convergence to the law of one price without trade barriers or currency fluctuations using a panel of 51 prices from 48 cities in the united states we provide an upper bound estimate of the rate of convergence to purchasing power parity we find convergence rates substantially higher than typically found in cross country data we investigate some potentially serious biases induced by i i d measurement errors in the data and find our estimates to be robust to these potential biases we also present evidence that convergence occurs faster for larger price differences finally we find that rates of convergence are slower for cities farther apart however our estimates suggest that distance alone can only account for a small portion of the much slower convergence rates across national borders

temporary import and export quotas and the current account abstract this paper provides a comprehensive analysis of temporary import and export quotas in a two period optimization model imposing much weaker restrictions on preferences and production technologies than in the existing literature we demonstrate that under net substitutability the imposition of a temporary quota which reduces imports by a small amount improves the current account and causes an appreciation of the real exchange rate if the initial equilibrium is quota restricted the effects of tightening the quota are ambiguous by contrast under substitutability a tightening of export quotas necessarily leads to a current account deficit regardless of the nature of the initial equilibrium

political influence motives and the choice between tariffs and quotas abstract tariffs and quotas are not symmetric under a variety of circumstances this paper pursues the implications of one such circumstance domestic market power for the political choice of protectionist instrument in the context of a political support maximization model tariffs dominate quotas in the political model in the absence of revenue seeking motives in the presence of revenue seeking ambiguity arises but limits can be placed on the range of tariff or quota levels also some welfare implications emerge

e ztax tax salience and tax rates this paper examines whether the salience of a tax system affects equilibrium tax rates i analyze how tolls change after toll facilities adopt electronic toll collection etc drivers are substantially less aware of tolls paid electronically i estimate that in steady state tolls are 20 to 40 percent higher than they would have been without etc consistent with a salience based explanation for this toll increase i find that under etc driving becomes less elastic with respect to the toll and toll setting becomes less sensitive to the electoral calendar alternative explanations appear unlikely to be able to explain the findings

gold and silver health plans accommodating demand heterogeneity in managed competition abstract new regulation of health insurance markets creates multiple levels of health plans with designations like gold and silver the underlying rationale for the heavy metal approach to insurance regulation is that heterogeneity in demand for health care is not only due to health status sick demand more than the healthy but also to other taste related factors rich demand more than the poor this paper models managed competition with demand heterogeneity to consider plan payment and enrollee premium policies in relation to efficiency net consumer benefit and fairness the european concept of solidarity specifically this paper studies how to implement a silver and gold health plan efficiently and fairly in a managed competition context we show that there are sharp tradeoffs between efficiency and fairness when health plans cannot or may not because of regulation base premiums on any factors affecting demand enrollees do not choose the efficient plan when taste e g income can be used as a basis of payment a simple tax can achieve both efficiency and fairness when only health status and not taste can be used as a basis of payment health status based taxes and subsidies are required and efficiency can only be achieved with a modified version of fairness we refer to as weak solidarity an overriding conclusion is that the regulation of premiums for both the basic and the higher level plans is necessary for efficiency

selection in insurance markets theory and empirics in pictures government intervention in insurance markets is ubiquitous and the theoretical basis for such intervention based on classic work from the 1970s has been the problem of adverse selection over the last decade empirical work on selection in insurance markets has gained considerable momentum this research finds that adverse selection exists in some insurance markets but not in others and it has uncovered examples of markets that exhibit advantageous selection a phenomenon not considered by the original theory and one that has different consequences for equilibrium insurance allocation and optimal public policy than the classical case of adverse selection advantageous selection arises when the individuals who are willing to pay the most for insurance are those who are the most risk averse and so have the lowest expected cost indeed it is natural to think that in many instances individuals who value insurance more may also take action to lower their expected costs drive more carefully invest in preventive health care and so on researchers have taken steps toward estimating the welfare consequences of detected selection and of potential public policy interventions in this essay we present a graphical framework for analyzing both theoretical and empirical work on selection in insurance markets this graphical approach provides both a useful and intuitive depiction of the basic theory of selection and its implications for welfare and public policy as well as a lens through which one can understand the ideas and limitations of existing empirical work on this topic

