behavioral hazard in health insurance a fundamental implication of standard moral hazard models is overuse of low value medical care because copays are lower than costs in these models the demand curve alone can be used to make welfare statements a fact relied on by much empirical work there is ample evidence though that people misuse care for a different reason mistakes or behavioral hazard much high value care is underused even when patient costs are low and some useless care is bought even when patients face the full cost in the presence of behavioral hazard welfare calculations using only the demand curve can be off by orders of magnitude or even be the wrong sign we derive optimal copay formulas that incorporate both moral and behavioral hazard providing a theoretical foundation for value based insurance design and a way to interpret behavioral nudges once behavioral hazard is taken into account health insurance can do more than just provide financial protection it can also improve health care efficiency jel codes d03 i12 i13 i30 i38

a study of productivity changes in food retailing based on a general production function this study estimates productivity gains and losses for the various outputs of food retailing over the period 1959 to 1979 because it allows for the incorporation of all factors of production rather than just labor the methodology employed in this study is superior to conventional methods of studying productivity change our estimates indicate that between 1959 1979 total factor productivity in food retailing rose at a slower rate than total factor productivity in manufacturing while total factor productivity in food retailing rose from 1959 until about 1972 it remained constant or declined between 1972 1979 we discuss the policy and managerial implications of our results and provide suggestions for further research

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

cost sharing design matters a comparison of the rebate and deductible in healthcare since 2006 the dutch population has faced two different cost sharing schemes in health insurance for curative care a mandatory rebate of 255 euros in 2006 and 2007 and since 2008 a mandatory deductible using administrative data for the entire dutch population we compare the effect of both cost sharing schemes on healthcare consumption between 2006 and 2013 we use a regression discontinuity design which exploits the fact that persons younger than eighteen years old neither face a rebate nor a deductible our fixed effect estimate shows that for individuals around the age of eighteen a one euro increase of the deductible reduces healthcare expenditures 18 eurocents more than a euro increase of the rebate these results demonstrate that differences in the design of a cost sharing scheme can lead to substantial different effects on total healthcare expenditure

claim timing and ex post adverse selection many health care treatments are not urgent and may be delayed if patients so choose because insurance coverage is typically determined by the treatment date individuals may have incentives to strategically delay treatments to minimize out of pocket costs the strategic delay of treatment a particular form of moral hazard can be an important source of subsequent adverse selection in which ex ante identical individuals select insurance coverage based on their differing accumulation of previously delayed treatments this article investigates these forces empirically in the context of the missing market for dental insurance using rich claim level data my analysis reveals that approximately 40 of individuals strategically delay dental treatments when incentivized to do so and this flexibility in delaying treatment can explain why the market for dental insurance has largely unraveled more generally the counterfactual analysis suggests features such as open enrolment periods and contracting on pre existing conditions may be helpful tools in overcoming adverse selection in insurance contexts where the timing of uncertainty is not contractible

optimality properties of alternative systems of taxation of foreign capital income foreign source capital income taxes are examined from the point of view of optimal taxation in the framework of a simple economy with international real capital flows a taxonomy of alternative systems of such taxation is first presented showing how crediting and other tax parameters induce what are called source based residence based and related systems next tax rates are determined that are optimal from a single country s point of view given those of the others the achievability of these rates under the various systems is analyzed finally tax rates that are optimal from an international point of view are considered again achievability of an international optimum under the various systems is considered leading to the main conclusions that i a pure residence based system in all countries can achieve an international fiscal optimum ii it cannot however be sustained as an equilibrium

on the desirability of taxing capital income in optimal social insurance abstract this paper analyzes optimal linear taxes on labor income and savings in a two period life cycle model with ex ante identical households endogenous leisure demands in both periods and general processes of skill shocks over the life cycle we demonstrate that the atkinson stiglitz theorem breaks down under risk capital taxes are employed besides labor income taxes for two distinct reasons i capital taxes reduce labor supply distortions on second period labor supply since second period labor supply and saving are substitutes ii capital taxes insure first period income risk although this benefit is partially off set because first period labor supply and saving are complements our results imply that retirement saving should not be actuarially fair

consumption vs income taxes when private human capital investments are imperfectly observable abstract this paper considers optimal taxation in an endogenous growth model where private education investments are imperfectly observable consumption taxation is better than labor income taxation for public provision of goods unless educational investment is completely unobservable if subsidies are feasible for observed education investment the consumption tax rate is independent of the degree of observability but the subsidy rate is higher the lower is the observability if subsidies are not feasible the consumption tax rate is lower the more limited is the observability optimal tax rates for goods that provide consumption and education investment simultaneously are below normal rates for observed pure consumption growth and welfare are positively related to independent of the degree of observability without with subsidies

