modeling manufacturing and marketing options in international operations abstract in this paper we model and compare eight manufacturing marketing options that a firm with operations in two countries termed as an international enterprise may adopt manufacturing factors incorporated in the model include factory location inventory economies of scale product design and postponement marketing factors include product positioning and pricing the model also includes international factors such as the exchange rate and transportation cost the first two options are termed core product options where the international enterprise manufactures a core product in a single facility located in one of the countries under the first core product option this facility also performs additional operations on the core product to develop custom tailored products under the second core product option customization of the core product takes place in facilities located in both countries the other six options are characterized by standardization customization of product and pricing policies as well as centralization decentralization of the production function the main result of the analysis is that under certain production related conditions the core product options dominate the other six manufacturing marketing options this result has significant managerial implications since it suggests that the core product options exploit the best of both worlds customized pricing and product policies as well as savings derived from economies of scale from the centralized production of the core product

testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

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

the wealth effects of deregulation of canadian financial institutions abstract canada like other industrial countries recently introduced various financial reforms to remove the barriers separating the operations and ownership of banks from non bank financial institutions this study analyzes the wealth effects of the reforms on the banks and non bank financial institutions and the changes in their systematic risk resulting from financial deregulation over the period 1984 to 1991 the results indicate that while there was a significant cumulative gain for the insurance industry unlike a number of u s studies there was no evidence of wealth transfer among the institutions during the period of deregulation of the canadian financial system additional tests indicate that although the regulatory changes did not have a significant effect on the risk of the banks the systematic risk of the non bank financial institutions increased significantly during the period of regulatory reforms

measuring the effects of regulation with stock price data this article examines the usefulness of stock returns in measuring the effects of regulation when the dates on which market expectations change are not known and standard sources e g the wall street journal are used to choose announcement dates twenty major changes in regulatory constraint since 1887 are considered tests using either monthly or daily data are found to have surprisingly little ability to detect the effects of regulation the evidence shows that formal regulatory announcements are generally anticipated in cases where it is unclear when expectations change

a nonparametric approach to modeling choice with limited data choice models today are ubiquitous across a range of applications in operations and marketing real world implementations of many of these models face the formidable stumbling block of simply identifying the right model of choice to use because models of choice are inherently high dimensional objects the typical approach to dealing with this problem is positing a priori a parametric model that one believes adequately captures choice behavior this approach can be substantially suboptimal in scenarios where one cares about using the choice model learned to make fine grained predictions one must contend with the risks of mis specification and overfitting underfitting thus motivated we visit the following problem for a generic model of consumer choice namely distributions over preference lists and a limited amount of data on how consumers actually make decisions such as marginal information about these distributions how may one predict revenues from offering a particular assortment of choices an outcome of our investigation is a nonparametric approach in which the data automatically select the right choice model for revenue predictions the approach is practical using a data set consisting of automobile sales transaction data from a major u s automaker our method demonstrates a 20 improvement in prediction accuracy over state of the art benchmark models this improvement can translate into a 10 increase in revenues from optimizing the offer set we also address a number of theoretical issues among them a qualitative examination of the choice models implicitly learned by the approach we believe that this paper takes a step toward automating the crucial task of choice model selection this paper was accepted by yossi aviv operations management

a two stage disaggregate attribute choice model a two stage disaggregate attribute choice model is proposed and empirically implemented the first stage of the model is attribute processing to screen the number of alternatives down to a lesser number the second stage is brand alternative processing which considers the attributes simultaneously while allowing for tradeoffs among the attributes this two stage approach is then applied to the same real world data set as two single stage disaggregate models logit and maximum likelihood hierarchical mlh which are state of the art models representing the alternative and attribute processing approaches respectively the predictive accuracy of the two stage approach compares favorably to the single stage models in addition it seems to offer diagnostic information that can provide managerial insights not found in the output of the single stage model

interest rate risk and the pricing of depository financial intermediary common stock empirical evidence abstract using the likelihood ratio test this paper presents evidence that interest rate risk is priced these results are consistent with earlier findings presented by sweeney and warga based on a different sample and methodology the statistical results further reveal that failure to discern significant interest rate premia is attributable to insufficient rate sensitivity rather than being an outcome of monetary policy i e inadequate rate volatility

