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

on the relationship between aggregate merger activity and the stock market abstract this paper presents substantial evidence to show that the well documented correlation between aggregate merger activity and indices of share prices is unstable and thus of little predictive value further granger causality testing suggests that such correlations are spurious reflecting other more fundamental forces which jointly determine movements in both series

the effects of human resource management practices on productivity a study of steel finishing lines the authors investigate the productivity effects of innovative employment practices using data from a sample of thirty six homogeneous steel production lines owned by seventeen companies the productivity regressions demonstrate that lines using a set of innovative work practices which include incentive pay teams flexible job assignments employment security and training achieve substantially higher levels of productivity than do lines with the more traditional approach which includes narrow job definitions strict work rules and hourly pay with close supervision their results are consistent with recent theoretical models which stress the importance of complementarities among work practices

a tale of tax policies in open economies recent financial crises in europe as well as the periodic battles in the u s over the debt ceiling point to the importance of fiscal discipline among developed countries this paper develops an open economy model calibrated to the u s and a subset of the emu to evaluate the impact of various permanent tax changes the first set of experiments considers a targeted one percentage point reduction in the government deficit to gdp ratio through raising one of the consumption tax the labor income tax or the capital income tax in terms of welfare the consumption tax is found to be the least costly of the tax increases a second set of experiments looks at deficit neutral tax changes partially replacing the capital income tax with either a higher labor income tax or higher consumption tax and partially replacing the labor income tax with an increased consumption tax reducing reliance on capital income taxation is welfare enhancing although it leads to short term losses reducing labor income taxation improves international competitiveness and is welfare improving

measuring the impacts of teachers ii teacher value added and student outcomes in adulthood abstract are teachers impacts on students test scores value added a good measure of their quality this question has sparked debate partly because of a lack of evidence on whether high value ad

expenditure switching vs real exchange rate stabilization competing objectives for exchange rate policy this paper develops a view of exchange rate policy as a trade off between the desire to smooth fluctuations in real exchange rates so as to reduce distortions in consumption allocations and the need to allow flexibility in the nominal exchange rate so as to facilitate terms of trade adjustment we show that optimal nominal exchange rate volatility will reflect these competing objectives the key determinants of how much the exchange rate should respond to shocks will depend on the extent and source of price stickiness the elasticity of substitution between home and foreign goods and the amount of home bias in production quantitatively we find the optimal exchange rate volatility should be significantly less than would be inferred based solely on terms of trade considerations moreover we find that the relationship between price stickiness and optimal exchange rate volatility may be non monotonic

the expenditure switching effect welfare and monetary policy in a small open economy abstract this paper analyses the implications of the expenditure switching effect for the role of the exchange rate in monetary policy in a small open economy it is shown that when the elasticity of substitution between home and foreign goods is not equal to unity welfare depends on the variances of producer prices and the terms of trade producer price targeting is compared to consumer price targeting and a fixed exchange rate it is found that a fixed exchange rate yields higher welfare than the other regimes only when the elasticity of substitution between home and foreign goods is very high

monetary policy and exchange rate volatility in a small open economy we lay out a small open economy version of the calvo sticky price model and show how the equilibrium dynamics can be reduced to a simple representation in domestic inflation and the output gap we use the resulting framework to analyse the macroeconomic implications of three alternative rulebased policy regimes for the small open economy domestic inflation and cpi based taylor rules and an exchange rate peg we show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail we also discuss a special case for which domestic inflation targeting constitutes the optimal policy and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules

the unbearable tightness of being in a monetary union fiscal restrictions and regional stability we study how constrained fiscal policy can affect macroeconomic stability and welfare in a two region model of a monetary union with sticky prices and distortionary taxation both government spending and taxes can be used to stabilize regional variables however the best welfare outcome is obtained under some tax variability and constant regional inflations we use a variety of rules to characterize constrained fiscal policy and find that strict fiscal rules coupled with a monetary policy that targets union wide inflation result in regional inflation stability and the welfare costs of such rules are not as unbearable as one would expect fiscal authorities can enhance welfare by targeting the regional output gap while targeting regional inflation is less successful since inflation stability is guaranteed by the central bank

on the international dimension of fiscal policy this paper analyses the international dimension of fiscal policy using a small open economy framework in which the government finances its spending by levying distortionary taxation and issuing non state contingent debt the main finding of the paper is that once the open economy aspect of the policy problem is considered it is not optimal to smooth taxes following idiosyncratic shocks even when prices are flexible and inflation can costlessly act as a shock absorber to restore fiscal equilibrium the presence of a terms of trade externality lead to movements in the tax rate also in contrast with the closed economy the introduction of sticky prices can reduce the optimal volatility of taxes