optimal tax rules and public sector efficiency with an externality in an overlapping generations model abstract this paper examines optimal tax rules and public sector efficiency integrating them in a second best world with pollution by using an overlapping generations model the second best world is characterized by the comparative statics of green preferences the main results obtained are as follows first the marginal cost of public funds may be reduced by the externalities regardless of the choice of taxes second optimal environmental and non environmental tax rules are additively and directly affected by the dynamic efficiency of capital accumulation per unit labour decal and indirectly by it through the efficiency of the public sector environmental taxes going beyond pigovian ones may be welfare improving if the decal is improved by the environmental tax even optimal non environmental tax rules should additively and directly counter the dynamics of pollution to consider the income effects of the optimal tax system for the future third the additivity property or the principle of targeting does not hold even in the absence of incentive compatibility constraints the essential reasons for this are clarified as follows distortions that should be countered by taxes that is the income effects of the optimal tax system and the decal in this model break the equality between optimal environmental taxes and the externalities measured by governments finally growing environmental concerns may in fact increase pollution the inverse relationship between environmental and labour income taxes may not hold

normal costs and demand effects in price setting a study of retailing the study aims at contributing to the debate whether there are demand effects in models that seek to explain prices as mark ups on costs for costs it considers actual costs normal costs and an intermediate model with a partial adjustment to the deviation of actual from normal costs for demand effects it considers an effect on the price level of a change of demand with an allowance for asymmetry between demand growth and demand decline tests and estimates are conducted on the basis of data from retailing

moral hazard in health insurance what we know and how we know it we describe research on the impact of health insurance on healthcare spending moral hazard and use this context to illustrate the value of and important complementarities between different empirical approaches one common approach is to emphasize a credible research design we review results from two randomized experiments as well as some quasi experimental studies this work has produced compelling evidence that moral hazard in health insurance exists that is individuals on average consume less healthcare when they are required to pay more for it out of pocket as well as qualitative evidence about its nature these studies alone however provide little guidance for forecasting healthcare spending under contracts not directly observed in the data therefore a second and complementary approach is to develop an economic model that can be used out of sample we note that modeling choices can be consequential different economic models may fit the reduced form but deliver different counterfactual predictions an additional role of the more descriptive analyses is therefore to provide guidance regarding model choice

the questionable value of having a choice of levels of health insurance coverage in most health insurance markets in the united states consumers have substantial choice about their health insurance plan however additional choice is not an unmixed blessing as it creates challenges related to both consumer confusion and adverse selection there is mounting evidence that many people have difficulty understanding the value of insurance coverage like evaluating the relative benefits of lower premiums versus lower deductibles also in most us health insurance markets people cannot be charged different prices for insurance based on their individual level of health risk this creates the potential for well known problems of adverse selection because people will often base the level of health insurance coverage they choose partly on their health status in this essay we examine how the forces of consumer confusion and adverse selection interact with each other and with market institutions to affect how valuable it is to have multiple levels of health insurance coverage available in the market

censored quantile instrumental variable estimates of the price elasticity of expenditure on medical care efforts to control medical care costs depend critically on how individuals respond to prices i estimate the price elasticity of expenditure on medical care using a censored quantile instrumental variable cqiv estimator cqiv allows estimates to vary across the conditional expenditure distribution relaxes traditional censored model assumptions and addresses endogeneity with an instrumental variable my instrumental variable strategy uses a family member s injury to induce variation in an individual s own price across the conditional deciles of the expenditure distribution i find elasticities that vary from 0 76 to 1 49 which are an order of magnitude larger than previous estimates

measuring the deadweight loss from taxation in a small open economy a general method with an application to sweden the paper develops a simple general equilibrium framework for calculating the marginal deadweight loss from taxation in a small open economy the framework allows a decomposition of the deadweight loss from each tax instrument into the losses stemming from the contraction of the different tax bases the paper describes a method of calibrating the model which exploits the links between the various factor supply elasticities implied by the standard life cycle model it also develops a method of estimating effective tax rates that is consistent with optimising household and firm behaviour to illustrate how the model works it is calibrated to a data set for sweden the quantitative results highlight the importance of accounting for the interaction between the major tax bases when estimating deadweight loss

the friedman rule in an overlapping generations model with nonlinear taxation and income misreporting this paper models a two period overlapping generations economy with money populated with individuals of different skills they face a nonlinear income tax schedule and can engage in tax evasion money serves two purposes the traditional one modeled through a money in the utility function it also facilitates tax evasion the main message of the paper is that income tax evasion in this framework leads to the violation of the friedman rule the paper also shows that even in the absence of tax evasion when optimality requires differential commodity taxation complementarity of real cash balances and labor supply does not guarantee the optimality of the friedman rule as a boundary solution an additional assumption is required

optimal taxation with consumption time as a leisure or labor substitute abstract this paper studies the optimal commodity taxation problem when time taken in consumption is a perfect substitute for either labor or leisure it shows that while labor substitutability affects the optimal tax structure leisure substitutability leaves the classical optimal tax results intact in the ramsey tax framework with linear income taxes whether the consumers have the same or different earning abilities labor substitutes tend to be taxed at a higher rate than leisure substitutes with the tax differential being increasing in consumption time this is not necessarily the case when one allows for nonlinear income taxation

