disentangling the college wage premium estimating a model with endogenous education choices this article proposes and empirically implements a structural model of education choices and wage determination to quantitatively evaluate the contributions of productivity enhancement and ability signaling in the college wage premium the model is estimated under various distributional parameterizations using 1990 u s census 5 public use micro sample under these parameterizations i find that college education enhances attendees productivity by about 40 and productivity enhancement accounts for close to two thirds of the college wage premium

life cycle preferences over consumption and health a comment on bleichrodt and quiggin abstract in a recent issue of the journal of health economics bleichrodt and quiggin 1999 developed a model of life cycle preferences over consumption and health to analyze qaly based decision making this analysis is crtically appraised concerning issues of qaly maximization on an individual and on an aggregate level as well as of the role of death in qaly models it is concluded that a more general approach might be useful for the analysis of qalys and life cycle preferences over consumption and health

equity weights in the allocation of health care the rank dependent qaly model this paper introduces the rank dependent quality adjusted life years qaly model a new method to aggregate qalys in economic evaluations of health care the rank dependent qaly model permits the formalization of influential concepts of equity in the allocation of health care such as the fair innings approach and it includes as special cases many of the social welfare functions that have been proposed in the literature an important advantage of the rank dependent qaly model is that it offers a straightforward procedure to estimate equity weights for qalys we characterize the rank dependent qaly model and argue that its central condition has normative appeal

social indicators and comparisons of living standards abstract construction of an international index of standards of living incorporating social indicators and economic output typically involves scaling and weighting procedures that lack welfare economic foundations revealed preference axioms can be used to make quality of life comparisons if we can estimate the representative household s production technology for the social indicators this method is applied to comparisons of gross domestic product gdp and life expectancy for 58 countries neither gdp rankings nor the rankings of the human development index hdi are consistent with the partial ordering of revealed preference a method of constructing a utility consistent index incorporating both consumption and life expectancy is suggested

an experimental investigation of the patterns of international trade this study is the first attempt to create and study a laboratory economy with some of the prominent features of an international economic system the concept of multiple countries in which each country has its own technology preferences and resource endowments is introduced and operationalized the questions posed in the study are related to the law of comparative advantage factor price equalization terms of trade efficiency in production and exchange as guided by multiple and interacting markets and the effects of tariffs on international transactions the study builds on previous work in the experimental study of general equilibrium phenomena

the reasonableness of non constant discounting abstract the typical method for valuing the future goods and harms of a public policy alternative is by means of a constant annual discount rate this paper examines the reasonableness for public policy analysis of non constant discounting methods that unlike constant discounting can accord considerable importance to outcomes in the distant future we examine temporal consistency and economic efficiency as reasons for the use of constant discounting and we argue that these reasons do not apply for a public policy choice whose effects are long range and irreversible

qalys and hyes under what conditions are they equivalent the paper examines what restrictions have to be imposed on the individual s preference structure for qalys and hyes to yield identical results it is shown that using qalys involves imposing three additional restrictions empirical evidence suggests that these restrictions cannot be expected to hold in all applications the main problem in using hyes appears to be practical an alternative index is proposed that may help to bridge the gap between qalys and hyes by combining to some extent the advantages of the two measures

dynamic nonlinear income taxation with quasi hyperbolic discounting and no commitment this paper examines a dynamic model of nonlinear income taxation in which the government cannot commit to its future tax policy and individuals are quasi hyperbolic discounters who cannot commit to future consumption plans the government has both paternalistic and redistributive objectives and therefore uses its taxation powers to maximize a utilitarian social welfare function that reflects individuals true long run preferences under first best taxation quasi hyperbolic discounting exerts no effect on the level of social welfare attainable under second best taxation quasi hyperbolic discounting increases resp decreases the level of social welfare attainable when separating resp pooling taxation is optimal in stark contrast to previous studies this result implies that some individuals can actually be better off in the long run as a result of their short run impatience

a note comparing the capacity setting performance of the kreps scheinkman duopoly model with the cournot duopoly model in a laboratory setting abstract the paper reports the results of 39 laboratory duopoly markets for which pricing institution and participant experience are treatments cournot c duopolies quantity precommitment and a price determined to clear the market are contrasted with kreps scheinkman ks duopolies quantity precommitment and posted prices inexperienced participants in ks markets have much more difficulty selecting capacities consistent with the theoretical predictions than do those in c markets with experience the differences disappear