the collapse of purchasing power parities during the 1970 s one of the striking facts concerning the relationship beiveen prices and exchange rates during the 1970 s has been the dismal performance of the predictions of the simple versions of the purchasing power parity doctrine ppp that doctrine in its absolute version states that the equilibrium exchange rate between domestic and foreign currencies equals the ratio of domestic to foreign price levels the relative version of the doctrine relates equilibrium changes in exchange rates to changes in the ratio of domestic to foreign prices during the 1970 s short run changes in exchange rates bore little relationship to short run differentials in national inflation rates and frequently divergences from purchasing power parities have been cumulative this paper reviews and analyzes the empirical record of exchange rates and prices during the 1970 s and the analysis is based on the experience of the dollar pound the dollar frecch franc and the dollar dm exchange rates section 2 presents the evidence on ppp during the 1970 s and contrasts it with the evidence from the 1920 s a period during which the doctrine held up reasonably well this analysis is relevant for assessing whether the flexible exchange rate system was successful in providing national economies with an added degree of insulation from foreign shocks and whether it provided policymakers with an added instrument for the conduct of macroeconomic policy the evidence regarding devia tions from purchasing power parities is also relevant for determining whether there is a case for managed float section 3 attempts to explain what went wrong with

the trade balance and real exchange rate under currency substitution abstract it is demonstrated that the calvo and rodriguez 1977 results hold up in a utility maximizing model contrary to the claim of liviatan 1981 it is argued that liviatan s conclusions are based on a mistaken assumption having rescued calvo rodriguez from liviatan it is then shown that the calvo rodriguez results are dependent on two special assumptions that there is only one foreign asset traded and its real return is zero the paper also shows that there is an avenue for foreign inflation transmission under perfectly floating exchange rates even when goods prices are perfectly flexible however the direction of response of real variables is in general ambiguous

imperfect risk adjustment risk preferences and sorting in competitive health insurance markets abstract i develop a model of insurer price setting and consumer welfare under risk adjustment a policy commonly used to combat inefficient sorting due to adverse selection in health insurance markets i use the model to illustrate graphically that risk adjustment causes health plan prices to be based on costs not predicted by the risk adjustment model residual costs rather than total costs either weakening or exacerbating selection problems depending on the correlation between demand and costs predicted by the risk adjustment model i then use a structural model to estimate the welfare consequences of risk adjustment finding a welfare gain of over 600 per person year

zero as a special price the true value of free products when faced with a choice of selecting one of several available products or possibly buying nothing according to standard theoretical perspectives people will choose the option with the highest cost benefit difference however we propose that decisions about free zero price products differ in that people do not simply subtract costs from benefits but instead they perceive the benefits associated with free products as higher we test this proposal by contrasting demand for two products across conditions that maintain the price difference between the goods but vary the prices such that the cheaper good in the set is priced at either a low positive or zero price in contrast with a standard cost benefit perspective in the zero price condition dramatically more participants choose the cheaper option whereas dramatically fewer participants choose the more expensive option thus people appear to act as if zero pricing of a good not only decreases its cost but also adds to its benefits after documenting this basic effect we propose and test several psychological antecedents of the effect including social norms mapping difficulty and affect affect emerges as the most likely account for the effect

analysing disequilibrium exchange rate systems in developing countries abstract many developing economies have imposed quantitative restrictions on their international trade and tight control on capital movements disequilibrium balance of payments models developed to capture this restrictive trade regime demonstrate that the effects of a devaluation from an initial situation of disequilibrium with rationing can differ substantially from those predicted by traditional balance of payments models recent extensions to such models show that the effects of any policy measures depend critically on the initial disequilibrium conditions attempts at liberalizing trade and payments regimes have stimulated further analysis on the process of opening up a developing economy this work highlights the interaction between balance of payments current and capital accounts

price index convergence among united states cities we study the dynamics of price indices for major u s cities using panel econometric methods and find that relative price levels among cities mean revert at an exceptionally slow rate in a panel of 19 cities from 1918 to 1995 we estimate the half life of convergence to be approximately nine years the surprisingly slow rate of convergence can be explained by a combination of the presence of transportation costs differential speeds of adjustment to small and large shocks and the inclusion of nontraded goods prices in the overall price index do price indices in major u s cities share a common trend and if so how quickly do they revert to that trend following a local shock to the price index to answer this question we study the dynamics of consumer price indices for 19 major u s cities over the period from 1918 to 1995 the panel time series methods we employ are now commonly used for studying real output growth rates and levels of real exchange rates across countries we estimate that price index divergences across u s cities are temporary but surprisingly persistent with a half life of nearly nine years our research has two primary motivations first we hope to gain a better understanding of the sources of persistence in the deviations from purchasing power parity ppp found in studies of national price indices and exchange rate data second and more importantly we see the european monetary union as having many similarities to the united states and believe that studying the behavior of prices across u s cities will help us in understanding the likely nature of inflation convergence in the euro area the european central bank s stated inflation objective is a year on year change in the harmonized index of consumer prices hicp of not more than 2 but how large might we expect regional deviations from this euro area wide average to be and how long are they likely to persist the lack of data prevents us from answering this question directly using european prices under monetary union instead we look to the united states a mature common currency area of similar regional diversity size and industrial development