moral hazard in health insurance do dynamic incentives matter using data from employer provided health insurance and medicare part d we investigate whether healthcare utilization responds to the dynamic incentives created by the nonlinear nature of health insurance contracts we exploit the fact that because annual coverage usually resets every january individuals who join a plan later in the year face the same initial spot price of healthcare but a higher expected end of year future price we find a statistically significant response of initial utilization to the future price rejecting the null that individuals respond only to the spot price we discuss implications for analysis of moral hazard in health insurance

demand elasticities and service selection incentives among competing private health plans we examine selection incentives by health plans while refining the selection index of mcguire et al 2014 to reflect not only service predictability and predictiveness but also variation in cost sharing risk adjusted profits profit margins and newly refined demand elasticities across 26 disaggregated types of service we contrast selection incentives measured by service selection elasticities across six plan types using privately insured claims data from 73 large employers from 2008 to 2014 compared to flat capitation concurrent risk adjustment reduces the elasticity by 47 prospective risk adjustment by 43 simple reinsurance system by 32 and combined concurrent risk adjustment with reinsurance by 60 reinsurance significantly reduces the variability of individual level profits but increases the correlation of expected spending with profits which strengthens selection incentives

what does a deductible do the impact of cost sharing on health care prices quantities and spending dynamics measuring consumer responsiveness to medical care prices is a central issue in health economics and a key ingredient in the optimal design and regulation of health insurance markets we study consumer responsiveness to medical care prices leveraging a natural experiment that occurred at a large self insured firm which required all of its employees to switch from an insurance plan that provided free health care to a non linear high deductible plan the switch caused a spending reduction between 11 79 13 80 of total firm wide health spending we decompose this spending reduction into the components of i consumer price shopping ii quantity reductions and iii quantity substitutions finding that spending reductions are entirely due to outright reductions in quantity we find no evidence of consumers learning to price shop after two years in high deductible coverage consumers reduce quantities across the spectrum of health care services including potentially valuable care e g preventive services and potentially wasteful care e g imaging services we then leverage the unique data environment to study how consumers respond to the complex structure of the high deductible contract we find that consumers respond heavily to spot prices at the time of care and reduce their spending by 42 when under the deductible conditional on their true expected end of year shadow price and their prior year end of year marginal price in the first year post plan change 90 of all spending reductions occur in months that consumers began under the deductible with 49 of all reductions coming for the ex ante sickest half of consumers under the deductible despite the fact that these consumers have quite low shadow prices there is no evidence of learning to respond to the true shadow price in the second year post switch

the bidder s curse reply in our paper the bidder s curse malmendier and lee 2011 we introduce a novel research design to identify overbidding on ebay we compare the final price in an auction to the fixed price at which the same item was simultaneously available on ebay during the sample period overbidding was surprisingly prevalent affecting around 40 50 percent of auctions across different datasets the overbidding percentages ranged from 0 to 72 percent for different item categories the paper shows that such widespread overbidding is generated by a small number of bidders auctions emerge as a tool to fish for fools whose bids generate high final prices cf malmendier and szeidl 2012 our research design has been used or discussed in a number of papers 1 including schneider 2016 schneider applies the comparison to another dataset of dvd auctions he finds a very similar range of overbidding percentages between 0 percent and 69 percent without shipping cost and 0 percent to 83 percent with shipping cost depending on the movie and 23 percent on average the emphasis of the paper however is different schneider points to users inability to inspect all relevant ebay listings of an item e g to click page down or next page but also to use all relevant search terms he proposes that these failings indicate that traditional

effective tax rates in macroeconomics cross country estimates of tax rates on factor incomes and consumption abstract this paper proposes a method for computing tax rates using national accounts and revenue statistics using this method we construct time series of tax rates for large industrial countries the method identifies the revenue raised by different taxes at the general government level and defines aggregate measures of the corresponding tax bases this method yields estimates of effective tax rates on factor incomes and consumption consistent with the tax distortions faced by a representative agent in a general equilibrium framework these tax rates compare favorably with existing estimates of marginal tax rates and highlight important international differences in tax policy

insurance induced moral hazard a dynamic model of within year medical care decision making under uncertainty health insurance may lead individuals to overconsume medical care many studies explore this moral hazard using models that aggregate medical care decisions up to the annual level using employer employee matched data from the medical expenditure panel survey meps i estimate moral hazard using a dynamic model of within year medical care consumption that allows for endogenous health transitions variation in medical care prices and individual uncertainty within a health insurance year i then estimate moral hazard under a second set of conditions that are consistent with the assumptions of most annual decision making models the within year decision making model produces a moral hazard estimate that is 19 2 larger than the alternative model i highlight the importance of controlling for within year dynamics in a model of medical care consumption using a counterfactual policy simulation that implements the individual mandate provision of the 2010 patient protection and aordable care act i nd that full implementation of the policy decreases the percentage of uninsured individuals in the population being analyzed from 11 8 to 6 0 furthermore when all uninsured individuals are forced into coverage their predicted annual medical care expenditure increases by 45 5