profit maximizing perceptual positions an integrated theory for the selection of product features and price an important component of marketing strategy is to position a product in perceptual space but to realize a perceptual position we must model the link from physical characteristics to perceptual dimensions and we must use this model to maximize profit this paper integrates psychological theories on how consumers process information with economic models and psychometric measurement and it develops a theory for selecting physical features and price to achieve a profit maximizing perceptual position the theory begins with a lancaster like transformation from goods space to characteristics space and investigates the implications of a mapping to a third space perceptual space we show that all products efficient in perceptual space must be efficient in characteristics space but not conversely but consumers vary in their preference and the way they perceive products thus we introduce distributional components to the theory and derive both geometric and analytic methods to incorporate this consumer heterogeneity next we investigate costs and derive a perceptual expansion path along which a profit maximizing position must exist conjoint analysis and quantal choice models provide the measurements to implement the theory the theory is illustrated with a hypothetical example from the analgesics market and some of the potential psychometric measurements are illustrated with an empirical application in the communications market

dynamic analysis of consumer response to marketing strategies this paper develops a methodology for modeling consumer response that integrates previous research in stochastic brand selection diffusion of innovation test market analysis and new product design the methodology makes it practical to extend brand selection models to include diffusion phenomena such as awareness trial and information flow purchase timing and brand selection are interdependent and both phenomena depend jointly on managerial controls such as advertising coupons price off promotion product positioning and consumer characteristics within this general structure we provide practical estimation procedures a least squares approximation to the maximum likelihood estimates to determine the parameters which link managerial controls to consumer response closed form solutions are derived for cumulative awareness cumulative trial penetration expected sales and purchases due to promotion all as a function of time we also provide simplified expressions for equilibrium t market share tradeoffs among complexity of the diffusion process number of managerial variables nonstationarity complexity of purchase timing consumer segmentation and sample size are made explicit so that the marketing scientist can customize his analyses to the managerial problems that he faces the effects of sample size data interval frequency and collinearity in the explanatory variables are investigated with simulations based on a five state consumer response process which depends on 8 10 marketing variables the paper closes with a brief description of the application and predictive test of a consumer response model based on the methodology

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

changes in interstate banking laws the impact on shareholder wealth this study examines the impact on shareholder wealth of changes in interstate banking laws the research demonstrates that changes in state statutes which allow interstate banking have a positive impact on the stock prices of regional banking organizations and a negative impact on the stock prices of money center banks interstate banking statutes initially exclude those states in which the money center banks are headquartered the findings provide evidence that by excluding money center banks from expansion across state lines the competition from the regional banks may have an adverse competitive effect on the money center banks from june 1982 to september 1986 44 states and the district of columbia passed some form of interstate banking legislation this study measures the impact of these legislative changes on the wealth of bank shareholders when legislation is enacted each state s banks are given the opportunity to engage in interstate merger activity the market s perception of the impact on the affected banks should be reflected in the equity returns of shareholders the results show that while there are no announcement effects for the entire sample there are significant effects among a subsample of the data set money center banks experience negative returns throughout the sample period whereas regional banking organizations experience positive abnormal returns section i reviews the literature section ii describes the data used in this study and defines the event the methodological issues are addressed in section iii the empirical results are in section iv the conclusions are in section v

a new test of the relationship between regulatory change in financial markets and the stability of beta risk of depository institutions the us economy experienced major regulatory changes in the banking and finance industry with the passage of five major acts over the period 1980 to 1991 this has generated an extensive literature investigating the effects of these changes on the us banking industry in particular this body of research has examined the share market reaction to regulatory changes as well as their impact on the risk return market value and profitability of banking industry stocks generally it has been found that the regulatory changes have had a substantial impact although the effect has not been uniform across all depository institutions this paper extends this literature by analysing the stability of a sample of eighteen us banking industry stock betas across five periods a pre regulatory change period a monetary experiment period a deregulation period a reregulation period and a post regulatory change period based on an analysis of weekly returns we find that the level of bank risk has increased further we also find a tendency towards greater beta instability in both the monetary experiment and deregulation samples the degree of beta instability is lowest in the pre regulatory change and post regulatory change samples overall the monetary experiment and regulatory change coincided with an increased tendency towards beta instability we also compare our results to a randomly selected control sample of non banks and find some more general effects of regulatory change on individual stock betas