long run competition in capacity short run competition in price and the cournot model in this article we investigate the nature of equilibrium in markets in which firms choose the scale of operation before they make pricing decisions we analyze a duopoly model in which firms choose their capacities before engaging in bertrand like price competition we demonstrate that the cournot outcome is unlikely to emerge in such markets and that the equilibrium tends to be more competitive than the cournot model would predict in addition our results indicate a tendency toward asymmetric firm sizes and price dispersion that results from the mixed strategies firms use in equilibrium

willingness to pay and the distribution of risk and wealth willingness to pay wtp most economists believe is an appropriate benefits metric for government expenditure and regulatory policies that reduce risks to human life it depends however on the distribution of risk and wealth currently society s expenditures overemphasize concentrated risks say after the fact treatment as opposed to prevention a dead anyway effect complements excess attention to intense interests in explaining this our normative criterion for spending on risk reduction is what a rational albeit uninsured individual confronting lotteries on future risks to life and wealth would choose for himself this requires correcting wtp to eliminate the dead anyway effect but continues to reflect that wealth enhances the utility of living

studying optimal paternalism illustrated by a model of sin taxes the classical economic approach to policy analysis assumes that people always respond optimally to the costs and benefits of their available choices a great deal of evidence suggests however that in some contexts people make errors that lead them not to behave in their own best interests economic policy prescriptions might change once we recognize that humans are humanly rational rather than superhumanly rational and in particular it may be fruitful for economists to study the possible advantages of paternalistic policies that help people make better choices we propose an approach for studying optimal paternalism that follows naturally from standard assumptions and methods of economic theory write down assumptions about the distribution of rational and irrational types of agents about the available policy instruments and about the government s information about agents and then investigate which policies achieve the most efficient outcomes in other words economists ought to treat the analysis of optimal paternalism as a mechanism design problem when some agents might be boundedly rational this approach has many advantages first and foremost by explicitly addressing when and how people do and don t pursue their own best interests economists will be better able to contribute to policy debates to contribute to debates over regulating private financial decisions we must study whether financial decisions are based on fallacious statistical reasoning and whether self control problems lead people to borrow too heavily to contribute to debates over teenage smoking we must study whether teenagers become smokers against their long run best interest economists will and should be ignored if we continue to insist that it is axiomatic that constantly trading stocks or accumulating consumer debt or becoming a heroin addict must be optimal for the people doing these things merely because they have chosen to do it a second advantage of our approach is that it forces us to look for the best feasible policy our

how optimal nonlinear income taxes change when the distribution of the population changes abstract the impacts of changing the number of individuals of a particular skill level on the solutions to two versions of the finite population optimal nonlinear income tax problem are investigated in one version preferences are quasilinear in leisure for this version it is shown that it is possible to sign the directions of change in everyone s optimal consumptions and optimal marginal tax rates in the other version preferences are quasilinear in consumption for this version it is shown that it is possible to sign the directions of change in everyone s optimal before tax incomes and optimal marginal tax rates moreover the directions of change in the optimal marginal tax rates are the same for the two specifications of preferences

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

human development at risk economic growth with pollution induced health shocks risks to human health stemming from polluted air water and soil are substantial especially in the rapidly growing economies the present paper develops a theoretical framework to study an endogenously growing economy which is subject to pollution induced health shocks with the health status being an argument of the welfare function pollution arising as a negative externality from production adversely and randomly affects the regeneration ability of a human body leading to a decline in the overall health status of the population we include two types of uncertainty surrounding the health status continuous small scale fluctuations driven by the wiener process and large scale shocks or epidemics driven by the poisson process we derive closed form analytical solutions for the optimal abatement policy and the growth rate of consumption devoting a constant fraction of output to emissions abatement delivers the first best allocation this fraction is an increasing function of total factor productivity polluting intensity of production and damage intensity of both continuous and jump type shocks a higher frequency of jumps also calls for more vigorous abatement policies by contrast the optimal growth rate of the economy is decreasing in the frequency and intensity of shocks and in the polluting intensity of output the efficiency of abatement technology has in general an ambiguous bearing on both the growth rate and on the abatement share due to the opposing forces of the direct and indirect effects