in a world without borders the impact of taxes on internet commerce the rapid rise in sales over the internet and the fact that most internet buyers pay no sales tax has ignited a considerable debate over taxes and the internet this paper uses new data on the purchase decisions of approximately 25 000 online users to examine the effect of local sales taxes on internet commerce the results suggest that controlling for observable characteristics people living in high sales taxes locations are significantly more likely to buy online the results are quite robust and cannot be explained by unobserved technological sophistication shopping costs or other alternative explanations the magnitudes in the paper suggest that applying existing sales taxes to internet commerce might reduce the number of online buyers by up to 24 percent

the rand health insurance experiment three decades later we re present and re examine the analysis from the famous rand health insurance experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending we begin by summarizing the experiment and its core findings in a manner that would be standard in the current age we then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms finally we re consider the famous rand estimate that the elasticity of medical spending with respect to its out of pocket price is 0 2 emphasizing the challenges associated with summarizing the experimental treatment effects from non linear health insurance contracts using a single price elasticity

optimal differentiation of international environmental taxes in the presence of national labor market distortions we explore the implication of the doubledividend debate for international environmentaltaxes in our scenario small open economies withdifferent labor market distortions follow a commonenvironmental policy and use national environmentaltax revenues to finance labor tax cuts since thedouble dividend hypothesis does not hold a high labortax implies a low environmental tax relative to othercountries the optimal differentiation ofinternational environmental taxes is proven to be afunction of the national labor tax rates and theuncompensated elasticities of labor supply

welfare effects of changing commodity tax rates toward uniformity abstract this paper presents a theory of tax reform that is applicable to a many good economy where i the initial tax structure is arbitrarily given ii no lump sum tax exists and iii the initial tax revenue must be maintained after the reform sufficient conditions are established under which tax changes definitely result in increases in welfare they indicate that in a wide class of situations the uniform tax structure can be a useful intermediate target on the way to optimum

towards a theory of the direct indirect tax mix despite the fact that all developed economies levy broadly based indirect taxes alongside direct taxes little theory is devoted to explaining the direct indirect tax mix our purpose is to show that if different taxes have different evasion characteristics some optimal tax mix emerges naturally assuming that only income tax can be evaded and focusing on a two class economy we analyse the case for supplementing optimal non linear income taxation with commodity taxation and we develop conditions under which the latter should or should not be uniform

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

optimal taxation with home production abstract optimal taxes for europe and the u s are derived in a realistically calibrated model in which agents buy consumption goods and services and use home capital and labor to produce household services the optimal tax rate on services is substantially lower than the tax rate on goods specifically the planner cannot tax home production directly and instead lowers the tax rate on market services to increase the relative price of home production the optimal tax rate on the return to home capital is strictly positive and the welfare gains from switching to optimal taxes are large

the response of drug expenditure to nonlinear contract design evidence from medicare part d we study the demand response to non linear price schedules using data on insurance contracts and prescription drug purchases in medicare part d we exploit the kink in individuals budget set created by the famous donut hole where insurance becomes discontinuously much less generous on the margin to provide descriptive evidence of the drug purchase response to a price increase we then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non linear budget set we use the model for counterfactual analysis of the increase in spending from filling the donut hole as will be required by 2020 under the affordable care act in our baseline model which considers spending decisions within a single year we estimate that filling the donut hole will increase annual drug spending by about 150 or about 8 percent about one quarter of this spending increase reflects anticipatory behavior coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole we also present descriptive evidence of cross year substitution of spending by individuals who reach the kink which motivates a simple extension to our baseline model that allows in a highly stylized way for individuals to engage in such cross year substitution our estimates from this extension suggest that a large share of the 150 drug spending increase could be attributed to cross year substitution and the net increase could be as little as 45 per year

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

taxing education in ramsey s tradition abstract assuming a two period model with endogenous choices of labour education and saving it is shown to be second best efficient to deviate from ramsey s rule and to distort qualified labour less than nonqualified labour furthermore if the earnings function displays constant elasticity the choice of education should not be distorted with the necessary qualifications the results extend to the case when taxpayers are heterogeneous and when the planner trades off efficiency against equity

productivity and efficiency impacts of human resources practices in food retailing data from an annual survey of us supermarkets including detailed information on store characteristics operations and performance are used to develop an index of human resource hr practices for food retailers a stochastic frontier analysis demonstrates that hr policies have a positive impact on value added in food retailing establishments while efficiency is not adversely influenced by hr practices managerial implications of the model link technical inefficiency estimates for retailers to slight declines in store level gross margins evaluated on the basis of technical efficiency retailers choosing a portfolio of hr practices that score high on the hr index are able to match the performance of competitors pursuing an alternative low hr strategy

energy taxation reasons for discriminating in favor of the production sector abstract if a small open economy wishes to restrict it s greenhouse gas emissions it has to decide whether to impose uniform taxes on all polluters or to resort to a discriminatory policy in practice countries tend to impose higher taxes on households and to tax the industrial sector more leniently this paper identifies conditions under which this is efficient it is shown that an efficiency maximizing tax planner discriminates in favor of the production sector if i there are restrictions on the taxation of lump sum income or if ii labor supply exerts market power