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

an empirical analysis of competitive nonlinear pricing abstract we estimate a model of competitive nonlinear pricing with multidimensional preference heterogeneity using individual level data on advertisements bought by local businesses e g doctors electricians from two yellow page directories in one u s city market variation in individual choices and payments allows us to identify the joint density of preferences marginal costs of publishing and common utility parameters our estimates suggest substantial welfare loss due to asymmetric information comparing duopoly outcomes with counterfactual monopoly outcomes we find that with less competition i producer surplus increases substantially ii more low type consumers are excluded iii product variety increases but benefits accrue only to the high type consumers iv total consumer surplus decreases v but its distribution across consumers does not change

the market valuation effects of the financial institutions reform recovery and enforcement act of 1989 abstract this paper evaluates the stock market effects of events leading to the passage of the financial institutions reforms recovery and enforcement act of 1989 the evidence suggests that the signing of the act by president bush produced positive abnormal returns for both banks and s ls and that the addition of tougher capital standards produced positive returns for s ls in addition the act increased the risk of both banks and s ls

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

market expectations of the effects of the tax reform act of 1986 on banking organizations abstract this study investigates market expectations regarding the effect of the tax reform act of 1986 on the banking industry the evidence shows that overall the tax reform did not adversely affect the stocks of banking institutions the findings suggest that overall banking organizations were expected to largely mitigate any negative effects of the tax reform on their cash flow by rebalancing and or repricing their portfolios of assets and liabilities the most significant provision of the new act was the limitation on foreign tax credits interestingly the markets did not expect any adverse valuation effects from the recapture of loan loss reserves or the elimination of the interest deductibility for carrying tax exempt securities

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

estimating the tradeoff between risk protection and moral hazard with a nonlinear budget set model of health insurance insurance induces a tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard empirical work traditionally estimates each side of the tradeoff separately potentially yielding mutually inconsistent results i develop a nonlinear budget set model of health insurance that allows for both simultaneously nonlinearities in the budget set arise from deductibles coinsurance rates and stoplosses that alter moral hazard as well as risk protection i illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm

the influence of involvement on disaggregate attribute choice models the state of the art in applying the various disaggregate choice algorithms is to assume homogeneity of choice process within the population being analyzed this article uses the involvement variable a priori to categorize the sample population into a high involvement segment using a model that assumes a simultaneous or alternative processing approach and a low involvement segment using a model that assumes a hierarchical or an attribute processing approach empirical results indicate increased predictive accuracy and diagnostic information that is more closely related to established consumer behavior theory

a structural model of multiple welfare program participation and labor supply work on estimating the labor supply effects of high marginal tax rates in welfare programs has been hindered by the difficulty of estimating the effects of participation in multiple welfare programs simultaneously the authors solve this problem by applying methods of simulation estimation to a model of labor supply and multiple program participation the results show asymmetric wage and tax rate effects with fairly large wage elasticities of labor supply but very inelastic responses to moderate changes in cumulative marginal tax rates implying that high welfare tax rates do not necessarily induce major reductions in work effort copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

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

conflict of interest in commercial bank security underwritings canadian evidence abstract the recent repeal of the glass steagall act in the us has cleared the way for commercial banks to enter the securities underwriting business many of the concerns that resulted in the original passage of the glass steagall act however still exist one of these is the possible conflict of interest a universal bank faces this paper provides evidence on this issue from the experience of canada following its removal of restrictions on chartered bank ownership of investment dealers both ex ante bond yield comparisons between commercial and investment bank underwritten issues and equity price reactions to bond issue announcements provide no evidence of a conflict of interest

stock market reactions to the depository institutions deregulation and monetary control act of 1980 abstract this paper evaluates the effects of events leading to the passage of the depository institutions deregulation and monetary control act of 1980 the evidence suggests that the initial proposal of the act by then president carter and the final passage of the act by the house of representatives produced positive abnormal returns to stockholders of large commercial banks stockholders of small commercial banks and small savings and loans on the other hand generally experienced negative abnormal returns furthermore when hopes of passage of the act faced significant negative positive abnormal returns were experienced by stockholders of large small commercial banks

the industrial organization of health care markets the u s health care sector is large and growing health care spending in 2011 amounted to 2 7 trillion and 18 percent of gdp approximately half of health care output is allocated via markets in this paper we analyze the industrial organization literature on health care markets focusing on the impact of competition on price quality and treatment decisions for health care providers and health insurers we conclude with a discussion of research opportunities for industrial organization economists including opportunities created by the u s patient protection and affordable care act