bertrand competition and cournot outcomes further results the model of kreps and scheinkman where firms choose capacities and then compete in price is extended to oligopoly further capacity is an imperfect commitment device firms can produce beyond capacities at an additional unit cost when is larger than the cournot price the cournot outcome obtains in the unique subgame perfect equilibrium when decreases from the cournot price towards zero the whole range of prices from cournot to bertrand is obtained in equilibrium

quantity precommitment in an experimental oligopoly market abstract the paper describes an experiment designed to test if the equilibrium in a market characterized by capacity precommitment followed by price competition as in the kreps and scheinkman model conforms with the outcome predicted by that model which is that capacities coincide with cournot output levels sessions were run with capacity precommitment in inexperienced and experienced triopoly markets the conclusion is that with inexperienced subjects capacity choices are more rivalistic than the model suggests but in line with those of the cournot experiments by fouraker and siegel with experienced subjects capacities are quite close to the prediction of the kreps and scheinkman model

are micro and macro labor supply elasticities consistent a review of evidence on the intensive and extensive margins we evaluate whether state of the art macro models featuring indivisible labor are consistent with modern quasi experimental micro evidence by synthesizing evidence on both the intensive and extensive margins we find that micro estimates are consistent with macro estimates of the steady state hicksian elasticities relevant for cross country comparisons on both the extensive and intensive margins however micro estimates of intertemporal substitution frisch elasticities are an order of magnitude smaller than the values needed to explain business cycle fluctuations in aggregate hours by preferences the key puzzle to be resolved is why micro and macro estimates of the frisch extensive margin elasticity are so different

optimal nonlinear income taxation with learning by doing abstract this paper examines a two period model of optimal nonlinear income taxation with learning by doing in which second period wages are an increasing function of first period labour supply we consider the cases when the government can and cannot commit to its second period tax policy in both cases the canonical mirrlees stiglitz results regarding optimal marginal tax rates generally no longer apply in particular if the government cannot commit and each consumer s skill type is revealed it is optimal to distort the high skill type s labour supply downwards through a positive marginal tax rate to relax an incentive compatibility constraint our analysis therefore identifies a setting in which a positive marginal tax rate on the highest skill individual can be justified despite its depressing effect on both labour supply and wages

a welfare theoretic model consistent with the practice of cost effectiveness analysis and its implications abstract i look at three debates in the health economics literature in the context of cost effectiveness analysis cea 1 inclusion of future costs 2 discounting and 3 consistency with a welfare economic perspective these debates thus far have been studied in isolation leading to confusion and lingering questions i look at these three debates holistically and present a welfare theoretic model that is consistent with the practice of cea and can help inform all of these three debates it shows rationales for the recommendations of the second panel and clarifies some nuanced implications for the practice of cea when taking a societal perspective in the context of distributional cea and multi sectorial budgets

discounting of life saving and other nonmonetary effects cost effectiveness analysts generally assume that preferences over time are such that streams of monetary and nonmonetary program effects can be reduced to one discounted sum of monetary costs and another of effects it is known that if the nonmonetary effects can be cashed out in a way that does not vary with time then the rates of discount for monetary and nonmonetary effects have to be equal this paper presents a more compelling argument for the equality of those rates when hard to monetize benefits such as life saving are involved it shows that if the ability to produce the nonmonetary effect does not diminish too quickly over time failure to discount benefits implies that programs are always improved by delay in general discounting benefits and costs at different rates can lead to peculiar results

dynamic optimal income taxation with government commitment abstract we analyze the optimal income tax problem when consumers work for many periods can information about abilities learned in one period be used later to attain more redistribution than is possible in a one period world when the government can commit to future policies and has the same discount rate as individuals intertemporal nonstationarity of tax schedules can lead to pareto improvements by relaxing lifetime self selection constraints analogous to randomization in a one period world more significant use of information is possible when the social discount rate is less than individuals rates the taxes converge over time to a nondistortionary schedule

the insurance value of medical innovation abstract economists think of medical innovation as a valuable but risky good producing health benefits but increasing financial risk for consumers and healthcare payers this perspective overlooks how innovation can lower physical risks borne by healthy patients facing the prospect of future disease we present an alternative framework that accounts for all these sources of value and links them to the value of healthcare insurance we show that any innovation worth buying reduces overall risk and generates positive insurance value on its own we conduct a stylized numerical exercise to assess the potential empirical significance of our insights our calculations suggest that conventional methods meaningfully understate the value of historical health gains and disproportionately undervalue treatments for the most severe illnesses where physical risk to consumers is the costliest these calculations also suggest that the value of physical insurance from new technologies may exceed the financial spending risk that they pose