tax evasion in an open economy abstract ignoring tax evasion possibilities a value added and a cash flow income tax have similar behavioral and distributional consequences yet the available means of tax evasion under each can be very different under a vat avoidance occurs through cross border shopping whereas under an income tax it can occur through shifting taxable income abroad given evasion we show that a country would make use of both taxes in order to minimize the efficiency costs of evasion activity relying relatively more on whichever tax is harder to evade we then make use of aggregate danish tax and accounting data from 1992 to measure the amount of evasion that occurred under the two taxes while the estimates of evasion activity are small the figures imply that denmark could reduce the real costs of evasion activity by relying more on value added taxes

the oregon health insurance experiment evidence from the first year in 2008 a group of uninsured low income adults in oregon was selected by lottery to be given the chance to apply for medicaid this lottery provides an opportunity to gauge the effects of expanding access to public health insurance on the health care use financial strain and health of low income adults using a randomized controlled design in the year after random assignment the treatment group selected by the lottery was about 25 percentage points more likely to have insurance than the control group that was not selected we find that in this first year the treatment group had substantively and statistically significantly higher health care utilization including primary and preventive care as well as hospitalizations lower out of pocket medical expenditures and medical debt including fewer bills sent to collection and better self reported physical and mental health than the control group

efficient investment incentives in the presence of capital flight abstract this paper examines the efficiency of quantity restrictions on capital exports and the accompanying set of taxes when a government can effectively tax foreign source income then it is not efficient to impose restrictions on capital exports and the optimal tax rates on foreign source and domestic source income are the same an efficient allocation of domestic savings between foreign and domestic investment is obtained however when the government cannot tax foreign source income it is optimal to impose such a restriction so as to induce overinvestment in domestic capital

health insurance for humans information frictions plan choice and consumer welfare traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk in practice choosing an insurance plan is a complicated decision often made without full information in this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences information frictions and hassle costs our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates we study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro foundations for welfare analysis

the demand for episodes of treatment in the health insurance experiment abstract this paper analyzes claims data from the rand health insurance experiment which were grouped into episodes of treatment the insurance plans in the experiment have coinsurance and a cap on out of pocket spending using new statistical techniques to adjust for the increased sickliness of those who exceed the cap the effects of coinsurance on cost per episode and number of episodes are estimated cost sharing reduced the number of episodes but had little effect on cost per episode people in the experiment responded myopically as their current insurance status changed through the year the price elasticity of spending was about 0 2 throughout the range of coinsurance studied when data permit it the study of episodes complements analyses of annual medical spending by revealing more about how decisions to spend are made within the year

selection on moral hazard in health insurance economic analysis of market failure in insurance markets tends to analyze selection and moral hazard as distinct phenomena in this paper we explore the potential for selection on moral hazard in insurance markets by this we mean the possibility that moral hazard effects are heterogenous across individuals and that individuals selection of insurance coverage is affected by their anticipated behavioral response to coverage we examine these issues empirically in the context of employer provided health insurance in the united states specifically we break down the general

health care demand elasticities by type of service we estimate within year price elasticities of demand for detailed health care services using an instrumental variable strategy in which individual monthly cost shares are instrumented by employer year plan month average cost shares a specification using backward myopic prices gives more plausible and stable results than using forward myopic prices using 171 million person months spanning 73 employers from 2008 to 2014 we estimate that the overall demand elasticity by backward myopic consumers is 0 44 with higher elasticities of demand for pharmaceuticals 0 44 specialists visits 0 32 mris 0 29 and mental health substance abuse 0 26 and lower elasticities for prevention visits 0 02 and emergency rooms 0 04 demand response is lower for children in larger firms among hourly waged employees and for sicker people overall the method appears promising for estimating elasticities for highly disaggregated services although the approach does not work well on services that are very expensive or persistent

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

commodity tax competition between member states of a federation equilibrium and efficiency we first describe regional market equilibria whereupon consumers of each region allocate their purchases of private goods between domestic and nondomestic ones according to the structure of relative prices taxes and transportation costs next regional optimal tax levels and public good quantities are derived the tax of the other region being held constant fiscal competition arises from the ability of one region in choosing its tax to alter the tax base of the other

productivity growth in the grocery trade this paper presents a model of the growth of the average efficiency of labour per type of shop as a function of the wage rate use of part time labour labour supply and demand and economies of scale shop size the model is estimated on the basis of data for the grocery trade prior to 1975 this yields a forecast beyond 1975 which is compared with more recent observations are estimate of the model on the basis of data for the grocery trade in the period 1975 78 is found to be in agreement with the original estimate some implications of the model are indicated

a reinterpretation of elasticity formulae in optimum tax theory this paper presents a unified interpretation of three special cases which have been widely discussed in the theory of optimum taxation these are the corlett hague case and two versions of the inverse elasticity rule derived on the assumption that either the compensated or the uncompensated cross elasticities of demand are zero it is demonstrated that all three cases imply that it is the compensated elasticities which determine efficient tax differentiation and that complementarity with the untaxed numeraire emphasized by w j corlett and d c hague 1953 54 plays a role in the interpretation of all three cases copyright 1987 by the review of economic studies limited

