a comment on neudeck and podczeck s adverse selection and regulation in health insurance markets abstract using the grossman equilibrium concept neudeck and podczeck journal of health economics 15 1996 387 show that imposing a minimum standard on a perfectly competitive insurance market can result in anti competitive effects decreased welfare with some insurers earning positive profits however the grossman concept precludes an insurer from offering two separating cross subsidizing health plans when an insurer can offer multiple plans as under both the nash and miyazaki wilson equilibrium concepts i show that minimum standards result in a doubleton equilibrium never allow positive total profits and increase welfare this is of interest since in 1997 more than half of establishments in the us offering choice of multiple plans did so through a single insurer

measuring returns to scale in dea models when the firm is regulated in the standard framework of data envelopment analysis dea models the returns to scale are fully characterized using the multiplier on the convexity constraint of inefficient decision making units dmu using the projection of the input output vector on the frontier in this note we investigate how the returns to scale measurements in dea models are affected by the presence of regulatory constraints these additional constraints change the role played by the convexity constraint in order to avoid biased estimation of the returns to scale we show that the interaction between the regulatory and the convexity constraints has to be taken into account

multiproduct short run hospital cost functions empirical evidence and policy implications from cross section data economists and policymakers have been interested in hospital costs and the structure of hospital technologies for several decades now early interest was focused on the possibility of scale economies which implied increased efficiency for larger hospitals 6 8 12 13 18 20 while more recent interest has been stimulated by the inflationary spiral of hospital costs 1 15 17 22 as hospital costs have risen important policy questions concerning the impact on costs of the hospitals diagnostic case mix the hospitals admitting physicians the hospitals size and the hospitals efficiency have emerged and researchers have attempted to deal with these issues within the context of increasingly complex econometric models 1 2 5 24 27 however in attempting to analyze these important policy issues researchers have been forced to make two major types of compromises on the one hand appropriate data are often not available for estimating a well specified cost function e g information on admitting physicians and diagnostic case mix are often missing so that problems of specification error often plague the econometric results conversely in using imaginative ways to deal with data problems e g weighting in patient and out patient care to form a single index of hospital services 1 27 or estimating separate cost functions for each department in the hospital 2 researchers sometimes place unrealistic and unnecessary constraints on their econometric models the purpose of this study is to analyze the impact of several of the primary hospital characteristics mentioned above on the short run costs of hospitals within a theoretically consistent framework in the following discussion we also develop the theoretical

competition among differentiated health plans under adverse selection market power and adverse selection are prevalent features of the market for pre paid health plans however most of the literature on adverse selection considers extreme cases either perfect competition or monopoly if instead health plans are horizontally differentiated then i profits derived from each low risk are higher than from each high risk and ii when the profits derived from each high risk are negative cross subsidization a health authority as informed as the health plans can implement a pareto improvement both local and global deviations from cross subsidization are addressed within a nash equilibrium framework

opec and the international oil market can a cartel fuel the engine of economic development abstract the opec cartel was formed to promote two economic goals one microeconomic low oil market volatility the other macroeconomic promotes economic development of its members these goals create a tension since the cartel s single tool is output quotas using this dual micro macro perspective we analyze oil exporting countries behavior we find that the effects of the cartel s choices will be reflected in oil market stability long term macroeconomic development and international oil market structure if an oil producing country cares about both oil industry profits and macroeconomic stability the goal of output stability may be inconsistent with cartel membership

entry exit and performance in airline markets abstract data from the airline industry indicate that 1 entry generally is not induced by price levels substantially above the norm 2 entry reduces fares and increases output and exit increases fares and reduces output and 3 incumbents cut price and maintain output in response to entry and survivors increase both price and output in response to exit these findings cast doubt on the ability of entry to prevent or reverse price increases from anticompetitive mergers

hospital ownership and performance this study compares the performance of three ownership forms of hospitals for profit private nonprofit and public further classified according to whether or not the hospital is run by a hospital chain data come from a 1979 national survey of u s hospitals the authors find that hospital cost is quite similar among alternative ownership forms as is profitability the results do not provide much empirical support for standard property rights theory several reasons are suggested why this may be so

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

sunk costs financial markets and contestability abstract this paper analyzes the proposition that the theory or contestable markets will yield good predictions for markets in which sunk costs although present are unimportant two results are of interest 1 if costs are at all sunk incumbent firms will be able to engage in strategic behavior with respect to entrants 2 if no costs are sunk but firms finance investment by borrowing incumbent firms will be able to engage in strategic behavior with respect to entrants in these cases one must analyze strategic behavior of incumbent firms to analyze market performance

analysis of productivity efficiency and technological changes in hospital services in ontario how does case mix matter abstract in this paper we compare productivity efficiency and technological changes with and without case mix as output categories using panel data on ontario hospitals for the period 2002 2006 we use the malmquist productivity index mpi data envelopment analysis dea and non parametric density estimation and related statistical tests we also decompose mpi into efficiency change ech and technological change tch we found that productivity efficiency and technological changes were significantly different between two alternative models with case mix as a weighting device model 2 and without case mix model 1 on the other hand adding case mix as a separate output model 3 did not have any significant impact on the distribution of efficiency estimates compared to the model without case mix we also found that in model 2 productivity growth was driven mainly by improvements in technology rather than increases in efficiency while in model 1 and model 3 the two effects ech and tch almost balanced each other leading to no productivity change