pricing and welfare in health plan choice premiums in health insurance markets frequently do not reflect individual differences in costs either because consumers have private information or because prices are not risk rated this creates inefficiencies when consumers self select into plans we develop a simple econometric model to study this problem and estimate it using data on small employers we find a welfare loss of 2 11 percent of coverage costs compared to what is feasible with risk rating only about one quarter of this is due to inefficiently chosen uniform contribution levels we also investigate the reclassification risk created by risk rating individual incremental premiums finding only a modest welfare cost

cost minimizing risk adjustment conventional risk adjustment which sets capitation payments equal to the average cost of individuals with similar observable characteristics is not optimal if health plans can use private information to select low cost enrollees cost minimizing risk adjustment minimizes the sum of capitated hmo premiums plus ffs costs by balancing the gains from hmo cost efficiency against the overpayments that result from hmo selection estimations using privately insured data suggest that cost minimizing risk adjusted premiums reduce total sponsor costs as much as 25 6 below conventional risk adjustment premiums

terms of trade shock and the current account in a monetary economy over the period 1973 81 the terms of trade of non oil developing countries deteriorated at about 2 per cent per annum this was accompanied by an increase in current account deficits in excess of 3 per cent above what they had been in the previous decade see khan and knight 1983 for a discussion these authors find the terms of trade shocks the major cause of the deficits this has led to a renewal of interest in the effects of changes in terms of trade for a small open economy the conventional wisdom first put forward by laursen and metzler 1950 and harberger 1950 emphasized the fact that a terms of trade worsening lowered real income which in turn lowered savings and worsened the current account the laursen metzler effect the recent reappraisal was initiated by obstfeld 1982 he showed in an infinite horizon optimizing framework with perfect capital mobilizing that if the discount rate was a function of the level of utility surpluses and not deficits accompany an unanticipated and permanent terms of trade worsening the long run level of the discount rate is tied down by the given world rate of interest this in turn fixes the long run level of utility the terms of trade shock tends to lower the level of utility and agents save to offset this across steady states there is only a substitution effect on the other hand if the discount rate is fixed and equal to the world interest rate then the economy adjusts to the terms of trade shock by immediately lowering real expenditure by the same amount as the decline in real income so that the current account is always balanced svensson and razin 1983 showed that in a two period framework this does not necessarily happen for the infinite horizon case they showed that if preferences were separable over time and the discount rate was increasing in instantaneous utility then obstfeld s results were indeed obtained in a two period overlapping generations model the results could be modified owing to the fact that human wealth and non human wealth are not perfect substitutes and a terms of trade shock affects these differently see matsuyama 1988 for a discussion but it is still true that an unanticipated permanent terms of trade shock has a one shot effect on the current account unless some ad hoc costs of adjustment are introduced see e g persson and svensson 1985 and matsuyama 1988 the uncertain lifetime model see e g frenkel and razin 1988 and matsuyama 1987 generates non trivial

fixed price controls and ad valorem distortions in an open economy abstract this paper compares the welfare effects of ad valorem and fixed price distortions for an open economy in the case of export protection domestic factor growth is much more likely to be immiserizing when fixed price distortions are used in contrast fixed price protection to an import substitute is less likely to induce immiserization via factor growth than ad valorem protection

who benefits when the government pays more pass through in the medicare advantage program abstract governments contract with private firms to provide a wide range of services while a large body of previous work has estimated the effects of that contracting surprisingly little has investigated how those effects vary with the generosity of the contract in this paper we examine this issue in the medicare advantage ma program through which the federal government contracts with private insurers to coordinate and finance health care for 17 million medicare recipients to do this we exploit a substantial policy induced increase in ma reimbursement in metropolitan areas with a population of 250 000 or more relative to msas below this threshold our results demonstrate that the additional reimbursement leads more private firms to enter this market and to an increase in the share of medicare recipients enrolled in ma plans our findings also reveal that about one eighth of the additional reimbursement is passed through to consumers in the form of better coverage a somewhat larger share accrues to private insurers in the form of higher profits and we find suggestive evidence of a large impact on advertising expenditures our results have implications for a key feature of the affordable care act that will reduce reimbursement to ma plans by 156 billion from 2013 to 2022