experimental identification of asymmetric information evidence on crop insurance in the philippines abstract i study asymmetric information in crop insurance in the philippines using a two level randomized field experiment and incentivized preference elicitation in this first experimental study of moral hazard in non health insurance preventable damages double on randomly insured plots among farmers with high trust in the insurance provider farmers prefer insurance on plots that are at risk of floods and crop diseases a sign of classic adverse selection and plots that are far away from home a sign of selection on anticipated moral hazard behavior resulting in 72 higher payouts on preferred plots overcoming these challenges requires leveraging new technologies

a multiattribute model of consumer choice during product learning the processes of consumer preference formation during product learning are analyzed a hypothesis about how individuals form attribute expectations is used to derive a dynamic multinomial logit model of individual choice which endogenously recognizes product learning the model and its underlying assumptions are then tested in the context of an interactive grocery store learning game the results support most elements of the proposed model structure an assumption of temporal stationarity in attribute salience however could not be supported approaches to implementation of the model are discussed and implications for marketing management and research in individual choice modeling are addressed

an investigation into the order of the brand choice process this paper investigates the order of the brand choice process at the individual family level using a variety of tests t likelihood ratio binomial runs and multinomial runs tests the test of stationarity developed permits separate analyses for stationary and nonstationary purchase sequences our analyses indicate that the purchase sequences of a majority of stationary consumers are consistent with the zero order assumption this result is observed for all the nine frequently bought packaged goods studied with the use of panel data and for a product category soft drinks using experimental data

health insurance and the demand for medical care evidence from a randomized experiment we estimate how cost sharing the portion of the bill the patient pays affects the demand for medical services the data come from a randomized experiment a catastrophic insurance plan reduces expenditures 31 percent relative to zero out of pocket price the price elasticity is approximately 0 2 we reject the hypothesis that less favorable coverage of outpatient services increases total expenditure for example by deterring preventive care or inducing hospitalization

an examination of the impact of the garn st germain depository institutions act of 1982 on commercial banks and savings and loans this paper evaluates the effects of events leading to the passage of the garn st germain depository institutions act of 1982 the evidence suggests that the call for reform by president reagan s housing commission and the senate passage of the bill produced positive abnormal returns to stockholders of large savings and loans and commercial banks stockholders of small s ls and banks on the other hand generally experienced negative abnormal returns furthermore when hopes of passage of the act faded significant negative positive abnormal returns were experienced by stockholders of large small s ls and banks this study examines the impact of the passage of the garn st germain depository institutions gsgdi act of 1982 on commercial bank and savings and loan stockholder returns the gsgdi act represents one of two major revisions of the financial system over the last twenty years the other being the depository institutions deregulation and monetary control act of 19801 the proposal for such a change reflected the growing inadequacy of the regulatory structure of financial institutions to adapt to rapid changes in technology shifting consumer demands for financial services and extremely volatile interest rates efforts to reform the financial system resulted in passage of the gsgdi act of 1982 which included provisions seeking to improve both the implementation of monetary policy and the degree of equity in the regulation of financial institutions such improvements were intended to reduce the operational and financial risk of financial institutions a central issue in the economics of regulation is whether regulatory actions benefit the economic agents they are intended to benefit a large body of literature exists which examines the economic effects of regulation much of this literature has utilized the concepts and methods of welfare economics to assess the extent

estimating demand elasticities using nonlinear pricing abstract nonlinear pricing is prevalent in industries such as health care public utilities and telecommunications however this pricing scheme introduces bias into estimating elasticities for welfare analysis or policy changes i develop a local elasticity estimation method that uses nonlinear price schedules to isolate consumers expenditure choices from selection and simultaneity biases this method improves over previous approaches by using commonly available observational data and requiring only a single general monotonicity assumption using claims level data on health insurance with two nonlinearities i am able to measure two separate elasticities and find that elasticity declines from 0 26 to 0 09 by the second nonlinearity these estimates are then used to calculate moral hazard deadweight loss this method enables estimation of many policies with nonlinear pricing which previous tools could not address

an empirical comparison of the validity of a neural net based multinomial logit choice model to alternative model specifications applications of choice models to brand purchase data as a rule specify a linear deterministic utility function we estimate deterministic utility by means of a neural net able to approximate any continuous multivariate function and its derivatives to a desired level of precision we compare this model to related alternatives both with linear and nonlinear utility functions alternatives with nonlinear utility functions are based on generalized additive modeling and taylor series expansion respectively we analyze purchase data of the six largest brands in terms of market share for two product groups neural choice models outperform the alternative models studied w r t posterior probabilities they also attain the best crossvalidated log likelihood values these results demonstrate that the increase in complexity caused by the neural choice model is justified by higher validity in the empirical study the neural choice models imply elasticities different from those obtained by linear utility multinomial logit models for several predictors neural choice models discover inversely s shaped saturation and interaction effects on utility