toward a public choice theory of monopoly regulation its many dimensions from the perspective of market economics this new thrust was consolidated in 1976 by s peltzman who developed a formal market model in which regulations were viewed as commodities brokered via political markets in response to bids and counter bids by those who stood to gain or to lose from specific regulation outcomes the subsequent contribution by becker 1983 added insights and institutional flesh to the stigler peltzman embryo confirming regulation as an integral component of mainstream market economics an important implication of such contributions especially those from the chicago perspective is that regulation for the most part confirms resource efficiency within market process that political markets in the absence of entry barriers are just as effective as are competitive commodity markets in achieving economic efficiency defined within a comparative institutions framework nowhere is this complacency more apparent than in the conclusion drawn by becker 1983 from a detailed formal analysis of competition among pressure groups for political influence

some models for estimating technical and scale inefficiencies in data envelopment analysis in management contexts mathematical programming is usually used to evaluate a collection of possible alternative courses of action en route to selecting one which is best in this capacity mathematical programming serves as a planning aid to management data envelopment analysis reverses this role and employs mathematical programming to obtain ex post facto evaluations of the relative efficiency of management accomplishments however they may have been planned or executed mathematical programming is thereby extended for use as a tool for control and evaluation of past accomplishments as well as a tool to aid in planning future activities the ccr ratio form introduced by charnes cooper and rhodes as part of their data envelopment analysis approach comprehends both technical and scale inefficiencies via the optimal value of the ratio form as obtained directly from the data without requiring a priori specification of weights and or explicit delineation of assumed functional forms of relations between inputs and outputs a separation into technical and scale efficiencies is accomplished by the methods developed in this paper without altering the latter conditions for use of dea directly on observational data technical inefficiencies are identified with failures to achieve best possible output levels and or usage of excessive amounts of inputs methods for identifying and correcting the magnitudes of these inefficiencies as supplied in prior work are illustrated in the present paper a new separate variable is introduced which makes it possible to determine whether operations were conducted in regions of increasing constant or decreasing returns to scale in multiple input and multiple output situations the results are discussed and related not only to classical single output economics but also to more modern versions of economics which are identified with contestable market theories

price and quality competition under adverse selection market organization and efficiency firms compete with prices and qualities in markets where consumers have heterogeneous preferences and cost characteristics consumers demand two goods which can be supplied jointly or separately by firms we consider two strategy regimes for firms uniform price quality pairs and screening price quality menus for each regime we compare the equilibria under integration each firm supplying both goods and separation each firm supplying one good integrating and separating markets change quality efficiency and welfare the theory illustrates phenomena such as the carveout of mental health and substance abuse coverage from general health insurance and creaming for low cost students in locales with school choices copyright 2003 by the rand corporation

antitrust and technological innovation in the us ideas institutions decisions and impacts 1890 2000 abstract the history of antitrust policy in the us as it relates to technological innovation exhibits major swings every few decades between favoring concentration and favoring deconcentration this paper sketches for each period the contending ideas that frame antitrust technology policy debates the salience of these ideas in the larger antitrust policy process the institutions for agenda setting and decision making in this area the policy decisions themselves and more speculatively the impacts of these decisions on technological innovation and industrial development the paper concludes with a preliminary attempt to identify the cyclical secular and static processes that have shaped the history of this policy area and to use this analysis to inform future policy makers

a simple tax structure for competitive equilibrium and redistribution in insurance markets with asymmetric information in their influential paper rothschild and stiglitz 6 demonstrated that the existence of nash equilibrium is not a general property of insurance markets when buyers have private information about their riskiness and firms face free entry and exit conditions this paper presents a simple and implementable system of taxes and subsidies applied to firms which permits a nash equilibrium always to exist we also show that more than one nash equilibrium is open to the regulator in particular government can effect risk discriminating redistribution without a priori knowledge of any individual buyer s riskiness hence it is not the case that the inability to distinguish between types of buyers rules out compensation risk discriminating transfers even in principle as claimed by schmalensee 7 442 finally we show that even when a nash equilibrium exists without government intervention there are always alternative and under some circumstances pareto superior equilibria open to the regulator since these alternative equilibria entail cross subsidization from low risk to high risk buyers our results suggest that the well known cross subsidization enforced through current regulatory practices is consistent with economic efficiency we conclude that the informational asymmetry assumed by rothschild and stiglitz poses distinct efficiency and distribution problems as do more conventional non informational situations of market failure and that regulators can influence the allocation of insurance through conventional instruments of intervention without assuming dictatorial control of the market