optimal enlistment age a cost benefit analysis and some simulations abstract enlistment at the earliest viable age maximizes the country s wartime army size and thereby the country s attack deterrence capacity injuries and death generate a loss of quantity and quality of life that reduces the benefit from early age enlistment the benefit from any age of recruitment is also affected by the rise and decline of the individual s military performance and civilian productivity and by the changes in the individual s adjustment costs over his lifecycle the simulations of an optimization model incorporating these cost and benefit elements suggest that if the intensity of the rise and decline of the individual s military performance is sufficiently larger than the intensity of the rise and decline of his civilian productivity there exists an interior optimal enlistment age that is greater than the commonly practiced 18 in such a case most of the simulation results are closely scattered around 21 despite large parameter changes

consumer rationing and cournot outcomes experimental evidence author affiliation jason j lepore department of economics orfalea business college california polytechnic state university san luis obispo ca 93407 usa e mail jlepore calpoly edu aric p shafran dagger department of economics orfalea business college california polytechnic state university san luis obispo ca 93407 usa e mail ashafran calpoly edu corresponding author acknowledgment the authors acknowledge the orfalea college of business for financial support we thank blake allison for assistance running the experiments and the anonymous reviewers and conference participants at the north american economic science association meetings for helpful comments 1 introductionthis article reports the results of duopoly market experiments where firms first commit to capacities and then compete in prices the theoretical literature pertaining to these duopoly models suggests that the way residual demand is rationed is fundamental to the character of equilibrium outcomes the goal of this study is to test the impact of residual demand rationing on the behavior of subjects in an experimental environment in a two stage game where firms first commit to capacities and then compete in prices kreps and scheinkman 1983 hereafter k s prove that the unique nash equilibrium outcome coincides with the cournot equilibrium outcome with efficient rationing of residual demand efficient rationing means that the higher priced firm is left with the worst possible residual demand curve if demand is composed of many similar consumers that each demand multiple units and we construct aggregate demand by way of a representative consumer then efficient rationing is imposed by the model on the other hand if demand is instead composed of a mass of consumers with unit demand and varied willingness to pay then the efficient rationing rule imposes the restriction that the highest valued consumers buy from the firm with the lower price davidson and deneckere 1986 make a compelling argument that proportional rationing is a more appropriate assumption in the latter case proportional rationing means that a uniform distribution of possible consumers buy from the firm with the lower price davidson and deneckere show that under proportional rationing as well as any rationing rule other than the efficient rule the cournot outcome is not necessarily the unique equilibrium of the two stage game the davidson and deneckere result is problematic for the k s model because it deflates the generality of their theoretical result 1lepore 2009 further clarifies the relationship between proportional rationing and the cournot outcome in the k s game with proportional rationing the cournot outcome is the unique nash equilibrium only when capacity cost is greater than a threshold level the purpose of our experiments is to assess if the play of experimental subjects in the two stage game is sensitive to the rationing scheme in the way that theory predicts to do this we construct an experimental design with four treatments the treatments vary by two controls the demand rationing scheme and the cost of capacity we conduct two efficient rationing treatments one with a high capacity cost and one with a low cost for both costs theory predicts that the outcome coincide with the cournot model we also conduct two treatments using proportional rationing one with each of the capacity costs used in the efficient rationing treatments with a high cost theory predicts the outcome should coincide with the cournot model as in the case of efficient rationing however theory predicts that the cournot outcome should not occur when the cost of capacity is low and prices should not clear the market recently several authors have used laboratory experiments as a means to empirically test the predictions of the k s model

bertrand edgeworth competition demand uncertainty and asymmetric outcomes abstract we analyze investment and pricing incentives in a symmetric bertrand edgeworth framework with uncertain demand firms choose production capacities before observing demand prices are chosen after demand is observed if the extent of demand variation exceeds a threshold level then a symmetric equilibrium in pure strategies for capacities does not exist a smaller firm has no incentive ex ante to expand its capacity because capacity expansion would reduce its expected revenue in the event that demand is lower than expected output prices are predicted to have positive variance when demand is low and zero variance when demand is high journal of economic literature classification numbers d43 l13