a spatial tax harmonization model abstract policies to harmonize value added tax rates are controversial in the european union this paper formulates a multi country model over a one dimensional space as a non cooperative nash game in which each country aims at maximizing its tax revenue subject to the constraint that its tax rate lies within a given common band then we examine the effects of changes in the common band on tax rates tax revenues and the number of cross border shoppers at nash equilibrium we also analyze the effects of geographical variation in country size and location

optimal health insurance for multiple goods and time periods we examine the efficiency based arguments for second best optimal health insurance with multiple treatment goods and multiple time periods correlated shocks across health care goods and over time interact with complementarity and substitutability to affect optimal cost sharing health care goods that are substitutes or have positively correlated demand shocks should have lower optimal patient cost sharing positive serial correlations of demand shocks and uncompensated losses that are positively correlated with covered health services also reduce optimal cost sharing our results rationalize covering pharmaceuticals and outpatient spending more fully than is implied by static one good or one period models

cellular service demand biased beliefs learning and bill shock by april 2013 the fcc s recent bill shock agreement with cellular carriers requires consumers be notied when exceeding usage allowances will the agreement help or hurt consumers to answer this question we estimate a model of consumer plan choice usage and learning using a panel of cellular bills our model predicts that the agreement will lower average consumer welfare by 2 per year because rms will respond by raising monthly fees our approach is based on novel evidence that consumers are inattentive to past usage meaning that bill shock alerts are informative and advances structural modeling of demand in situations where multipart taris induce marginal price uncertainty additionally our model estimates show that an

atkinson and stiglitz theorem in the presence of a household production sector we show that the celebrated atkinson and stiglitz 1976 result on the uniformity of the commodity tax rates when preferences are weakly separable between goods and leisure does not hold when at least one of the goods is produced within the household the result is restored if preferences are weakly separable in market goods on the one hand and leisure and household goods on the other

small firms bigger changes health insurance coverage take up rates in small firms after the aca measuring the impact of the affordable care act of 2010 aca on employer sponsored health insurance is essential in an era of constant changes to health policy using data from the kaiser family f

optimal shadow prices for public production abstract the purpose of this paper is mainly expository in showing that within a very simple model famous and previously unrelated results on optimal public sector pricing emerge as special cases of a general optimal pricing formula it also examines the relationships between the elasticity of scale in private production and the optimal shadow prices for public production

optimal financing of the government s budget taxes bonds or money financing of the government s budget in particular we consider taxation bond issuance and money creation as alternative means of financing these issues are not new some of them were extensively explored in the public finance literature some of them were explored in the monetary theory literature what we believe to be new however is that our work integrates the relevant elements from both strands of literature into a unified general equilibrium framework with this approach we are able to jointly determine the optimal combination of tax rates the rate of inflation and the interest rate on government bonds this type of analysis enables us to ask whether the rate of inflation should be positive or negative and to provide simple conditions on compensated demand elasticities which determine the answer it also enables us to reconsider milton friedman s optimum quantity of money rule in a public finance framework without lump sum taxes and to show how this rule should be modified in addition we provide insight into the desirability of a social security scheme by showing that such a program is undesirable when social security payments are financed

welfare criteria for tax reforms efficiency aspects there are essentially two types of problems to which the normative theory of taxation addresses itself one of these problems is that of designing de novo i e from scratch a tax system which is optimal in some appropriate welfare sense the other major problem is that of finding conditions under which tax reforms i e changes in an existing tax system are welfareimproving the efficiency aspects of the latter problem are the subject of this paper there has been a considerable interest in the theory of tax reform in the last decade in the earlier part of this decade most studies of tax reforms concerned themselves primarily with the question of changing price distortions e g foster and sonnenschein 1970 bertrand and vanek 1971 kawamata 1974 1977 dixit 1975 hatta 1977 and rader 1976 a common drawback of these studies however is that the kind of tax changes analyzed by them rely on an implicit lump sum tax transfer mechanism for instance some consider the question of whether a reduction in tax rates such as a radial decrease in distortions improves welfare such a reduction will most likely decrease the tax revenues accruing to the government and hence some lump sum tax will have to be introduced therefore it is difficult to draw policy relevant conclusions from these studies more recently there have been several studies e g guesnerie 1977 diewert 1978 dixit 1979 harris 1979 and weymark 1979 which deal

a new theory of retailing costs in cross section studies of shops of the same type we find that costs in general and labour in particular depend on the sales size per shop according to a linear function with a positive intercept this paper provides some empirical evidence and a theoretical explanation based on queuing theory

second best pollution taxes and the structure of preferences we characterize optimal taxes on polluting and nonpolluting goods in ramsey and mirrlees second best environments the polluting good tax differs from the pigouvian tax by ramsey terms in the first and by stiglitz mirrlees plus another adjustment term in the second these terms can be positive negative or zero if preferences are weakly separable in public and private goods with the private good subutility weakly separable in labor and produced goods nonpolluting goods are taxed uniformly and the concept of a tax differential between polluting and nonpolluting goods is well defined the differential is then less than the pigouvian tax in the ramsey framework but it can be greater equal to or smaller than the pigouvian tax in the mirrlees second best in mirrlees second best if preferences are separable in labor supply and other goods the second best tax differential is identical to the pigouvian tax