currency competition a hayekian perspective on international monetary integration currency internationalization is examined from the vantage point of friedrich hayek s contributions in the 1970s compared with received commentaries in which only an idealized case for private money is attributed to hayek this paper underscores other dimensions of hayek s work on money and currency hayek s case for choice in currency draws on his theory of competition anticipates competition between government suppliers of fiat money accommodates many aspects of international monetary integration and embodies a distinctive approach to monetary independence choice of exchange rate regime and the transnationalization of currency hayekian predictions are outlined for future developments in currency competition

health insurance without single crossing why healthy people have high coverage standard insurance models predict that people with high risks have high insurance coverage it is empirically documented that people with high income have lower health risks and are better insured we show that income differences between risk types lead to a violation of single crossing in an insurance model where people choose treatment intensity we analyse different market structures and show the following if insurers have market power the violation of single crossing caused by income differences and endogenous treatment choice can explain the empirically observed outcome our results do not rely on differences in risk aversion between types

price changes supply elasticities industry organization and dairy output distribution long run price elasticities of milk supply are decomposed into price elasticities of yield herd size and farm population for northeastern u s dairy farms these elasticities are shown to vary with farm size because of size related differences in capital intensity specialization yield and herd size variability and rates of entry exit into dairy in the short run price responsiveness is shown to decrease with farm size in the long run large farms are shown to be most price responsive results suggest that lower milk prices could make revenue distribution less equal in both the short and long run by altering output and population distributions

the welfare impact of medicare hmos we estimate the welfare associated with the medicare hmo program now known as medicare choice m c we find that the creation of the m c program resulted in approximately 15 6 billion in consumer surplus and 52 billion in profits from 1993 to 2000 in 2000 dollars this program most likely generated significant net social welfare however we find that consumer surplus is geographically unevenly distributed prescription drug coverage accounts for approximately 45 of the estimated consumer surplus for 2000 consumer surplus increases in the number of plans in a county and most of the increase in welfare is due to increased premium competition

the efficiency of nursing home chains data envelopment analysis is used to estimate technical efficiency in for profit independent and for profit chain nursing homes the empirical findings suggestceteris paribus that significant mult

entry in monopoly market this paper develops new empirical models of market concentration from game theoretic models of entry we construct our models from inequality conditions that describe entrants equilibrium strategies in simultaneous move and sequential move games and use them to study the effects of entry in isolated monopoly markets for new automobiles from estimates of the market size necessary to support one and two dealers we conclude that monopoly dealers do not block the entry of a second dealer we also find that entry does not cause price cost margins to fall by much

the relative efficiency of slave agriculture a reply professors hofler and folland have written a very interesting paper which brings out several interesting ideas and is a contribution to the literature they argue that their results contradict those of our original paper concerning the relative efficiency of small versus large slave farms specifically they find that large slave farms are relatively more efficient however they have missed that main point of the original paper which was to compare the relative efficiency of slave and non slave farms on this issue the holfer and folland comment provides no additional insight thus their paper while interesting is not a comment on our original work

clusters entrepreneurial ecosystem co creation and appropriability a conceptual framework extant literature on clusters underplays the role of entrepreneurs and entrepreneurial management in creating and co creating organizations markets and supporting ecosystems we employ transaction costs resource knowledge capabilities and power control based theories to provide a comparative static governance based perspective on clusters we embed this into a more general co evolutionary entrepreneurial theory of the emergence evolution and co evolution of markets ecosystems and clusters we suggest that clusters can involve advantages that help engender superior appropriation of co created value as compared to alternatives entrepreneurial managers faced with a degree of choice will help co create clusters and be part of them for as long as they can appropriate more value in this way than through alternatives

adverse selection and regulation in health insurance markets abstract in this paper we look at various ways to regulate the health insurance market and ask whether they provide an answer to the problem of adverse selection to avoid inefficiency government policy must either effectuate some cross subsidization of insurance policies within the state sector or grant private insurance firms an exclusive right to serve certain groups of the population recent reforms in the netherlands and germany and president clinton s proposals for the us could be adapted to fulfil these requirements efficiency cannot be achieved on the other hand if the regulator tries to prescribe cross subsidization within the private sector

the size of the state economic growth and the efficient utilization of national resources the motives of the state in projecting a more than minimal presence in the economy may be conceived of as benevolent or malevolent whatever the characterization of the motivation increases in the size of the government share of the economy adversely affect economic growth and the allocation of resources nations with relatively large government shares in 1960 on the whole grew more slowly than nations with relatively small state sectors interperiod increases in the size of government were associated with lower growth rates over the period the size of the government share coefficients in the regressions were of sufficiently large magnitude to conclude that the rise in the size of the government has had a substantial depressing effect on economic growth these results are consistent with those reported by landau 1983 and marlow 1986 landau did not adjust economic growth for the growth in factor endowment consequently his results overstate the adverse effect of government size