aspects of the optimal management of exchange rates abstract this paper shows that the choice of the optimal exchange rate regime depends on the stochastic shocks affecting the economy the higher the variance of real shocks the larger the desirability of fixity of exchange rates the desirability of exchange rate flexibility increases the larger are the variances of the shocks to the demand for money to the supply of money to foreign prices and to purchasing power parities when the economy produces traded and non traded goods the desirability of exchange rate flexibility diminishes the higher is the relative share of non traded goods and the lower are the elasticities of demand and supply of the two goods

the tobin tax asset accumulation and the real exchange rate abstract we extend a standard model of exchange rate determination in a small open economy to examine the general equilibrium consequences of a tax on foreign assets the model 1 incorporates asset market clearing at a point in time 2 accounts for asset accumulation over time by way of trade imbalances and the government s financing needs and 3 broadens the government s policy options to include a tariff on the traded good and a tax on foreign assets a capital tax results in a transitory trade deficit because agents shift to home assets their decumulation of foreign assets is mirrored in a trade deficit

tariffs quotas and welfare in a monetary economy abstract the effects of tariffs and quotas on welfare in a monetary economy are considered it is shown that while both policies improve the balance of payments they have different lifetime welfare implications even when they are equivalent in the long run the speed of adjustment is shown to be more rapid under a tariff than under a quota therefore adjustment costs associated with changes in money holdings are lower under a tariff while those associated with changes in consumption are higher simulation results are used to examined the implications of various structural parameters for lifetime utility under the two policies

currency substitution and the real exchange rate the utility maximization approach abstract this paper studies the currency substitution hypothesis with rational expectations in terms of a sidrauski type model where domestic and foreign money enter the utility function it shows that contrary to liviatan 1981 the approach does not necessarily contradict calvo and rodriguez 1977 furthermore the impact of monetary stabilization policy is fully characterized with flexible and pre fixed rates for an extension of dornbusch and mussa 1975 a brief analysis of the optimal quantity of money is also provided

trade and tax reforms in a cash in advance economy we examine the effects of both tariff only and coordinated trade tax reforms on market access government revenue and welfare for a small monetary economy under the assumption that a certain fraction of purchases of each good must be financed with cash held in advance we show that if the cash requirement ratio in the exportable sector is greater than that in the importable then contrary to previous results i a uniform radial reduction of tariffs has ambiguous effects on both welfare and market access ii tariff and consumption tax reforms that leave consumer prices unchanged may be more efficient in improving market access and welfare than a reform that involves only tariffs and iii export and production tax reforms that keep producer prices unchanged may be welfare deteriorating

real disturbances the current account and the exchange rate the case of a tariff abstract this paper examines the effects of an unanticipated tariff on the current account and the exchange rate it is demonstrated that if nontraded goods and importables are substitutes complements in excess demand the imposition of a tariff will may lead to a current account surplus deficit and an appreciation depreciation of the domestic currency the model can be extended to analyze the effects of other real disturbances on the current account and the exchange rate

measuring regional cost of living accurate measures of regional cost of living are vital to businesses and individuals we compare a commonly used regional cost of living index produced by the american chamber of commerce research association accra to an index we calculate using consumer price index data and research from kokoski cardiff and moulton we find significant differences between the accra and the new indexes that are likely due to theoretical design data collection and sampling design the comparison of these indexes highlights sources of differences in regional cost of living measures and suggests caution in the use of accra indexes

devaluation and liberalization in the presence of tariff and quota restrictions an equilibrium model abstract the purpose of this paper is to examine and compare the effects of devaluation and trade liberalization policies on a monetary economy which uses quotas in contrast to an economy which uses tariffs this is done in a general equilibrium framework the paper also investigates the reasons for coupling liberalization policies with a devaluation

government spending and the real exchange rate i study the effect of government spending on the real exchange rate in an open economy version of the sidrauski model with a time varying rate of time preference that introduces complementarity between consumption at different points in time i show that a balanced budget fiscal expansion causes a real depreciation and a current account surplus if the expansion falls on traded goods if the increase falls instead on nontraded goods both the stylized results of a real appreciation and a current account deficit and the perverse result of an appreciation and a surplus can occur