price stability in open economies this paper studies the conditions under which price stability is the optimal policy in a two country open economy model with imperfect competition and price stickiness special conditions on the levels of country specific distortionary taxation and the intratemporal and intertemporal elasticities of substitution need to be satisfied these restrictions apply to both cooperative and non cooperative settings most importantly we show that cooperative and non cooperative solutions do not coincide despite market completeness and producer currency pricing in this framework our analysis suggests a role for international policy coordination

high exchange rate volatility and low pass through abstract two specifications of an open economy model are shown to generate high exchange rate volatility and low exchange rate pass through erpt in the model price discrimination causes erpt to be incomplete in both the short and the long run in the short run a small amount of nominal rigidities is enough to reduce erpt sharply still exchange rate depreciation worsens the terms of trade consistent with the evidence possible biases from omitted variables and measurement error in the erpt empirical literature due to data limitations are investigated using model generated time series estimates of erpt coefficients can be quite different from true parameters and are sensitive to the shocks driving the economies estimates can nonetheless detect key structural features of the models

time consistent optimal fiscal policy this article studies the properties of optimal fiscal policy in a stochastic growth model when the government cannot commit itself beyond the next period s capital income tax rate we find that the results contrast markedly with those under full commitment first capital income tax rates are very high 65 on average versus close to zero on average under full commitment second labor income taxes are rather low on average about 12 versus a value of around 31 under full commitment finally labor income taxes are quite volatile whereas under full commitment their standard deviation is essentially zero

redistributive taxation in a simple perfect foresight model abstract we investigate the redistributive potential of capital taxation in an intertemporal maximizing model of capital formation first even unanticipated redistributive capital taxation is severely limited in its effectiveness since it depresses wages second under any convergent redistributive tax policy which maximizes a paretian social objective the capital income tax will converge to zero independent of the factor supply elasticities these results are independent of workers holdings of capital

a theory of rational addiction we develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time strong addiction to a good requires a big effect of past consumption of the good on current consumption such powerful complementarities cause some steady states to be unstable they are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention our theory also implies that cold turkey is used to end strong addictions that addicts often go on binges that addicts respond more to permanent than to temporary changes in prices of addictive goods and that anxiety and tensions can precipitate an addiction

using differences in knowledge across neighborhoods to uncover the impacts of the eitc on earnings we develop a new method of estimating the impacts of tax policies that uses areas with little knowledge about the policy s marginal incentives as counterfactuals for behavior in the absence of the policy we apply this method to characterize the impacts of the earned income tax credit eitc on earnings using administrative tax records covering all eitc eligible lers from 19962009 we begin by developing a proxy for local knowledge about the eitc schedule the degree of sharp bunching at the exact income level that maximizes eitc refunds by individuals who report self employment income the degree of self employed sharp bunching varies signi cantly

pitfalls of forward looking monetary policy a distinctive feature of the procedures recently adopted by inflation targeting central banks is their forward looking character forecasts of the economy s future evolution conditional upon alternative policies play a central role in the banks deliberations to an extent that the procedures adopted are sometimes characterized as forecast targeting this emphasis upon the future consequences of policy is unsurprising in an approach that tries to maintain as transparent as possible a relation between the banks9 decisions and the ultimate goals of monetary policy after all current decisions can still affect the future but not the past nonetheless common descriptions of how inflation targeting is or should be practiced go too far in proposing purely forward looking procedures i shall argue instead that an optimal framework for the conduct of monetary policy must generally be history dependent in ways

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

optimal fiscal and monetary policy some recent results this paper studies the quantitative properties of fiscal and monetary policy in business cycle models in terms of fiscal policy optimal labor tax rates are virtually constant and optimal capital income tax rates are close to zero on average in terms of monetary policy the friedman rule is optimal nominal interest rates are zero and optimal monetary policy is activist in the sense that it responds to shocks to the economy

monetary policy and welfare in a small open economy this paper analyzes optimal monetary policy in a small open economy featuring monopolistic competition and nominal rigidities it shows that the utility based loss function for this economy can be written as a quadratic expression of domestic inflation output gap and real exchange rate the presence of an internal monopolistic distortion and a terms of trade externality drives optimal policy away from domestic inflation targeting and affects the optimal level of exchange rate volatility when domestic and foreign goods are close substitutes for each other the optimal policy rule implies lower real exchange rate volatility than a domestic inflation targeting regime the reverse is true when the elasticity of substitution between goods is low

fiscal and monetary rules for a currency union abstract this paper addresses the optimal joint conduct of fiscal and monetary policy in a two country model of a currency union with staggered price setting and distortionary taxes a tractable linear quadratic approximation permits a representation of the optimal policy plan in terms of targeting rules in the optimal equilibrium monetary policy should achieve aggregate price stability following a flexible inflation targeting rule fiscal policy should stabilize idiosyncratic shocks allowing for permanent variations of government debt but should abstain from creating inflationary expectations at the union level simple policy rules can approximate the optimal commitment benchmark through a mix of strict inflation targeting and flexible budget rules conversely the welfare costs of balanced budget rules are at least one order of magnitude higher than conventional estimates of the costs of business cycle fluctuactions