contestability in a resource market with non convex costs consider an intertemporal resource market with n identical firms each managing an exhaustible resource deposit the extraction from which is governed by a u shaped average cost curve eswaran lewis and heaps 1983 elh show that such a market cannot have a competitive equilibrium in their comments on elh kimmel 1984 and mumy 1984 point out however that the elh result is driven by there being a small number of firms which is inconsistent with price taking behavior this provides a motivation for analyzing the situation considered by elh under alternative assumptions of market behavior in general perfect contestability applies to circumstances where perfect competition is impossible because economies of scale are present see baumol et al 1982 since the non convexities in elh are not caused by once and for all setup or shut down costs rather the flow of costs is assumed to be a non convex function of the flow of extraction replacing the assumption of price taking behavior with an assumption of ultra free entry 2 provides a potential means of restoring a market equilibrium in the present case contestability theory holds that the threat of competition by potential entrants can discipline the pricing behavior of the active firms however as pointed out by cairns 1991 footnote 9 a non active firm can be the source of this kind of discipline in an exhaustible resource market only if its remaining reserves are positive caution should therefore be exercised in applying contestability theory to a resource market in this note existence of an equilibrium in such an exhaustible resource market is shown partly by relying on the possibility of ultra free entry we

historical perspetives on the american economy explaining the relative efficiency of slave agriculture in the antebellum south the comments by paul david and others in the march 1979 issue of this review dealt mainly with technical issues related to the measurement of the relative efficiency of slave agriculture and so does this reply 1 the debate over these technical issues should not however obscure the marked shift in thought about the nature of the slave economy that has occurred during the past two decades until the mid 1950 s it was widely believed that the slave plantations were unprofitable and inefficient enterprises that were kept in operation by a class prepared to sacrifice its private economic interest enduring economic stagnation for the south in order to maintain its political and cultural hegemony the first critical blow to this thesis was delivered by the now famous 1958 essay of alfred conrad and john meyer marshalling the limited evidence available at that time and using a standard capital model to estimate the internal rate of return on an investment in slaves they concluded that rates of return on this form of capital compared favorably with rates on alternative investments this finding set off an extended debate that took more than a decade to resolve eventually refinements in the original capital model and a considerable expansion of the data base including the parker gallman sample of over 5 000 southern farms and large samples of slave prices and hire rates from probate and other records placed the rate of return in the 610 percent range thus demonstrating the allocative efficiency of the slave economy the second blow to the traditional thesis was delivered by richard easterlin s development of regional income estimates extending back to 1840 both these initial estimates and the subsequent refinements in them see our 1971a paper showed that the south experienced a high rate of growth in per capita income between 1840 and 1860 thus contradicting the view that the antebellum south was economically stagnant these twin blows to the traditional interpretation shifted cliometric attention to the question of the relative technical efficiency of slave and free agriculture in input utilization while it is obviously premature to declare this question settled a consensus has emerged on one critical point it is now clear that the previous view that slave agriculture was less efficient than free agriculture is incorrect what remains to be resolved is the exact margin of the advantage enjoyed by slave plantations and the explanation for this margin

application of a stochastic production frontier to slave agriculture an extension free small slave and large slave farms in the antebellum american south are compared using a stochastic production frontier approach which allows a distinction to be drawn between technological superiority and technical efficiency previous studies using this approach had only considered slave farms in addition cotton share is included as an independent variable in the production function in order to control for variations in crop mix across farm types that might make slave farms look more efficient i find that the gang system did make large slave farms technologically superior but that without the gang system slave agriculture was not superior in contrast to previous findings large slave farms were not less technically efficient than small slave farms overall slave farms were more efficient than free farms

us and canadian livestock prices market integration and trade dependence cointegration of canadian and us livestock prices points to the existence of market integration in the period january 1996 to december 2004 trade flows of livestock and beef products were nonexistent between canada and the united states for many months in 2003 and 2004 suggesting market segmentation this lack of trade in beef and livestock was due to livestock beef import bans by both countries due to bovine spongiform encephalopathy it was also determined that canada s trade dependence in livestock and beef is cointegrated with canadian and us livestock prices however as the trade dependence variable is shocked the effects on canadian and us prices are opposite although one would expect that in an integrated market the price responses to an exogenous shock would be similar or statistically identical this result reinforces the case against the use of price cointegration analysis in determining presence or absence of market integration empirical results in this article raise some very difficult q

symmetric or asymmetric price adjustments in the oil market an empirical analysis of the relations between international and domestic prices in the federal republic of germany 1972 89 abstract this paper investigates how german consumer and wholesale prices for gasoline and light heating oil react to changes in the corresponding rotterdam prices monthly data from 1972 to 1989 are employed and the subperiods of the 1970s 1972 to 1979 and 1980s 1980 1989 are distinguished error correction models are estimated to seperate long run equilibrium relations and short run adjustment processes for the 1980s we find rapid symmetric and full adjustment of the german prices to the rotterdam prices whereas during the 1970s we find some asymmetries and at least for gasoline the adjustment processes took considerably more time