imperfect observability of emissions and second best emission and output taxes abstract this paper studies the second best tax design problem when emissions are publicly unobservable but can be discovered through costly monitoring a representative firm in industry chooses its emissions and declarations to maximize its expected profits the paper shows the pigouvian rule of equating the marginal private benefit of emissions in production to the marginal social damage of emissions is modified to take account of the resource costs of monitoring and enforcement emissions from different sectors must be taxed at different rates every polluting good must face an effective emission tax that is less than the full marginal social damage of emissions emission taxes do not reflect standard optimal tax objectives output taxes have a pigouvian role so that the targeting principle fails

uniform labor income taxation and economic efficiency abstract this paper uses a two period representative agent optimal taxation model to characterize government tax policy when the interest rate is determined in equilibrium and is affected by policy choices it shows that dynamic tax smoothing may not be optimal and the response of the interest rate with respect to policy choices is extremely important in characterizing government s tax policy

what to expect when you are expecting are health care consumers forward looking a fundamental question in health insurance markets is how do health care consumers dynamically optimize their medical utilization under non linear insurance contracts our paper tests the neoclassical prediction that a fully forward looking agent only responds to their expected end of year price our unique identification strategy studies families during the year of childbirth who will likely satisfy their annual deductible thereby knowing their expected end of year price we find that during the year of a childbirth fathers increase medical spending by 11 per month after their deductible is satisfied rejecting the null of fully forward looking consumers this behavior cannot be explained by fathers increasing utilization in response to the childbirth itself furthermore this myopia translates to a 21 24 decrease in total annual medical spending relative to the counterfactual of fully forward looking behavior and is concentrated in elective procedures we find no response in low value or urgent care our findings suggest the need for modeling non linear incentives while accounting for myopic behavior when studying the medical utilization responses to health insurance

adverse selection and inertia in health insurance markets when nudging hurts this paper investigates consumer inertia in health insurance markets where adverse selection is a potential concern we leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk we use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia when aggregated these improved individual level choices substantially exacerbate adverse selection in our setting leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection jel d82 g22 i13 a number of potential impediments stand in the way of efficient health insur ance markets the most noted of these is adverse selection first studied by akerlof 1970 and rothschild and stiglitz 1976 in insurance markets prices reflect the expected risk costs of the insured pool whether the reason is price regulation or private information when insurers cannot price all risk characteristics riskier consumers choose more comprehensive health plans this causes the equilibrium prices of these plans to rise and healthier enrollees to select less comprehensive coverage than they would otherwise prefer

the political economics of not paying taxes this paper considers redistributive as well as political consequences of tax avoidance when tax avoidance is possible the official tax rate does not necessarily correspond to what individuals actually pay this affects both redistributive outcomes as well as political attitudes towards taxation depending on the avoidance technology different political equilibria emerge when the avoidance possibilities are limited the classical conflict between rich and poor is sustained if the tax avoidance technology is more effective however the equilibrium outcome can change to a situation where a coalition of poor and the very richest favor a higher tax rate comparing the model predictions with data on income inequality and evidence of avoidance activity it comes surprisingly close to actual observations

are efficient linear taxes inequitable abstract i explore the household weights in the bergson samuelson social welfare functions which have a turning point at an efficient linear tax structure the inverse optima a tax structure is defined to be inequitable if every inverse optimum has weights that increase with household productivity over part of the productivity range i find that the inequity of an efficient tax structure depends on the normality of leisure on the number of households and on the natureof household demands an efficient indirect tax structure is not inequitable if the expenditure share of each taxed commodity is constant across households this has welfare implications for the choice of tax instrument to finance a project accepted under benefit cost analysis

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

the two part instrument in a second best world abstract standard pigovian tax theory has been extended in two directions first many polluting activities are difficult to tax because they are not market transactions and so recent papers have shown that the same effects can be achieved by use of a two part instrument 2pi a tax on output or income and a subsidy for clean alternatives to pollution it is a generalization of a deposit refund system drs second a different literature concerns the second best pollution tax in the presence of other tax distortions here we combine the two extensions by looking at the second best 2pi when government needs revenue is the deposit larger and the rebate smaller we find explicit solutions for each tax and subsidy in a general equilibrium model with other tax distortions and we compare these to the rates in a first best model the tax subsidy combination is explained in terms of a tax effect an environmental effect and a revenue effect the model allows for flexible interpretation to show various applications of the 2pi we also discuss important caveats

how large is the optimal inflation tax abstract i examine the title question in a competitive framework where the transaction demand for money is modeled using a cash in advance constraint and only distortionary taxes are possible empirical evidence and simulations are used to document the plausibility of the assumptions which produce the friedman rule these findings suggest that it is not a good benchmark my results suggest that an optimal monetary policy calls for nominal interest rates that can exceed 6 per year