estimating marginal returns to education this paper estimates marginal returns to college for individuals induced to enroll in college by different marginal policy changes the recent instrumental variables literature seeks to estimate this parameter but in general it does so only under strong assumptions that are tested and found wanting we show how to utilize economic theory and local instrumental variables estimators to estimate the effect of marginal policy changes our empirical analysis shows that returns are higher for individuals with values of unobservables that make them more likely to attend college we contrast our estimates with iv estimates of the return to schooling

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

bunching at the kink implications for spending responses to health insurance contracts abstract a large literature in empirical public finance relies on bunching to identify a behavioral response to non linear incentives and to translate this response into an economic object to be used counterfactually we conduct this type of analysis in the context of prescription drug insurance for the elderly in medicare part d where a kink in the individual s budget set generates substantial bunching in annual drug expenditure around the famous donut hole we show that different alternative economic models can match the basic bunching pattern but have very different quantitative implications for the counterfactual spending response to alternative insurance contracts these findings illustrate the importance of modeling choices in mapping a compelling reduced form pattern into an economic object of interest

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

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

the ability of nash s theory of cooperative games to predict the outcomes of buyer seller negotiations a dyad level test this research develops and implements a dyad level procedure for testing whether the outcomes of buyer seller negotiations correspond to settlements prescribed by nash s theory of cooperative games the procedure entails a multivariate statistical test in which some parameters are estimated by simulation while others are provided directly from the assessment of negotiator utility functions by means of conjoint analysis the procedure is applied to an experiment in which subjects participated in a realistic role playing exercise that replicated the purchase of television advertising time results indicate that at the 0 01 significance level 57 8 of the dyads can be rejected as not having achieved nash solutions these results and their implications for marketing practitioners as well as future research are discussed

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

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program comment consumers enrollment decisions in medicare part d can be explained by abaluck and gruber s 2011 model of utility maximization with psychological biases or by a neoclassical version of their model that precludes such biases we evaluate these competing hypotheses by applying nonparametric tests of utility maximization and model validation tests to administrative data we find that 79 percent of enrollment decisions from 2006 to 2010 satisfied basic axioms of consumer theory under the assumption of full information the validation tests provide evidence against widespread psychological biases in particular we find that precluding psychological biases improves the structural model s out of sample predictions for consumer behavior

medicaid insurance in old age the old age provisions of the medicaid program were designed to insure retirees against medical expenses we estimate a structural model of savings and medical spending and use it to compute the distribution of lifetime medicaid transfers and medicaid valuations across currently single retirees compensating variation calculations indicate that current retirees value medicaid insurance at more than its actuarial cost but that most would value an expansion of the current medicaid program at less than its cost these findings suggest that for current single retirees the medicaid program may be of the approximately right size

formal choice models in marketing the paper gives an overview and evaluates the theoretical traditions underlying choice models that are used in marketing in particular the emphasis of this essay is on the underlying assumptions limitations and empirical demands of these choice models four fundamental choice models are used as a basis to analyze this complex field the neoclassical economic theory as extended by lancaster the risk preference theory of choices under uncertainty the strict utility theory and the random utility theory these four choice models and their extensions are compared and contrasted along the three critical steps in the model building process theory generation parameterization and estimation

a nonparametric density estimation method for brand choice using scanner data nonparametric density estimation using a kernel method is proposed to model consumer brand choice recent availability of large scanner panel data allows the use of nonparametric approach which has few or at least fewer underlying assumptions and affords greater structural flexibility by removing as many assumptions as possible the author constructs the ultimate nonparametric model radically departing from the traditional approaches to highlight the differences in implementation and performance the proposed model does not involve either parameters that approximate certain distributions as in stochastic models or latent concepts such as utility as in utility maximization models the performance criteria include prediction of market response and brand choice share tracking and robustness under violation of various assumptions involved in parametric choice models such as correlated disturbance and misspecification the method is compared with a popular parametric counterpart the multinomial logit model on simulated and actual scanner panel data the paper emphasizes the conceptual importance of the nonparametric approach by discussing its advantages limitations and its complementary role in developing refining and diagnosing parametric models this perspective affords insight to modeling philosophy and suggests the possibility of a hybrid approach