competition leverage how the demand side affects optimal risk adjustment we study optimal risk adjustment in imperfectly competitive health insurance markets when high risk consumers are less likely to switch insurer than low risk consumers insurers then have an incentive to select even if risk adjustment perfectly corrects for cost differences to achieve first best risk adjustment should overcompensate insurers for serving high risk agents second we identify a trade off between efficiency and consumer welfare reducing the difference in risk adjustment subsidies increases consumer welfare by leveraging competition from the elastic low risk market to the less elastic high risk market third mandatory pooling can increase consumer surplus further at the cost of efficiency

rights equity and economic efficiency the adelman morris premise that economic development and equity are incompatible is not supported by the evidence of a strong relationship between equality of rights and the income distribution the premise that equity requires the denial of individual rights and the affirmation of state control is an oxymoron what has been overlooked in the literature on growth and equity is the effect of the rights structure on both economic efficiency and on the income distribution the evidence is that free societies have much larger shares of income going to the middle 60 percent of the distribution than is observed in societies where men are not free to choose in politically open societies compared to politically closed regimes the share of income to the middle three quintiles is q2 10 7 vs 8 0 q3 16 0 vs 11 5 and q4 22 9 vs 17 9 in the aggregate the shares to the middle quintiles are 49 6 vs 37 4 in nations that obey the rule of law compared to regimes in which the rights of the state relative to the individual are paramount the comparisons are q2 11 2 vs 7 4 q3 16 3 vs 10 6 q4 23 0 vs 17 3 summing the three quintiles yields a comparison of 50 5 vs 35 3 in countries that have private property market allocation of resources and minimum intervention by the state compared to command economies the shares of income to the middle quintiles are q2 10 8 vs 8 0 q3 16 0 vs 11 1 and q4 22 8 vs 17 7 aggregated the shares of the middle class in regimes with high levels of economic liberty are 49 6 vs 36 8 for regimes with restricted private economic rights

optimal risk adjustment with adverse selection and spatial competition abstract paying insurers risk adjusted prices for covering different individuals can correct selection incentives and induce the market to provide optimal insurance policies to calculate the optimal risk adjusted prices we need to know a what the optimal policies are b how much they cost and c how competitive the market is we examine these issues in a model with spatial heterogeneity and adverse selection market equilibrium is characterized and delivery of the socially optimal insurance policies is possible as long as providers are paid risk adjusted fees for each individual they serve when the payment can be made on the basis of an individual s risk it should be sufficient to cover the expected cost of the socially optimal policy for that person plus a mark up if payments can be made only on the basis of a partially informative signal the optimal risk based payments should be adjusted according to a simple linear transformation identified by glazer and mcguire glazer j mcguire t 2000 optimal risk adjustment of health insurance premiums an application to managed care american economic review 90 4 1055 1071

reimbursing health plans and health providers efficiency in production versus selection the tradeoff between an insurer s or medical provider s incentives to select good risks and to produce efficiently is governed by the supply price analog to the demand price tradeoff between moral hazard and risk aversion under a variety of models the optimum supply price is a mixture of capitation and fee for service payments empirical literature shows that pure capitation payment leaves strong incentives for selection that are acted upon the presence of contracting costs in a rothschild stiglitz model means a limited pooling equilibrium can exist and that poor risks will not be at their preferred outcome

the flypaper effect and competition in the local market for public goods in this paper we explore how the ability of bureaucrats to extract resources from their community may be limited by competition in the local market for public goods specifically we examine intergovernmental aid as a resource bureaucrats seek to control intergovernmental aid has been found to be more stimulative of local government expenditures than predicted by neo classical economic theory in this research the flypaper effect is used as an indicator of the ability of bureaucrats to control local resources in excess of local demand and preferences we empirically relate variation in the flypaper effect to the extent of competition in the local market for public goods competition does not consistently limit the flypaper effect the implications of this finding for theories of competition in the local market for public goods are then discussed

the theory and measurement of the net benefits of multinationality the case of the international petroleum industry internalization is one of the most important factors for foreign direct investment and multinationality going multinational brings some gains the empirical evidence presented provides an objective quantitative measure of the gains of being a multinational firm in the petroleum refining industry it is estimated that multination ality increases scale efficiency by approximately 3 and reduces business risk by approximately 43 however the gains of multinationality cannot be attained without incurring some costs the cost of expanding the firs s operation beyond its national boundaries is estimated to be approximately a 10 reduction in the firm s overall economic efficiency

technological change in illinois agriculture 1982 1984 abstract this paper has two main purposes 1 to develop a method for measuring the extent and bias of technical change which involves the use of non parametric production frontiers and does not require information on prices or factor shares 2 to apply this method to individual farm data drawn from a sample of illinois grain farms for the years 1982 and 1984 the results indicate that technical innovation is land using in nature and that the rate of technical change is related to the size of farm

the relative efficiency of slave agriculture a comment in their book time on the cross fogel and engerman fe present evidence that average factor productivity was greater for larger southern slave farms in 1860 than for both free farms and smaller slave farms in a recent article field 1988 lends support to the fe theory by finding that an upward shift in the production function occurs for slave farms at 15 slaves the size at which fe propose that gang labour became feasible in a more recent article grabowski and pasurka gp contradict both fe and field by finding that there was no relationship between the size of slave farms and their efficiency the present paper extends both gp s and field s work and refines a point made by fe we distinguish between a technological advantage due to the gang labour system and revenue inefficiency due both to the incentive structure of slavery and the repugnance of gang labour two factors which foster rational shirking and resistance by slaves that is we propose that relative to small slave farms large slave f

