy schemes in switzerland designed as either in kind or cash transfers to study their impact on the choice of health insurance deductibles using health survey data and a difference in differences methodology we find that in kind transfers increase the likelihood of choosing a low deductible plan by approximately 4 percentage points or 7 our results indicate that the response to in kind transfers is strongest among women middle aged and unmarried individuals which we explain by differences in risk taking behavior health status financial constraints health insurance and financial literacy we discuss our results in the light of potential extra marginal effects on the demand for health care services which are however not supported by our data

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

the distortionary effects of government procurement evidence from medicaid prescription drug purchasing in 2003 the federal state medicaid program provided prescription drug coverage to more than 50 million people to determine the price that it will pay for each drug medicaid uses the average private sector price when medicaid is a large part of the demand for a drug this creates an incentive for its maker to increase prices for other health care consumers using drug utilization and expenditure data for the top 200 drugs in 1997 and in 2002 we investigate the relationship between the medicaid market share mms and the average price of a prescription our estimates imply that a 10 percentage point increase in the mms is associated with a 7 to 10 percent increase in the average price of a prescription in addition the medicaid rules increase a firm s incentive to introduce new versions of a drug in order to raise price we find empirical evidence that firms producing newer drugs with larger sales to medicaid are more likely to introduce new versions taken together our findings suggest that government procurement rules can alter equilibrium price and product proliferation in the private sector

the market impacts of pharmaceutical product patents in developing countries evidence from india in 2005 as the result of a world trade organization mandate india implemented a patent reform for pharmaceuticals that was intended to comply with the 1995 trade related aspects of intellectual property rights trips exploiting variation in the timing of patent decisions we estimate that a molecule receiving a patent experienced an average price increase of just 3 6 percent with larger increases for more recently developed molecules and for those produced by justone firm when the patent system began our results also show little impact on quantities sold or on the number of pharmaceutical firms operating in the market

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

what did medicare do the initial impact of medicare on mortality and out of pocket medical spending abstract we study the impact of the introduction of one of the major pillars of the social insurance system in the united states the introduction of medicare in 1965 our results suggest that in its first 10 years the establishment of universal health insurance for the elderly had no discernible impact on elderly mortality however we find a substantial reduction in the elderly s exposure to out of pocket medical expenditure risk specifically we estimate that the introduction of medicare was associated with a 40 decline in out of pocket spending for the top quartile of the out of pocket spending distribution a stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover almost two fifths of the costs of medicare these findings underscore the importance of considering the direct insurance benefits from public health insurance programs in addition to any indirect benefits from an effect on health

how much is transfer and how much is insurance in a pay as you go system the german case pay as you go pension systems provide insurance against longevity related old age poverty and related risks they are commonly also used as instruments for redistribution this paper provides several estimates of the insurance and transfer share of the german public pension system estimating these shares is important because they are indicative of taxation related deadweight losses and influence public acceptance of the pension system we also disentangle intragenerational from intergenerational transfers although our estimate of intragenerational transfers is smaller than recent semi official estimations such transfers create substantial deadweight losses intergenerational transfers are much larger thereby contributing to strong negative participation incentives for the younger generation jel classification h55 j26

the effect of direct democracy on income redistribution evidence for switzerland there is an intensive dispute in political economics about the impact of institutions on income redistribution while the main focus is on comparison between different forms of representative democracy the influence of direct democracy on redistribution has attracted much less attention according to theoretical arguments and previous empirical results government policies of income redistribution are expected to be more in line with median voter preferences in direct than in representative democracies in this paper we find that institutions of direct democracy are associated with lower public spending and revenue particularly lower welfare spending and broad based income and property wealth tax revenue moreover we estimate a model which explains the determinants of redistribution using panel data provided by the swiss federal tax office from 1981 to 1997 and a cross section of representative individual data from 1992 while our results indicate that less public funds are used to redistribute income and actual redistribution is lower inequality is not reduced to a lesser extent in direct than in representative democracies for a given initial income distribution this finding might well indicate the presence of efficiency gains in redistribution policies

international tax competition and gains from tax harmonization abstract in a world economy there are two types of distortions which can be caused by capital income taxation in addition to the standard closed economy wedge between the consumer saver marginal intertemporal rate of substitution and the producer investor marginal productivity of capital i international differences in intertemporal marginal rates of substitution implying an inefficient allocation of world savings across countries and ii international differences in the marginal productivity of capital implying an inefficient allocation of world investment across countries the paper focuses on the structure of taxation for countries which are engaged in tax competition and on potential gains from a tax harmonization we show that if the competing countries are sufficiently coordinated with the rest of the world then tax competition leads each country to apply the residence principle of taxation and there are no gains from tax harmonization if however there is not sufficient coordination then tax competition leads to low capital income taxes and the tax burden falls on the internationally immobile factors the outcome is nevertheless still efficient relative to the available constrained set of tax instruments

governance choice on a serial network this paper analyzes governance choice in a two level federation in providing road infrastructure across jurisdictions two models are proposed to predict the choice of centralized or decentralized spending structure on a serial road network shared by two districts while the first model considers simple pigouvian behavior of governments the second explicitly models political forces at both a local and central level both models led to the conclusions that the spending structure is chosen based on a satisfactory comprise between benefits and costs associated with alternative decision making processes and that governance choice may spontaneously shift as the infrastructure improves temporally

taxation of investment and savings in a world economy the equilibrium of capital and equilibrium market prices are derived for a world economy with a unified securities market mobile capital no uncertainty and varying tax rates on different sources of income in each country the paper then characterizes optimal tax rates for a small country in this setting focusing on the peculiar incentives created when the before tax rate of return differs among securities due to differences in their typical tax treatment copyright 1986 by american economic association

rent seeking spillovers and the benefits of decentralization abstract in the presence of spillovers decentralized provision of local public goods may lead to a higher surplus than centralized provision even though localities have identical preferences indeed free riding costs associated to decentralization can be lower than the costs of rent seeking and influence activities under centralization actually centralization yields a higher level of regional surplus only if both the spillover effect from local public spending is sufficiently large and the elasticity of the influence function is sufficiently small

why did the ssi disabled program grow so much disentangling the effect of medicaid the number of participants in the ssi program grew by 1 1 million from 1987 to 1993 this paper examines the role of medicaid on the ssi participation decision i use the rapid growth in average medicaid expenditure as a proxy for its value ols estimates of medicaid s effect may be biased because of omitted variables bias and measurement error i therefore apply two stage least squares to estimate medicaid s effect using average medicaid expenditure for blind ssi recipients as an instrument these estimates show that rising medicaid expenditure significantly increased ssi participation among adults with low permanent incomes explaining 20 of the growth

medicare part d are insurers gaming the low income subsidy design this paper shows how in medicare part d insurers gaming of the subsidy paid to low income enrollees distorts premiums and raises the program cost using plan level data from the first five years of the program i find multiple instances of pricing strategy distortions for the largest insurers instrumental variable estimates indicate that the changes in a concentration index measuring the manipulability of the subsidy can explain a large share of the premium growth observed between 2006 and 2011 removing this distortion could reduce the cost of the program without worsening consumer welfare