the capital inflows problem revisited a stylized model of southern cone disinflation in the late 1970s countries in latin america s southern cone initiated attempts to lower domestic inflation rates through the progressive reduction of a preannounced rate of exchange rate devaluation the stabilization programs gave rise to massive capital inflows real exchange rate appreciation and current account deficits this paper develops a stylized intertemporal framework in which the effects of a credible preannounced disinflation scheme can be studied it is shown that even when agents have perfect foresight and markets clear continuously the capital inflows phenomenon and the associated real appreciation may result while unanticipated permanent inflation changes are neutral in the paper anticipated inflation is neutral only in exceptional circumstances a preannounced disinflation operates by altering the path of an expenditure based real domestic interest rate that depends on expected changes in the prices of liquidity services and nontradable consumption goods

does price framing affect the consumer price sensitivity of health plan choice this paper provides field evidence on how price framing affects consumers decision to switch health plans in 2009 german federal regulation required insurers to express premium differences between standardized health plans in absolute euro values relative to a federal reference price rather than in percentage point payroll tax differences representative individual level panel data and aggregated health plan level panel data on the universe of health plans show that the reform strongly increased enrollees willingness to switch plans with demand elasticities increasing fourfold the salience of premium differences and the default premium are obviously key driving forces in the decision to switch insurers

on the dynamic non equivalence of tariffs and quotas in the monetary model of the balance of payments abstract this is a reply to a comment by daniel fried and tower 1984 regarding the observation in blejer and hillman 1982 that the adjustment mechanism of the monetary model of the balance of payments provides another instance of tariff quota asymmetry

evidence on the purchasing power parity in a panel of cities evidence is provided on the ppp hypothesis using a sample of 50 spanish cities for a long time period through the application of panel data unit root tests although results suggest non rejection of the ppp short run deviations as measured by half lives indicate that real factors might be causing a slow rate of convergence to a common price index even in highly integrated economies

endogenous real exchange rate fluctuations in an optimizing open economy model abstract this paper constructs a simple intertemporal model of a small open economy inhabited by forward looking agents in which endogenous fluctuations in the real exchange rate can arise in equilibrium i e fluctuations that are not linked to movements in economic fundamentals the key condition for the main results is the assumption that the marshall lerner condition does not hold i e that the country s exports and imports are inelastic to its real exchange rate it is shown that given that the marshall lerner condition fails there exist periodic equilibria and or stationary sunspot equilibria in the neighborhood of the stationary state

dollarization and inflation in a two country optimization model abstract in a two country two currency model this paper examines the conditions of dollarization analyzes the effect of government inflation finance and studies the strategic interdependence of different currency inflation jel f30

what can us city price data tell us about purchasing power parity abstract we study the dispersion of absolute price levels for us cities since 1918 by absolute price levels we mean price indices that measure the cost of a given consumption basket at each point in time we find strong evidence that city price levels converge over time and that the dispersion of price levels is lower for us cities than between oecd countries we argue that price level convergence for us cities will produce bilateral real exchange rate nonstationarity in this case however nonstationarity is not evidence against purchasing power parity ppp rather it is the consequence of improved market integration

unbiased estimation of the half life to price index convergence among u s cities estimates of the half life to convergence of prices across a panel of cities are subject to bias from three potential sources inappropriate cross sectional aggregation of heterogeneous coefficients presence of lagged dependent variables in a model with individual fixed effects and time aggregation of commodity prices this paper finds no evidence of heterogeneity bias in annual cpi data for 17 u s cities from 1918 to 2006 but correcting for the nickell bias and time aggregation bias produces a half life of 7 5 years shorter than estimates from previous studies

estimating welfare in insurance markets using variation in prices we provide a graphical illustration of how standard consumer and producer theory can be used to quantify the welfare loss associated with inefficient pricing in insurance markets with selection we then show how this welfare loss can be estimated empirically using identifying variation in the price of insurance such variation together with quantity data allows us to estimate the demand for insurance the same variation together with cost data allows us to estimate how insurers costs vary as market participants endogenously respond to price the slope of this estimated cost curve provides a direct test for both the existence and the nature of selection and the combination of demand and cost curves can be used to estimate welfare we illustrate our approach by applying it to data on employerprovided health insurance from one specific company we detect adverse selection but estimate that the quantitative welfare implications associated with inefficient pricing in our particular application are small in both absolute and relative terms