perfect competition in markets with adverse selection this paper proposes a perfectly competitive model of a market with adverse selection prices are determined by zero profit conditions and the set of traded contracts is determined by free entry crucially for applications contract characteristics are endogenously determined consumers may have multiple dimensions of private information and an equilibrium always exists equilibrium corresponds to the limit of a differentiated products bertrand game we apply the model to establish theoretical results on the equilibrium effects of mandates mandates can increase efficiency but have unintended consequences with adverse selection an insurance mandate reduces the price of low coverage policies which necessarily has indirect effects such as increasing adverse selection on the intensive margin and causing some consumers to purchase less coverage

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

optimal mandates and the welfare cost of asymmetric information evidence from the u k annuity market much of the extensive empirical literature on insurance markets has focused on whether adverse selection can be detected once detected however there has been little attempt to quantify its welfare cost or to assess whether and what potential government interventions may reduce these costs to do so we develop a model of annuity contract choice and estimate it using data from the u k annuity market the model allows for private information about mortality risk as well as heterogeneity in preferences over different contract options we focus on the choice of length of guarantee among individuals who are required to buy annuities the results suggest that asymmetric information along the guarantee margin reduces welfare relative to a first best symmetric information benchmark by about 127 million per year or about 2 percent of annuitized wealth we also find that by requiring that individuals choose the longest guarantee period allowed mandates could achieve the first best allocation however we estimate that other mandated guarantee lengths would have detrimental effects on welfare since determining the optimal mandate is empirically difficult our findings suggest that achieving welfare gains through mandatory social insurance may be harder in practice than simple theory may suggest

the effects of access to health insurance evidence from a regression discontinuity design in peru in many countries large parts of the population do not have access to health insurance peru has made an effort to change this in the early 2000s the institutional setup gives rise to the rare opportunity to study the effects of health insurance coverage exploiting a sharp regression discontinuity design we find large effects on utilization that are most pronounced for the provision of curative care individuals seeing a doctor leads to increased awareness about health problems and generates a potentially desirable form of supplier induced demand they decide to pay themselves for services that are in short supply

choosing the wrong calling plan ignorance and learning when a firm offers several tariff options to its customers the possibility arises that they will make an ex post mistake in tariff choice this occurs since consumers cannot commit to a certain purchase level at the time they subscribe to the service option and thus they might find out later that a different choice of tariff could have resulted in a lower payment for their actual level of consumption this is a common feature of increasingly important subscriptions markets in which buyers and sellers maintain long term nonanonymous relations and where learning induces interesting dynamics on the one hand buyers may learn their taste over time thus making the right choice as times goes by on the other hand the seller may design options to identify the type of each buyer and if possible to extract a higher proportion of their consumer surplus by offering tariff options that are better tailored to the profile of the consumer this paper focuses on the first type of learning in turn i document buyer behavior in a subscriptions market using data from a tariff experiment run by south central bell scb in kentucky during the second half of 1986 the most frequently studied case of subscriptions markets is the choice among optional calling plans ocps in the telephone industry this paper shows that contrary to the conven

intra industry effects of bank privatization a clinical analysis of the privatization of the commonwealth bank of australia abstract this paper provides a comprehensive analysis of the effects of the privatization of the commonwealth bank of australia cba on the bank s performance and that of the rival banks first we find that the major rival banks reacted negatively to the privatization announcements although the initial partial privatization and the final full privatization announcements elicited stronger stock market reaction from the rival banks second we find that the cba s long term stock market performance improved markedly as the proportion of government ownership decreased with the bank s cumulative abnormal returns being 50 more than those of its rivals three years after the bank had been fully privatized also the cba has not only been very efficient in reducing cost and improving its profitability in the post privatization period it has outperformed its rivals on almost all the operating performance measures and has become the most profitable bank in australia a particularly noteworthy finding is that the improvements in the cba s operating and stock market performance and the rival banks reaction to the partial and full privatization announcements were strongest after the bank had been fully privatized the implication of the results for governments contemplating privatization of state owned enterprises is that full privatization is necessary in order to achieve strong gains in efficiency profitability and stock market performance

predictive testing of consumer choice models not subject to independence of irrelevant alternatives the probabilistic modeling of the relationship between objective or perceived characteristics of multiattribute alternatives and consumer choice is receiving increased attention in marketing and ot