efficiency differences between private and state owned enterprises in the international petroleum industry technical managerial scale and allocative efficiency differences between private and state owned firms in the international petroleum industry are estimated the estimation of aigner chu deterministic frontiers maximum likelihood stochastic frontiers and maximum likelihood gamma frontiers make this analysis the most complete and sophisticated testing of property rights theory available the empirical findings suggestceteris paribus that state firms could satisfy the demand for their output with something less than half of their current resource inputs simply by being converted to private for profit enterprizes

long run competition in the u s aluminum industry abstract a methodology for examining dynamic structure performance relationships in a single industry is proposed and illustrated implications of long run competitive behavior for a simple simultaneous equations model of structure and performance are derived and tested using recently developed methods for the interpretation of economic time series it is concluded that the structure and performance in the u s aluminum industry in the postwar period conform well with the hypothesis that the primary aluminum market was competitive in the long run

contestable markets an uprising in the theory of industry structure presents a transcript of the presidential address delivered at the 94th meeting of the american economic association on december 29 1981 discussion of developments in the theory of industry structure welfare attributes of contestable markets behavior characteristics of oligopoly equilibrium intertemporal vulnerability to inefficient entry ebsco

forward induction and sunk costs give average cost pricing abstract this paper applies the idea of forward induction to a classical economic problem the existence of an efficient form of competition in the case of increasing returns to scale it proves that properly formalized this idea leads to average cost pricing as the horizon goes to infinity journal of economic literature classification numbers

controlling selection incentives when health insurance contracts are endogenous the paper examines the nature of health insurance contracts when insurance companies pool high and low risk individuals in a spatial product differentiation model the normal forces of competition induce quality provision but selection incentives induce insurers to under provide quality to offset selection incentives the government can reimburse some of the insurers costs however such a subsidy can in some cases reduce quality further as well as discourage production efficiency in such cases the optimal reimbursement rate is negative 2001 elsevier science b v all rights reserved

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

production frontiers and panel data an application to u s class 1 railroads in this article the appropriateness of inefficiency measures obtained directly from the production function as in schmidt and sickles 1984 is examined relative to those provided by a the cost function aproach b klein s approach and c the iterative sur technique efficiency rankings yielded by different methods are also compared and tested

technical efficiency of finnish brewing plants a production frontier approach in recent years there has been a substantial change in the common approach to estimating production functions this is primarily the result of the stochastic frontier production model developed by aigner et al 1977 and meeusen and van den broeck 1977 their approach accords with the textbook definition of the production function which is a locus of maximum output levels from given input sets thus a one sided error term is introduced into the frontier production model since all the firms in an industry are not able to produce the frontier output this one sided error is interpreted as technical inefficiency which represents the amount by which a firm s output falls short of the maximum possible output earlier studies that applied this new approach involved estimation of the mean level of efficiency for the industry the subsequent literature has developed techniques to estimate technical inefficiency for each firm in the industry for example jondrow et al 1982 developed techniques to estimate technical inefficiency for each production unit when technical inefficiency is distributed as either half normal or exponential and is independent of the inputs used this last assumption is relaxed in kumbhakar 1987a and the estimation technique is extended to cover panel data the primary motivation for applications of frontier estimation techniques is the measurement of inefficiency this exercise thus has some direct policy relevance see schmidt 1985 86 in this paper we estimate the technical efficiency of 17 finnish brewing plants using panel data 1955 84 the distinguishing features of this study are that the data is of high quality and the observation period is long

is there a causal effect of concentration on persistent profitability differentials this article searches for a causal effect of industry concentration on estimates of persistent profitability differentials i offer solutions to identification problems that plague related analyses by applying an iv and a natural experiment this is the first study that explains estimates of persistent profit differentials using business segments data allowing to match micro and industry level data more consistently testing linear relations critical concentration levels and interactions with mobility barriers i find no evidence that concentration has any positive effect on long run profitability differences results rather tend to point to a statistically and economically significant negative causal effect

credible regulatory threats abstract as competition emerges in parts of utility industries and utility regulation policy is reviewed it is useful to examine alternative forms of regulation that may be implemented when hit and run entry is believed to be a non credible threat potential entry may not constrain incumbent firms pricing and production decisions this paper proposes that the credible threat of intervention by a regulator may impact upon incumbent firms decisions empirical evidence from the english and welsh electricity pool market is investigated to discover whether the threat of regulator intervention may have influenced the pricing strategies of the dominant firms in this market

does trade globalization induce or inhibit corporate transparency unbundling the growth potential and product market competition channels abstract trade globalization may affect corporate transparency via multiple channels with potentially opposite signs we aim to empirically disentangle these channels by tracking evolution of corporate transparency for 4061 listed firms in tradable sectors in 49 countries during 1992 2005 by using detailed tariff schedules we measure changes in growth opportunities and product market competition enabled by foreign and domestic trade liberalizations respectively on the one hand higher growth opportunities engendered by foreign trade reforms are disproportionately associated with better corporate transparency in industries that depend more heavily on external financing on the other hand greater product market competition engendered by domestic tariff reductions has no significant impact on corporate transparency

contestability vs competition analyzes the ultra free entry as normative contribution to industrial organization ultra free entry in context of the evolving field of industrial organization assessment of the conceptual validity of william baumol elizabeth bailey john panzar and robert willig s analysis in representing the nature of competition empirical issues in measuring and testing ultra free entry ebsco