on the optimal combination of commercial and exchange rate policies the adoption of managed float by major countries during the seventies renewed the debate about optimal exchange rate regimes despite continuous research on this question the answers are still far from reflecting a coherent unified view indeed the spectrum of such views still ranges from those that support pure float to those that view a modified gold standard as the preferred regime a growing body of literature points out however that the choice among the regimes might depend on the nature of the shocks facing the country as well as on the structure of the economy most of the studies of this question did not deal with issues related to the choice of commercial policy but concentrated instead on comparing the performance of each regime when subject to a given commercial policy 2 independently of this debate contributions in the theory of commercial policies have studied the non equivalence of quotas and tariffs as alternative means of commercial policy 3 the stimulus for this research came from bhagwati s study on the non equivalence of the two policies 2 most of the discussions of this question were conducted in a pure exchange economy and omitted issues related to the choice of exchange rate regimes in trade theory there has been limited discussion of issues related to the interaction between commercial and exchange rate policies 4 and most writers have not studied the optimal coupling of exchange rate and commercial policies the purpose of this study is to analyze these issues in the case of an economy facing

monetary expansion and real exchange rate dynamics this paper examines the effect of a change in the rate of monetary expansion on the dynamics of the real exchange rate under fully flexible domestic prices and a floating exchange rate the model is similar in structure to an ealier paper by calvo and rodriguez the main difference being that in our model consumers have an infinite planning horizon and long run perfect foresight one of the main findings is that an increase in the rate of monetary expansion has the impact effect of creating a real appreciation of the exchange rate and a deterioration of the balance of payments contrary to the results of calvo and rodriguez

efficiency and a simple model of exchange rate determination abstract a monetary model has no intrinsic dynamics so the intertemporal behavior of exchange rates spot and forward depend entirely upon the time processes of the exogenous variables for typical values of interest elasticities of money demand only if all shocks are permanent do exchange rates follow random walks recently changes in relative outputs and money supplies in the canadian us context have evidenced serial correlation so that shocks are not exclusively permanent ones none the less exchange rates have followed a random walk this suggests that the monetary model is an inappropriate specification and that models which pay attention to the choice of currency of denomination deserve greater attention

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

paying medicare advantage plans to level or tilt the playing field medicare beneficiaries are eligible for health insurance through the public option of traditional medicare tm or may join a private medicare advantage ma plan both are highly subsidized but in different ways medicare pays for most of costs directly in tm and subsidizes ma plans based on a benchmark for each beneficiary choosing a private plan the level of this benchmark is arguably the most important policy decision medicare makes about the ma program many analysts recommend equalizing medicare s subsidy across the options referred to in policy circles as a level playing field this paper studies the normative question of how to set the level of the benchmark applying the versatile model developed by einav and finkelstein ef to medicare the ef framework implies unequal subsidies to counteract risk selection across plan types we also study other reasons to tilt the field the relative efficiency of ma vs tm market power of ma plans and institutional features of the way medicare determines subsidies and premiums after review of the empirical and policy literature we conclude that in areas where the ma market is competitive the benchmark should be set below average costs in tm but in areas characterized by imperfect competition in ma it should be raised in order to offset output enrollment restrictions by plans with market power we also recommend specific modifications of medicare rules to make demand for ma more price elastic

how does risk selection respond to risk adjustment new evidence from the medicare advantage program to combat adverse selection governments increasingly base payments to health plans and providers on enrollees scores from risk adjustment formulae in 2004 medicare began to risk adjust capitation payments to private medicare advantage ma plans to reduce selection driven overpayments but because the variance of medical costs increases with the predicted mean incentivizing enrollment of individuals with higher scores can increase the scope for enrolling overpriced individuals with costs significantly below the formula s prediction indeed after risk adjustment ma plans enrolled individuals with higher scores but lower costs conditional on their score we find no evidence that overpayments were on net reduced

on the dynamic non equivalence of tariffs and quotas in the monetary model of the balance of payments comment abstract this comment uses a simple monetary model of the balance of payments to demonstrate that adjustment speed is higher under a tariff than under the quota which is equivalent to it in longrun equilibrium if and only if the tariff is less than the maximum expenditure tariff this result contradicts the conclusion of blejer and hillman that adjustment under the tariff is always faster