patient cost sharing and hospitalization offsets in the elderly in the medicare program increases in cost sharing by a supplemental insurer can exert financial externalities we study a policy change that raised patient cost sharing for the supplemental insurer for retired public employees in california we find that physician visits and prescription drug usage have elasticities that are similar to those of the rand health insurance experiment hie unlike the hie however we find substantial offset effects in terms of increased hospital utilization the savings from increased cost sharing accrue mostly to the supplemental insurer while the costs of increased hospitalization accrue mostly to medicare

the impact of the 1980 depository institutions deregulation and monetary control act on market value and risk evidence from the capital markets the depository institutions deregulation and monetary control act of 1980 brought about major changes in the banking industry this study employs capital market data to examine the act s impact on the relative competitive positions of distinct classes of firms within the industry the evidence supports the hypothesis that federal reserve system banks profited from the regulatory change at the expense of nonmember banks and savings and loans copyright 1988 by ohio state university press

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

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

an analysis of intra industry differences in the effect of regulation the case of deposit rate ceilings abstract this study examines the impact of deposit rate ceiling changes on the market value of commercial banks and stock savings and loan associations statistically significant increases in market value are found on announcement of the removal of ceilings on large denomination certificates of deposit in contrast retail commercial banks and savings and loans experienced declines in value on announcement of the elimination or relaxation of deposit rate ceilings on small denomination consumer accounts in addition for all events analyzed significant differences were found in the effect of ceiling changes on the market value of wholesale and retail commercial banks

consumer choice process for experience goods an econometric model and analysis in this research the authors develop and execute an econometric framework to model and analyze the consumer choice process for experience products formally the authors develop a multistage model

perceptual position and competitive brand strategy in a two dimensional two brand market brand positioning and competitive reaction are important determinants of optimal brand strategy analyses of brand strategy have focused on optimal pricing and positioning issues using either empirical models of perceptions and preferences game theory to examine competition or both however the important issues of advertising and distribution strategy have not been fully addressed this paper analyzes competition and strategy between two brands that compete in a two dimensional market with advertising and distribution spending in addition to prices and product positions in particular for a unimodal taste distribution of ideal points we show how optimal competitive nash equilibrium marketing mix levels and profits depend on the positions of both brands brands can reposition to increase profit and under what conditions these strategies imply minimum versus maximum differentiation positioning equilibria and how the intensity of advertising and distribution competition affect equilibrium brand positions

a model of balanced choice behavior in some product categories consumers appear to alternate among items in a consistent and purposeful though not entirely deterministic fashion such alternation occurs even in the absence of any apparent external influences on choice to explain such balanced choice behavior we present a model based upon the premise that past consumption influences the utility of items on subsequent choice occasions individuals may seek variety on certain product attributes and exhibit loyalty toward others the model specification yields a logit choice model which may be calibrated using consumption diary panel data at the individual or cross sectional level

banks non traditional activities under regulatory changes impact on risk performance and capital adequacy using the big six canadian chartered banks quarterly financial statements and daily stock market data from 1982 to 2018 we examine the impact of non interest income on canadian banks risk perfor

tariff choice with consumer learning and switching costs abstract consumers choosing flat rate contracts tend to have insufficient usage to warrant the cost particularly for new products we propose and estimate a bayesian learning model of tariff and usage choice that explains this flat rate bias without relying on behavioral misjudgments or tariff specific preferences for new products consumers are uncertain about both their utility relative to the population mean and the mean itself we show that this latter uncertainty inflates prior variances which leads consumers to weight their private signals more heavily when updating beliefs posteriors are unbiased across products for a given product however the unknown mean yields a winner s curse consumers with high posteriors tend to overestimate their utility these consumers choose fixed rate tariffs and lower their usage as they correct their beliefs the flat rate bias arises when switching costs deter them from changing tariffs using the estimated model the authors find that tariff menus are ineff

the effects of didmca on bank stockholders returns and risk abstract in this paper we examine the effects of the 1980 didmca on bank stockholders returns and risk while at the time of the announcement both commercial banks and thrifts appeared to benefit measured by abnormal returns over a longer period of time surrounding the announcement week it is evident that thrift stockholders were the primary beneficiaries of the acts passage when the effects of didmca on risk was analysed it was found that after the act s passage the total return risk of both money center and regional banks increased while that for thrifts decreased however some of the beneficial effects of the act appear to have been mitigated by an increase in the absolute size of unexpected interest rate risk in the post enactment period