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

efficiency estimation in a profit maximising model using flexible production function abstract this paper uses a flexible translog production function to estimate efficiency of 227 farms from west bengal india we consider estimation of technical and allocative inefficiencies using a profit maximising framework which accommodates both endogenous and exogenous inputs the maximum likelihood method of estimation developed in this paper is based on the production function and the first order conditions of profit maximisation farm specific technical and allocative inefficiencies are also estimated empirical results show that the mean level of technical efficiency is 75 46 while the best farm is 85 87 efficient technically so far as allocative efficiency is concerned the majority of the farms are found to be under users of the endogenous inputs viz fertiliser manure human and bullock labour

optimal risk adjustment in markets with adverse selection an application to managed care it is well known that adverse selection causes distortions in contracts in markets with asymmetric information taxing inefficient contracts and subsidizing the efficient ones can improve market outcomes bruce c greenwald and joseph e stiglitz 1986 although regulators rarely seem to implement tax and subsidy schemes with adverse selection motives in mind contracts are often complex and incomplete and it is the inefficient elements of the contract that are difficult to verify and hence tax or subsidize this is precisely the reason that in health insurance markets rather than subsidizing contracts regulators and payers contend with adverse selection by taxing and subsidizing the price paid to insuring health plans on the basis of observable characteristics of the persons joining the plan a practice known as risk adjustment risk adjusted premiums are paid to managed care plans plans that ration care by management rather than by conventional approaches like coinsurance and deductibles and offer a bundle of characteristics quality access for many services that is fundamentally outside the scope of direct regulation selection related incentives threaten the efficiency and fairness of this organization of health insurance markets by inducing plans to distort the quality of the services they offer to discourage high cost persons from joining the plan as managed care becomes the predominant source of health care for residents of the united states and many other countries payers attempt to address this incentive by setting a risk adjusted price that pays more for more expensive enrollees as it is conventionally practiced risk adjustment sets prices for people proportional to their expected cost based on observable characteristics the federal medicare program for example has used age sex welfare status and county of residence adjusters to set prices to managed care plans to convey how what we term conventional risk adjustment works suppose age is the risk adjuster for a medicare population over 65 if it is determined that the 75to 84 year old population costs 20 percent more than the overall average in medicare the assumption in conventional risk adjustment is that the premium paid to plans for someone in this group should be 20 percent above the average we fundamentally disagree that this is the right way to think about and do risk adjustment

the inefficiency of private adaptation to pollution in the presence of endogenous market structure the paper considers an industry where production costs rise due to pollution but where this effect can be partially off set by investing in adaptation as a private good the focus is not on external effects but industries where economies of scale are introduced from adapting to pollution the structure of the resulting oligopolistic market is endogenous since the level of adaptation is chosen by the firms the analysis of externalities usually disregards defensive or adaptation measures with a few exceptions that point to considerable complications the present debate on adaptation to climate change shows the importance of understanding defensive measures i show that the market failure caused by economies of scale leads to production costs above the social optimum i e to under adapation when pollution increases adaptation only increases if demand is price inelastic otherwise welfare loss from market failure decreases with pollution the total welfare loss is only convex if demand is price inelastic and the influence of pollution on production costs is stronger than the influence of adaptation concave welfare loss has crucial implications for abatement policies