salience myopia and complex dynamic incentives evidence from medicare part d the standard medicare part d drug insurance contract is non linear with reduced subsidies in a coverage gap resulting in a dynamic purchase problem we consider enrolees who arrived near the gap early in the year and show that they should expect to enter the gap with high probability implying that under a benchmark model with neoclassical preferences the gap should impact them very little we find that these enrolees have flat spending in a period before the doughnut hole and a large spending drop in the gap providing evidence against the benchmark model we structurally estimate behavioural dynamic drug purchase models and find that a price salience model where enrolees do not incorporate future prices into their decision making at all fits the data best for a nationally representative sample full price salience would decrease enrolee spending by 31 entirely eliminating the gap would increase insurer spending 27 compared to 7 for generic drug only gap coverage

structural estimation of a principal agent model moral hazard in medical insurance despite the importance of principal agent models in the development of modern economic theory there are few estimations of these models i recover the estimates of a principal agent model and obtain an approximation to the optimal contract the results show that out of pocket payments follow a concave profile with respect to costs of treatment i estimate the welfare loss due to moral hazard taking into account income effects i also propose a new measure of moral hazard based on the conditional correlation between contractible and noncontractible variables

fragmented division of labor and healthcare costs evidence from moves across regions abstract policies aiming to improve healthcare productivity often focus on reducing care fragmentation care fragmentation occurs when services are spread across many providers potentially making coordination difficult using medicare claims data we analyze the effect of moving to a region with more fragmented care delivery we find that 60 of regional variation in care fragmentation is independent of patients individual demand for care and moving to a region with 1 sd higher fragmentation increases care utilization by 10 when patients move to more fragmented regions they increase their use of specialists and have fewer encounters with primary care physicians more fragmented regions have more intensive care provision on many margins including services sometimes associated with overutilization hospitalizations emergency department visits repeat imaging studies as well as services associated with high value care vaccines guideline concordant for diabetics

jeux sans frontieres tax competition and tax coordination when countries differ in size closer international integration is putting increasing pressure on existing national tax structures this paper uses a simple two country model to address a range of consequent policy concerns focusing particularly on the role of country size differences in size exacerbate the inefficiency from noncooperative behavior harming both countries the smaller country loses from harmonization to any tax rate between those set in the noncooperative equilibrium but both countries gain from the imposition of a minimum tax anywhere in that range the fully optimal response to freer cross border trade however may be to do nothing jel h20 h77

should day care be subsidized in the presence of distortionary taxes on labor can subsidies on childcare flnanced by a further increase in taxes raise welfare by encouraging women with small children to work we approach this question in two difierent ways first we consider a set of stylized models where we prove analytically that under some conditions the ramsey optimal policy consists in making childcare expenses tax deductible then we construct a calibrated stochastic dynamic life cycle model of household decision making designed to capture some facts about labor supply in germany we flnd that the welfare gains associated with subsidizing childcare are considerable and that the maximum gains are realized when childcare is subsidized to an even greater extent than what tax deductibility implies

uncertainty and optimally uniform commodity taxes this paper examines the implications of uncertainty for the structure of optimal commodity taxes in the presence of a linear income tax consumers face uncertain income and commit to consumption of some goods before the resolution of uncertainty and to others after preferences are separable between labor and consumption goods we prove that optimal commodity taxes are i uniform within the category of noncommitted goods if their subutility is logarithmic ii uniform within the two categories if both subutilities are logarithmic and iii nonzero across categories with the tax rate on precommitted goods being lower than the tax rate on noncommitted goods starting with atkinson and stiglitz 1976 a number of economists have argued that under certain restrictions on preferences e g logarithmic a linear income tax is a sufficient tool for optimal tax policy see atkinson 1977 deaton 1979 and deaton and stern 1986 recently cremer and gahvari 1995a showed that these results do not carry to an economy in which individuals face wage uncertainty in models with uncertainty taxation is useful for the insurance it provides if consumption takes place both before and after the resolution of uncertainty commodity taxes will have different insurance properties depending on when consumption occurs this property makes differential tax treatment of these two types of goods optimal cremer and gahvari 1995a divided commodities into two categories the consumption levels in one category are committed to before the resolution of uncertainty and those in the other after their study pinpoints a fundamental difference between these categories of goods that calls for their tax treatment to be different however their analysis leaves open the question of the uniformity of tax rates within each category the main aim of the current paper is to address this question we shall examine the type of preferences for which the tax rates within each category have to be uniform in this way we will build a bridge between the results of cremer and gahvari 1995a and the literature on uniform taxation in the presence of a linear

the impact of state taxes on self insurance abstract this paper assesses whether insurers state taxes reduce purchases of property casualty coverage tests are conducted using state aggregates of insurer level data from publicly available annual accounting reports for 1993 1995 a positive relation between self insurance and state taxes is detected consistent with consumers opting to self insure rather than bear the incidence of higher insurer taxes as expected tax effects vary with the elasticity of demand when demand is largely inelastic e g automobile liability coverage taxes do not affect self insurance