advance production and cournot outcomes an experimental investigation abstract an experiment designed to assess the effects of advance production decisions on posted offer market performance is reported six of the twelve triopolies were conducted under standard posted offer rules in the remaining markets sellers made binding production commitments prior to posting prices an alteration that shifts the unique stage game nash equilibrium from the competitive to the cournot outcome as predicted advance production decisions raised prices and lowered output nevertheless stable cournot outcomes were never observed

trying to estimate a monetary value for the qaly in this paper we study the feasibility of estimating a monetary value for a qaly mvq using two different surveys of the spanish population total n 892 we consider whether willingness to pay wtp is approximately proportional to the health gains measured in qalys we also explore whether subjects responses are prone to any significant biases we find that the estimated mvq varies inversely with the magnitude of health gain we also find two other ir regularities the existence of ordering effects and insensitivity of wtp to the duration of the period of payment taken together these effects result in large variations in estimates of the mvq if we are ever to obtain consistent and stable estimates we should try to understand better the sources of variability found in the course of this study

price competition in a capacity constrained duopoly abstract this paper characterizes the set of nash equilibria in a model of price setting duopoly in which each firm has limited capacity and demand is continuous and decreasing in general there is a unique equilibrium so that comparative static exercises are meaningful the properties of the equilibrium conform with a number of stylized facts the equilibrium prices are lower the smaller is demand relative to capacity when demand is in an intermediate range the firms use mixed strategies they randomly hold sales if capacities are chosen simultaneously before prices the set of equilibrium capacities coincides with the set of cournot quantities

multiattribute utility theory without expected utility foundations methods for determining the form of utilities are needed for the implementation of utility theory in specific decisions an important step forward was achieved when utility theorists characterized useful parametric families of utilities and simplifying decompositions of multiattribute utilities the standard development of these results is based on expected utility theory which is now known to be descriptively invalid the empirical violations of expected utility impair the credibility of utility assessments this paper shows however that parametric and multiattribute utility results are robust against the major violations of expected utility they retain their validity under nonexpected utility theories that have been developed to account for actual choice behavior to be precise characterizations of parametric and multiattribute representations are extended to rank dependent utility state dependent utility choquet expected utility and prospect theory

optimal sin taxes abstract we investigate sin taxes on unhealthy items such as fatty foods that people may by their own reckoning consume too much of we employ a standard optimal taxation framework but replace the standard assumption that all consumers have 100 self control with an assumption that some consumers may have some degree of self control problems we show that imposing taxes on unhealthy items and returning the proceeds to consumers can generally improve total social surplus because such taxes counteract over consumption by consumers with self control problems while at the same time they naturally redistribute income to consumers with no self control problems who consume less such taxes can even create pareto improvements finally we demonstrate with some simple numerical examples that even if the population exhibits relatively few self control problems optimal taxes can still be large

nonlinear capital taxation without commitment we study efficient nonlinear taxation of labor and capital in a dynamic mirrleesian model incorporating political economy constraints policies are chosen sequentially over time without commitment our main result is that the marginal tax on capital income is progressive in the sense that richer agents face higher marginal tax rates

a theory of anticipated utility abstract a new theory of cardinal utility with an associated set of axioms is presented it is a generalization of the von neumann morgenstern expected utility theory which permits the analysis of phenomena associated with the distortion of subjective probability

wtp and qaly based approaches to valuing health for policy common ground and disputed territory this paper discusses links between two approaches to the value of health the willingness to pay approach of environmental economics and the quality adjusted life year approach of health economics the approaches are used in cost benefit and cost effectiveness analyses of health interventions despite fundamental differences in the decision contexts and conceptual foundations of the two approaches in current practice they are likely to lead to similar policy decisions the paper also shows how research on the quality adjusted life year qaly can be used to fill in gaps in the willingness to pay literature the paper sketches a simple model that shows how to qaly fy the value of a statistical life i e how to combine qaly estimates with estimates of the value of a statistical life to estimate willingness to pay for morbidity risks

on the possibility of a bridge between cba and cea comments on a paper by dolan and edlin in a recent work by dolan and edlin it is concluded that no link can be established between cost benefit analysis cba and cost effectiveness analysis cea however the conclusion seems to depend rather heavily on what is understood by a link between cba and cea as well as on the exact meaning of the latter two terms we argue that there is at least one approach to cba and cea in which the two are very intimately linked on the other hand the limitations in the access to preference information has consequences for the kind of questions that can be meaningfully addressed in both cba and cea