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

welfare and macroeconomic interdependence we develop a baseline model of monetary and fiscal transmission in interdependent economies the welfare effects of expansionary policies are related to monopolistic supply in production and monopoly power of a country in trade an unanticipated exchange rate depreciation can be beggar thyself rather than beggar thy neighbor as gains in domestic output are offset by deteriorating terms of trade smaller and more open economies are more prone to suffer from inflationary shocks larger economies benefit from moderate demand led expansions but may be worse off if policy makers attempt to close the output gap fiscal shocks are generally beggar thy neighbor in the long run in the short run they raise domestic demand at given terms of trade thus reducing the welfare benefits from monetary expansions analytical tractability makes our model uniquely suitable as a starting point to approach the recent new open economy macroeconomic literature

optimal fiscal and monetary policy equivalence results in this article we analyze the implications of price setting restrictions for the conduct of cyclical fiscal and monetary policy we consider standard monetary economies that differ in the price setting restrictions imposed on the firms we show that independently of the degree or type of price stickiness it is possible to implement the same efficient set of allocations and that each allocation in that set is implemented with policies that are also independent of the price stickiness in this sense environments with different price setting restrictions are equivalent

ramsey policies in a small open economy with sticky prices and capital this paper analyzes jointly optimal fiscal and monetary policies in a small open economy with capital and sticky prices we allow for trade in consumption goods under perfect international risk sharing we consider balanced budget fiscal policies where authorities use distortionary taxes on labor and capital together with monetary policy using the nominal interest rate first as long as a symmetric equilibrium is considered the steady state in an open economy is isomorphic to that of a closed economy second whereas sticky prices allocations are almost indistinguishable from flexible prices allocations the open economydimension delivers results that are qualitatively similar to those of a closed economy but with significant quantitative changes fluctuations in terms of trade implied by complete international financial markets affect i consumption through changes in the consumption price index cpi ii hours through changes in the cpi based real wage and iii capital accumulation through the relative price of capital goods these wedges affect the volatility and persistence of optimal tax rates and resulting allocations are quite different as compared to a closed economy

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

the impact of competition on management quality evidence from public hospitals in this paper we examine the causal impact of competition on management quality we analyze the hospital sector where geographic proximity is a key determinant of competition and english public hospitals where political competition can be used to construct instrumental variables for market structure since almost all major english hospitals are government run closing hospitals in areas where the governing party has a small majority is rare due to fear of electoral punishment we find that management quality measured using a new survey tool is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions ami more importantly we find that higher competition as indicated by a greater number of neighboring hospitals is positively correlated with increased management quality and this relationship strengthens when we instrument the number of local hospitals with local political competition adding another rival hospital increases the index of management quality by one third of a standard deviation and leads to a 10 7 reduction in heart attack mortality rates

the allocational role of takeover bids in situations of asymmetric information have special information about the target firm s resources which indicates that the target is really worth more than its current market valuation hence the acquiring firm by paying only a small premium is able to acquire these resources at a price below the true worth to shareholders indicated by the inside information thus shareholders are unable to capture the true benefits of their investments and an inefficient amount of investment will take place therefore the government should restrict takeover bids the above argument is clearly wrong if there is competition among informed bidders for the target firm s assets however proponents of the argument claim that some takeover bids occur exactly because only one agent has special inside information about the target company s resources in this paper we show that

is hospital competition socially wasteful we study the consequences of hospital competition for medicare beneficiaries heart attack care from 1985 to 1994 we examine how relatively exogenous determinants of hospital choice such as travel distances influence the competitiveness of hospital markets and how hospital competition interacts with the influence of managed care organizations to affect the key determinants of social welfare expenditures on treatment and patient health outcomes in the 1980s the welfare effects of competition were ambiguous but in the 1990s competition unambiguously improves social welfare increasing hmo enrollment over the sample period partially explains the dramatic change in the impact of hospital competition

optimal monetary and fiscal policy in a currency union we lay out a tractable model for the analysis of optimal monetary and fiscal policy in a currency union the monetary authority sets a common interest rate for the union whereas fiscal policy is implemented at the country level through the choice of government spending in the presence of country specific shocks and nominal rigidities the policy mix that is optimal from the viewpoint of the union as a whole requires that inflation be stabilized at the union level by the common central bank whereas fiscal policy has a country specific stabilization role one beyond the efficient provision of public goods