contestable markets an uprising in the theory of industry structure comment a situation traditionally identified as conducive to imperfect competition is when average costs decline and the cheapest scale of production is large relative to the size of the market however some of the more recent literature on industrial organization has emphasized a supposed distinction between fixed costs of production and sunk costs of production a point frequently made is that while the possibility of sunk costs can create genuine barriers to entry pure fixed costs per se do not inhibit competitive market performance this approach finds its logical extreme in the norm or abstraction of perfect contestability perfect contestability is essentially a theory of the polar case of frictionless entry and exit as william baumol stated a contestable market is one into which entry is absolutely free and exit is absolutely costless p 3 certainly this is the most reasonable interpretation of a situation where potential entrants feel free to disregard an incumbent s price response suppose every potential and actual producer has access to the same technology in a perfectly contestable market there are no set up or shut down losses the main result is that even with declining average costs of production the incumbent firm does not dare to post a price higher than average cost price above cost invites being undercut by a hit and run shadow entrant capable of producing at the same flow rate and at identical unit cost during just the briefest instant of time i argue that this line of reasoning is misleading perfect contestability gets around the problem of increasing returns only by in effect assuming it away a hit and run technology makes the firm behave as if it is competitive in a market precisely because the convexity preconditions for competition are de facto being met in that market this comment shows that strictly speaking there is no such thing as a pure fixed cost unless there are sunk costs located somewhere in the relevant production technology all costs are variable as a matter of formal theory you cannot have a range of decreasing average cost without sunk costs presumably there is also an approximation theorem which states that when sunk costs are close to being negligible then average production costs are practically nondecreasing perfect contestability holds approximately in a market only to the extent that production costs for the market are approximately nondecreasing my discussion will be restricted to the familiar case of a single well defined homogeneous fully divisible commodity while more general approaches are possible for the sake of simplicity the following definition is used the average cost function a c y t describes say the minimum cost per unit of output produced at a uniform flow rate y throughout the time interval 0 t especially in applications to industrial organization theory it is essential to remember that cost functions are not generally timeless and that writing ac as a function of y alone can be dangerously vague behind the free entry and exit of a hitand run technology in a perfectly contestable market is the abstraction of no sunk costs investments are fully reversible because nothing is lost in setting up or shutting down production

contestability vs competition once more baumol willig and other advocates of contestability theory continue to urge the idea not only for its insights but also as a clear basis for many antitrust and regulatory decisions yet the limits of the theory remain the three key assumptions are extremely strict and two of them are in mutual conflict the theory is not robust to imperfections in order to displace effective competition with contestability baumol must adopt a sequence of implausible propositions which unfortunately have little analytical or empirical basis

on the robustness of contestability theory abstract the robustness of contestability theory is discussed with special attention to the role of price response lags the possibility of collusion in the post entry game is examined by modeling an infinitely repeated game moreover the hit and run strategy is obtained as the unique subgame perfect equilibrium of a repeated game with infinite horizon under certain conditions

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

estimation of stochastic frontier production function and technical inefficiency via the em algorithm with the definition that e v u being the composite error various alogrithms such as the davidon fletcher powell method are then used for finding the optimal values of the parameter vector 0 b ao oa once the estimates of 0 are obtained jondrow lovell materov and schmidt jlms 4 recently propose a method of decomposing the estimated error y b x into separate components v and u the proposed decomposition method is based on the derivation of the conditional distribution of ut given the composite

contestability reconsidered the meaning of market exit costs abstract this paper analyses the main result of the contestable market approach namely that potential competition reaches its maximum power if market entry and exit is costless and newcomers can use the hit and run strategy different time lag structures are considered average cost pricing turns out to be no equilibrium if there are no market exit costs furthermore exit costs don t necessarily create a barrier to entry but may even strengthen the discipline arising from the threat of entry

the relative technical efficiency of northern and southern u s farms in 1860 prior to the 1960s it was widely accepted that the slave economy of the south was unprofitable and inefficient 14 however in the 1960s a number of scholars demonstrated using economic analysis and econometric techniques that slavery was indeed profitable 5 12 this evidence was further supported by findings that per capita income in the south was not only high by standards of the mid nineteenth century but was also growing rapidly during the two decades preceding the civil war 7 8 9 although these findings were important they did not address the issue of the technical efficiency of northern and southern farms however in the early 1970s fogel and engerman determined that southern agriculture was more technically efficient than northern agriculture 11 13 this paper will also compare the relative technical efficiency of northern and southern farms for a sample of farms for the year 1860 however the method we will use to measure technical efficiency is superior to that used by fogel and engerman a non parametric production frontier is constructed with inefficiency measured by the extent to which firms operate below the frontier using this approach it is possible to determine whether technical inefficiency is the result of operating off of the isoquant pure technical inefficiency or operating at an inappropriate scale i e not operating at constant returns to scale the next section of this paper reviews the literature concerning the relative technical efficiency of northern relative to southern agriculture section three discusses the methodology used in this paper to measure the technical efficiency of farms section four presents and analyzes the empirical results and section five summarizes the paper

the economic efficiency of backward vertical integration in the international petroleum refining industry a benefit of backward vertical integration in the petroleum refining industry is reduced uncertainly in the supply of crude oil for refining however there is no a priori reason to believe that refiners are more skilful in managing combined refining and crude oil production operations than are specialists in these functions using the concept of frontier production functions efficiency differences between firms with differing degrees of backward vertical integration are estimated backward vertical integration improves scale efficieny and reduces business risk significantly but it reduces both technical and overall economic efficiency this is the first comprehensive empirical test of the efficiency of vertical integration in the literature

entry and price dynamics in a perfect foresight model abstract this paper studies firms entry and price dynamics in a model that combines the assumptions of free entry and perfect foresight with the hypothesis of consumer s loyalty postulated by phelps and winter the analysis of the transition to long run equilibrium reveals that in such a model the entry of firms is related to the difference between current prices and costs in relation to the growth of the firms output it is shown that the model is consistent with gibrat s law finally it is shown that the size distribution of firms approaches asymptotically a pareto distribution