equilibrium welfare and government policy with quasi geometric discounting abstract we consider a representative agent equilibrium model where the consumer has quasi geometric discounting and cannot commit to future actions we restrict attention to a parametric class for preferences and technology and solve for time consistent competitive equilibria globally and explicitly we then characterize the welfare properties of competitive equilibria and compare them to that of a planning problem the planner is a consumer representative who without commitment but in a time consistent way maximizes his or her present value utility subject to resource constraints the competitive equilibrium results in strictly higher welfare than the planning problem whenever the discounting is not geometric journal of economic literature classification numbers e21 e61 e91

nash equilibrium and buyer rationing rules experimental evidence i introduction this paper presents the results of laboratory experiments comparing the effect of two buyer rationing rules on capacity constrained duopoly markets bertrand edgeworth games this setting offers an excellent opportunity to compare the stage game nash prediction with other equilibria of a repeated game under otherwise identical conditions the rationing rule generates either a unique pure strategy equilibrium or a unique mixed strategy equilibrium of the stage game further collusive outcomes of the repeated game are supported by a wider range of discount factors for one rationing rule than the other this study presents evidence that the single stage nash equilibrium has predictive power for both rationing rules even in repeated settings this result appears to be robust whether the nash equilibrium is in pure strategies or exists only in mixed strategies in modeling capacity constrained price games the choice of rationing rule is possibly the most arbitrary decision a theorist makes in the literature of single shot bertrand edgeworth games we can find examples of nearly identical models which yield substantively different results due to differences in the rationing rule assumed examples are beckmann s 1965 model and levitan and shubik 1972 allen and hellwig 1986 and vives 1986 and kreps and scheinkman 1983 and davidson and deneckere 1986 laboratory experiments provide an interesting opportunity to examine the empirical consequences of alternative buyer rationing rules knowledge of the type of buyer rationing scheme involved with field data is usually unavailable to a researcher in laboratory experiments the researcher can control the type of buyer rationing rule to be used and compare the effects of alternative rules this study provides a first step toward an empirical understanding of the effects of rationing rules one of the rationing rules that i study the value queue 1 is mathematically more tractable than an alternative the random queue 2 hence the authors are able to generalize the value queue models in other dimensions however the value queue assumption reservation values that comprise demand are ordered from highest to lowest should be viewed as a serious restriction on the applicability of these models section ii relates laboratory and field experiments to single shot bertrand edgeworth nash equilibria section iii describes the development and recent contributions to bertrand edgeworth oligopoly theory and demonstrates the effect of rationing rule assumptions on theoretical predictions i describe the experimental design in section iv and identify the competitive monopoly joint profit maximum and single shot nash predictions additionally qualitative differences predicted by single shot and repeated game nash equilibria are discussed experimental results follow in section v with concluding remarks in section vi ii laboratory and field experiments and the nash equilibrium existing laboratory evidence for capacity constrained price games has been compared to the single shot nash equilibrium only ketchum smith and williams 1984 and kruse rassenti reynolds and smith 1993 provide initial results as to the predictive strength of the single stage nash equilibrium in a laboratory environment ketchum smith and williams compare the prices resulting from four seller plato computer assisted posted offer markets the comparison is between one treatment group in which the competitive equilibrium is also the single stage nash equilibrium and another treatment group in which the competitive equilibrium is not a nash equilibrium they find significantly different market outcomes between the two groups kruse rassenti reynolds and smith 1987 test a four seller constant marginal cost bertrand edgeworth model using a komogorov smirnoff test they reject the hypothesis that the actual price distribution matches the mixed strategy price distribution predicted by the theory

is it really possible to build a bridge between cost benefit analysis and cost effectiveness analysis cost benefit analysis cba is a recognised as the economic evaluation technique that accords most with the underlying principles of standard welfare economic theory however due to problems associated with the technique economists evaluating resources allocation decisions in health care have most often used cost effective analysis cea in which health benefits are expressed in non monetary units as a result attempts have been made to build a welfare economic bridge between cost benefit analysis cba and cost effectiveness analysis cea in this paper we develops these attempts and finds that while assumptions can be made to facilitate a constant willingness to pay per unit of health outcome these restrictions are highly unrealistic we develop an impossibility theorem that shows it is not possible to link cba and cea if i the axioms of expected utility theory hold ii the quality adjusted life year qaly model is valid in a welfare economic sense and iii illness affects the ability to enjoy consumption we conclude that within a welfare economic framework it would be unwise to rely on a link between cba and cea in economic evaluations