temporary import quota and the current account this paper studies the effects of a temporary import quota on the real exchange rate and the current account response is determined by the interaction between two opposing forces the intertemporal relative price effect tends to improve the current account while the wealth the intertemporal relative price effect tends to improve the current account while the wealth effect contributes to a deterioration for a sufficiently low degree of intertemporal consumption substitution the wealth effect is shown to dominate in this event the current account deteriorates in response to a temporary quota and improves only after the quota is lifted

dynamics of a floating exchange rate regime we study the full equilibrium dynamics of a two country world economy with a floating exchange rate traded and nontraded goods and explicit modeling of the use of money the resulting exchange rate equation depends on several details of the economic structure such as the supply structure and propensities to spend on various goods although real exchange rate movements have the usual association with the current account the ordinary exchange rate may appreciate or depreciate when there are deficits on current account even when the quantities of money do not change deviations from purchasing power parity and the fisher equation are shown to be the rule rather than the exception

unbiased estimation of the half life to ppp convergence in panel data three potential sources of bias introduce complications for panel data estimation of the half life of purchasing power parity deviations they are bias induced by inappropriate cross sectional aggregation of heterogeneous coefficients small sample estimation bias of dynamic lag coefficients and bias induced by time aggregation of commodity prices all of these biases have been addressed individually in the literature in this paper we address all three biases in arriving at our estimates using an annual panel data set of cpi based real exchange rates for 21 oecd countries from 1973 to 1998 we obtain a point estimate of the unbiased half life of 3 0 years with a 95 confidence interval of 2 3 4 2 years

premium levels and demand response in health insurance relative thinking and zero price effects abstract in health care systems with a competitive health insurance market governments or other sponsors e g employers often subsidize premiums to encourage enrolment these subsidies are typically independent of plan choice leaving the absolute premium differences in place so as not to distort consumer choice of plan such subsidies do however change the relative premium differences across plans which according to theories from behavioral economics can affect choice consumers might be sensitive to differences relative to a reference premium relative thinking furthermore consumers might be particularly sensitive to a reference premium of zero zero price effect a relevant range for some subsidized health insurance markets this paper tests these ideas with two sources of evidence we argue that observed equilibria in germany and the u s medicare advantage markets are consistent with a powerful zero price effect resulting in an equilibrium focal pricing at zero this contrasts with the netherlands where equilibrium premiums are well above zero in an empirical test using hypothetical questions in a web based survey in these three countries we also find evidence for both a relative thinking and a zero price effect in the demand for health insurance our findings imply that well designed subsidies can leverage relative thinking to increase demand elasticity for health plans creation of a powerful reference price e g at zero however risks subverting price competition

exchange rate pass through and the effects of tariffs on economic performance and welfare abstract we develop a stochastic two country general equilibrium model where prices are determined under conditions of monopolistic competition to examine the macroeconomic and welfare effects of tariffs on the world economy under alternative nominal rigidities producer currency pricing pcp and local currency pricing lcp where the exchange rate pass through is absent we find that the significance of export pricing for the effects of tariffs depends critically upon whether tariffs are anticipated or unanticipated in the former case both pcp and lcp yield the same outcome as do perfectly flexible prices although the mechanism whereby this is achieved is different in the latter case the effects of unanticipated permanent tariffs are highly sensitive to the pricing scheme adopted by exporters leading to a wide range of conflicting outcomes involving tradeoffs among key parameters

a dynamic model of tariffs output and employment under flexible exchange rates abstract a portfolio balance model of the open economy with imperfectly flexible wages and rational expectations is used to analyze the macroeconomic effects of commercial policy previous analyses have led to the counterintuitive and almost inconceivable conclusion that under flexible exchange rates a tariff is contractionary by considering a tariff in a dynamic setting and focusing on the process of adjustment it is shown that there may exist a tradeoff between a tariffs short run and long run effects in certain circumstances a tariff imposed under flexible exchange rates increases output and employment initially while reducing them subsequently

trade liberalization in oligopolistic industries the quota case abstract this paper analyzes the short and long run effects on domestic price and output of partially liberalizing quota restrictions in a general model of oligopolistic interactions it is shown that perverse outcomes are possible in a number of cases including that of rational conjectures a larger quota may result in an increase in domestic output in the short run and a higher price in the long run the relationship between oligopolistic conjectures and the number of firms in the industry is critical in determining the long run outcome