the role of the mergers and monopolies commission in merger policy costs and alternatives the purpose of this paper is threefold first we offer an overview of uk merger activity and the role of the mergers and monopolies commission mmc in takeovers second we estimate costs to shareholders arising from referrals of proposed mergers to the mmc finally we discuss broader concerns about the aggregate level of merger activity and suggest how institutional changes might be more effective alternatives to merger as a way of removing inefficiencies

international dimensions of optimal monetary policy abstract this paper provides a baseline general equilibrium model of optimal monetary policy among interdependent economies with monopolistic firms and nominal rigidities an inward looking policy of domestic price stabilization is not optimal when firms markups are exposed to currency fluctuations such a policy raises exchange rate volatility leading foreign exporters to charge higher prices vis a vis increased uncertainty in the export market as higher import prices reduce the purchasing power of domestic consumers optimal monetary rules trade off a larger domestic output gap against lower consumer prices optimal rules in a world nash equilibrium lead to less exchange rate volatility relative to both inward looking rules and discretionary policies even when the latter do not suffer from any inflationary or deflationary bias gains from international monetary cooperation are related in a non monotonic way to the degree of exchange rate pass through

the cost of nominal rigidity in nns models we present a model with calvo wage and price setting capital formation and estimated rules for government spending and monetary policy our model captures many aspects of u s data including the volatility that has been observed in various efficiency gaps we estimate the cost of nominal rigidity welfare under flexible wages and prices minus welfare with nominal rigidities to be as much as 3 of consumption each period since there are interest rate rules that virtually eliminate this cost our model suggests that contrary to lucas s 2003 assertion there is considerable room for improvement in demand management policy

optimal taxation of capital income in general equilibrium with infinite lives this paper analyzes the optimal tax on capital income in general equilibrium models of the second best agents have infinite lives and utility functions which are extensions from the koopmans form the population is heterogeneous the important property of the models is the equality between the social and the private discount rates in the long run i find that the optimal tax rate is zero in the long run for a special case of additively separable utility functions i then determine the tax rates along the dynamic path and conditions that are sufficient for the local stability of the steady state

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

optimal fiscal and monetary policy under sticky prices this paper studies optimal fiscal and monetary policy under sticky product prices the theoretical framework is a stochastic production economy without capital the government finances an exogenous stream of purchases by levying distortionary income taxes printing money and issuing one period nominally risk free bonds the main findings of the paper are first for a miniscule degree of price stickiness i e many times below available empirical estimates the optimal volatility of inflation is near zero this result stands in stark contrast with the high volatility of inflation implied by the ramsey allocation when prices are flexible the finding is in line with a recent body of work on optimal monetary policy under nominal rigidities that ignores the role of optimal fiscal policy second even small deviations from full price flexibility induce near random walk behavior in government debt and tax rates third sluggish price adjustment raises the average nominal interest rate above the one called for by the friedman rule finally an interest rate feedback rule whereby the nominal interest rate depends on inflation and output fits well the data emanating from the ramsey economy however the fitted rule is not of the taylor type for the implied inflation coefficient is less than one and close to zero and the output coefficient is negative jel classification e52 e61 e63

healthy business managerial education and management in healthcare we investigate the link between hospital performance and managerial education by collecting a large database of management practices and skills in hospitals across nine countries we find that hosp

active vs passive decisions and crowd out in retirement savings accounts evidence from denmark using 41 million observations on savings for the population of denmark we show that the effects of retirement savings policies on wealth accumulation depend on whether they change savings rates by active or passive choice subsidies for retirement accounts which rely on individuals to take an action to raise savings primarily induce individuals to shift assets from taxable accounts to retirement accounts we estimate that each 1 of government expenditure on subsidies increases total saving by only 1 cent in contrast policies that raise retirement contributions if individuals take no action such as automatic employer contributions to retirement accounts increase wealth accumulation substantially we estimate that approximately 15 of individuals are active savers who respond to tax subsidies primarily by shifting assets across accounts 85 of individuals are passive savers who are unresponsive to subsidies but are instead heavily influenced by automatic contributions made on their behalf active savers tend to be wealthier and more financially sophisticated we conclude that automatic contributions are more effective at increasing savings rates than subsidies for three reasons i subsidies induce relatively few individuals to respond ii they generate substantial crowd out conditional on response and iii they do not increase the savings of passive individuals who are least prepared for retirement jel codes h2 h3

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

sources of geographic variation in health care evidence from patient migration we study the drivers of geographic variation in us health care utilization using an empirical strategy that exploits migration of medicare patients to separate the role of demand and supply factors our approach allows us to account for demand differences driven by both observable and unobservable patient characteristics within our sample of over 65 medicare beneficiaries we find that 40 50 percent of geographic variation in utilization is attributable to demand side factors including health and preferences with the remainder due to place specific supply factors jel h51 i1 i11