life cycle preferences over consumption and health when is cost effectiveness analysis equivalent to cost benefit analysis this paper studies life cycle preferences over consumption and health status we show that cost effectiveness analysis is consistent with cost benefit analysis if the lifetime utility function is additive over time multiplicative in the utility of consumption and the utility of health status and if the utility of consumption is constant over time we derive the conditions under which the lifetime utility function takes this form both under expected utility theory and under rank dependent utility theory which is currently the most important nonexpected utility theory if cost effectiveness analysis is consistent with cost benefit analysis it is possible to derive tractable expressions for the willingness to pay for quality adjusted life years qalys the willingness to pay for qalys depends on wealth remaining life expectancy health status and the possibilities for intertemporal substitution of consumption

on what basis should health be discounted the discount rate to be applied in health care programmes should be based on the time preference rate for health and this same rate should be applied to costs as well due to the limited tradeability of health when eliciting its time preference rate the intertemporal choices must be framed in such a way as to resemble as closely as possible those facing health planners and decision makers

accounting for future costs in medical cost effectiveness analysis most medical cost effectiveness analyses include future costs only for related illnesses but this approach is controversial this paper demonstrates that cost effectiveness analysis is consistent with lifetime utility maximization only if it includes all future medical and non medical expenditures estimates of the magnitude of these future costs suggest that they may substantially alter both the absolute and relative cost effectiveness of medical interventions particularly when an intervention increases length of life more than quality of life in older populations current methods overstate the cost effectiveness of interventions which extend life compared to interventions which improve the quality of life

economic evaluation of health care programmes is cea better than cba it has been noted earlier that during the same period that the contingent valuation cv method evolved and became the most commonly used method of valuing environmental projects the development in health economics was instead been towards cost effectiveness analysis cea recently there has been a growing interest in the use of cea where qalys quality adjusted life years are used as a measure of effectiveness as the method of evaluation for environmental projects the purpose of this paper is to answer the question is cea a superior method to cba both theoretically and empirically to provide information to decision makers for use in decisions on resource allocation in health the paper deals with the following topics the underlying theoretical foundation for cea is cea free of income distribution considerations is qaly a superior measure to wtp the usefulness of incremental ce ratio icer to determine resource allocation the paper concludes that there is neither theoretical nor practical support for the claim about the superiority of cea

bertrand competition and cournot outcomes a correction abstract we received independent comments from dan kovenock and luis ubeda regarding proofs of lemma 1 and theorem 1 in boccard and wauthy econ lett 68 2002 279 hereafter bw claim 4 is indeed poorly stated and proved while in the proof of theorem 1 payoffs for the price subgame are incorrectly derived we apologize for these shortcomings fortunately the spirit of the proof is not altered by slightly weakening the scope of the analysis for capacity choice from mixed strategies into pure ones we are able to shorten the proof that is presented hereafter

the utility of health and wealth abstract tradeoffs between health and wealth are among the most important decisions individuals make and are central to social and economic policy yet only a few studies have investigated the utility of health and wealth empirically this paper investigates this utility function both theoretically and empirically we conduct detailed personal interviews with 180 cancer patients and also obtain questionnaires from 132 diabetes patients we find strong support for the utility function u h w h log w where h denotes health and w denotes wealth

public goods and optimal paternalism under present biased preferences this paper concerns the provision of a state variable public good in a two type model under presentbiased consumer preferences the preference for immediate grati cation facing the high ability type weakens the incentive to adjust public provision in response to the self selection constraint

the normative economics of health care finance and provision whereas in many countries the crisis in medical care has been seen in terms of excess spending on health services in the uk it has been seen at least by most of those who manage and work in the nhs as a crisis of underfunding this has come about as the result of the government s successful attempts to restrain the rate of growth of real spending on the nhs which in turn reflects the government s belief that its principal effective weapon against what it perceives to be inefficiency in the nhs is to challenge management itself reformed and to some extent liberated by systematic financial squeezes the same concern has given rise to a host of proposals for reform of the nhs most of which involve a much greater role for private insurance private finance of other kinds such as out of pocket payments and private provision of health care itself

measurement of health state utilities for economic appraisal health status measurement for use in economic appraisal of health care programmes is reviewed in this paper with particular emphasis on utility measurement a framework for economic appraisal is presented displaying the various components that must be measured and showing how the three forms of analysis cost effectiveness analysis cost benefit analysis and cost utility analysis relate to the framework and to each other one of the components in the framework is health status it can be measured using ad hoc numeric scales willingness to pay receive or health state utilities the determination of health state utilities is reviewed covering the following issues alternative sources of utilities health state descriptions multi attribute utility approach determination of appropriate subjects utility aggregation and accuracy three measurement techniques for health state utilities are described in detail rating scale standard gamble and time trade off the use of these methods is described for both chronic and temporary health states and for both health states considered better than death and those considered worse than death

qalys standard gambles and the expected budget constraint this paper shows that when quality adjustment factors for use in constructing qaly indices are established through answers to standard gamble questions or similar methods the assumptions that are made by respondents about the financial consequences of changing probabilities of illness and death are critically important for the use of qalys in cost utility analysis cua it qualifies meltzer s journal of health economics 16 1997 33 result that the cost per quality adjusted life year qaly for life saving medical interventions should include the future consumption of those who would otherwise not have survived by showing that its validity depends on how the qaly index has been established the paper also shows that contrary to a widely held notion allocation of a fixed health care budget through cua does not generally result in a second best efficient allocation another finding is that failure to specify carefully what respondents to standard gamble questions are supposed to assume about the financial consequences of ill health may result in a bias against providing care to older individuals

cournot and bertrand edgeworth competition when rivals costs are unknown abstract we study a two stage game with capacity precommitment followed by price competition where firms have incomplete information about their rival s marginal cost the game has a cournot outcome if and only if the lowest possible marginal cost is sufficiently high relative to the expected marginal cost

qalys versus hyes what s right and what s wrong a review of the controversy abstract the paper uses an axiomatic approach to the description of individual preferences for health status sequences to resolve the major issues at stake in the recent controversy over qalys versus hyes while the hye accounts for an individual s time preference for health qaly scores based on the time trade off method will generally differ from the number of hyes hyes do not represent preferences for health under risk unless the utility function for reference flows of health is linear collapsing the two step hye assessment procedure into a single step entails a loss of information as regards the utility of a health status sequence although the procedure does represent preferences for health it fails to supply a description in terms of hyes in the case of risk as a remedy a modified hye approach is proposed

biases from omitted risk effects in standard gamble utilities utilities elicited under the probability equivalence version of the standard gamble procedure systematically exaggerate the utility increments of expensive health interventions that bring the recipient towards full health switching to the alternative certainty equivalence version would introduce the reverse bias the biases arise from anticipated pre and post decision risk effects that expected utility theory omits to include these risk effects partition the future by changes in knowledge into 1 pre choice periods 2 the pre outcome future before the chosen act s outcome becomes known and 3 the more distant post outcome future when that outcome will have become known

your money or your life a prescriptive model for health safety and consumption decisions in this paper we develop a conceptual framework and model for valuing risks to an individual s health and life and to support decision making about investments in health quality of life and safety our treatment of health risks in the model builds on the popular quality adjusted life year qaly framework that balances health quality and length of life issues we extend this framework to consider financial concerns as well as health quality and length of life our model considers uncertainty in income and health and incorporates the decision maker s ability to adjust consumption over time in response to changes in expectations about health and income we use this model to study the optimal tradeoffs between financial gains or losses and improvements or reductions in health or longevity and apply it in two example medical decision problems

capabilities as menus a non welfarist basis for qaly evaluation quality adjusted life years qalys are the most widely used measure of health in economic evaluations of health care within a welfarist framework qalys are consistent with people s preferences under stringent assumptions several authors have argued that qalys are a valid measure of health within an extra welfarist framework this paper studies the applicability of qalys within the best known extra welfarist framework sen s capability approach we propose a procedure to value capability sets and provide a foundation for qalys within sen s capability approach we show that under appropriate conditions the ranking of capabilities can be represented locally by a qaly measure and that a willingness to pay for qalys can be defined the validity of qalys as a general measure of health requires the same stringent conditions as in a welfarist framework

is there a meaningful definition of the value of a statistical life a definition of the value of a statistical life is derived this definition has a meaningful interpretation in terms of the monetary value of expected present value utility if consumption is age independent in all other cases empirical estimates of the value of a statistical life are biased estimators of the monetary counterpart to expected present value utility