trading arrangements and industrial development how do different trading arrangements influence the industrialization process of developing countries can preferential trading arrangements ptas be superior to multilateral liberalization or at least an alternative when multilateral liberalization proceeds slowly if so what form should the ptas take are developing countries better advised to seek ptas with industrial countries or among themselves traditional analysis of these issues has been based on the idea of trade creation and trade diversion the problem with this analysis is that it starts from assuming a pattern of comparative advantage of newly industrialized countries the experience of these countries suggests the need for an analysis in which the pattern of comparative advantage is not set in stone but is potentially flexible and in which less developed countries can develop and converge in both income and economic structure to industrial economies the authors outline an alternative approach for analyzing the role of trade in promoting industrial development there are few fundamental differences between countries that generate immutable patterns of comparative advantage instead the pattern of trade and development in the world economy is determined mainly by history cumulative causation has created concentrations of industrial activity in particular locations industrial countries and left other areas more dependent on primary activities economic development can be thought of as the spread of these concentrations from country to country different trading arrangements may have a major impact on this development process by changing the attractiveness of countries as a base for manufacturing production they can potentially trigger or postpone industrial development this approach explains why firms are reluctant to move to economies that have lower wages and labor costs and shows how trade liberalization can change the incentives to become established in developing countries it provides a mechanism through which import liberalization can have a powerful effect in promoting industrialization and it suggests that import liberalization may create or amplify differences between liberalizing countries with the possible political tensions this may create while these features are consistent with the world economy they fall short of providing convincing empirical support for the approach using the approach the authors derive number of conclusions about the effects of trade liberalization first that unilaterally liberalizing imports of manufactures can promote development of the local manufacturing industry the mechanism is forward linkages from imported intermediates but this may be interpreted as part of a wider package of linkages coming from these imports second the gains from liberalization through pta membership are likely to exceed those obtained from unilateral action south south ptas will be sensitive to the market size of member states and north south ptas seem to offer better prospects for participating southern economies if not for north and excluded countries third the effects of particular schemes such as the division of benefits between southern economies will depend on the characteristics of the countries and cross country differences in these characteristics

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

estimation of economies of scale in banking using a generalized functional form this paper addresses four issues that arise in the estimation of economies of scale in the commercial banking industry first a common assumption underlying many of the studies of economies of scale in banking is the assumption of a cobb douglas production function with exogenous input prices the use of a cobb douglas production function facilitates the estimation of the output elasticity of cost however there does not appear to be any other reason a priori for such an assumption this paper utilizes a box cox hereafter b c generalized functional form methodology to directly test the assumption of an underlying cobb douglas production function second if the assumption of a cobb douglas production function is inappropriate as a description of the production process of the financial firm estimates of the output elasticity may be biased the sensitivity of the estimates of this elasticity to the choice of functional form can also be examined through the use of a generalized functional form methodology third no general consensus has been reached regarding the appropriate definition of bank output thus a diversity of measures of bank output have been employed in previous estimates of economies of scale in banking the sensitivity of the estimated output elasticity of cost to the selection of several alternative measures of output is examined through the use of the generalized functional form methodology finally the b c estimates of the cost function for commercial banks can be used

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

retail bank deposits as quasi fixed factors of production neoclassical models of the banking firm for example michael klein 1971 treat all deposit liabilities as fully variable factors of production banks then maximize profits minimize liability costs by equating the marginal costs of all liability types during each period the empirical relevance of these models is difficult to establish because binding deposit rate ceilings regulation q force bank competition for many retail deposits into implicit interest channels that are not readily measured it is therefore noteworthy that during two recent periods when deposit rate ceilings were not binding banks paid retail deposit rates considerably in excess of the rate at which they could borrow via large unregulated certificates of deposit such behavior seems inconsistent with the cost minimization prescribed by neoclassical bank models however if retail deposit accounts are interpreted as quasi fixed gary becker 1962 walter oi 1962 donald parsons 1972 sherwin rosen 1968 inputs to the banking firm these important historical observations can be reconciled with bank profit maximization this paper first describes two historical episodes during which the bank retail deposit rate exceeded the negotiable certificate of deposit rate for substantial periods of time while no profit maximizing cost minimizing bank would pay such a rate differential if retail deposit quantities are costlessly variable interpreting retail deposit accounts as quasi fixed inputs to the bank explains the peculiar rate structures a simple two period model of bank liability selection formalizes the analysis i two puzzling historical episodes

choose to lose health plan choices from a menu with dominated option we examine the health plan choices that 23 894 employees at a u s firm made from a large menu of options that differed only in financial cost sharing and premium these decisions provide a clear test of the predictions of the standard economic model of insurance choice in the absence of choice frictions because plans were priced so that nearly every plan with a lower deductible was financially dominated by an otherwise identical plan with a high deductible we document that the majority of employees chose dominated plans which resulted in excess spending equivalent to 24 of chosen plan premiums low income employees were significantly more likely to choose dominated plans and most employees did not switch into more financially efficient plans in the subsequent year we show that the choice of dominated plans cannot be rationalized by standard risk preference or any expectations about health risk testing alternative explanations with a series of hypothetical choice experiments we find that the popularity of dominated plans was not primarily driven by the size and complexity of the plan menu nor informed preferences for avoiding high deductibles but by employees lack of understanding of health insurance our findings challenge the standard practice of inferring risk preferences from insurance choices and raise doubts about the welfare benefits of health reforms that expand consumer choice

multidimensional private information market structure and insurance markets we investigate whether selection based on multidimensional private information in risks and risk preferences can under different market structures result in a negative correlation between insurance coverage and ex post realization of risk we show that under perfect competition selection based on multidimensional private information does not result in the negative correlation property unless there is a sufficiently high loading factor however it is possible to generate the negative correlation property under monopoly when risk and risk preference types are sufficiently negative dependent we also clarify the connections between important concepts such as adverse advantageous selection and positive negative correlation property

selection in insurance markets theory and empirics in pictures government intervention in insurance markets is ubiquitous and the theoretical basis for such intervention based on classic work from the 1970s has been the problem of adverse selection over the last decade empirical work on selection in insurance markets has gained considerable momentum this research finds that adverse selection exists in some insurance markets but not in others and it has uncovered examples of markets that exhibit advantageous selection a phenomenon not considered by the original theory and one that has different consequences for equilibrium insurance allocation and optimal public policy than the classical case of adverse selection advantageous selection arises when the individuals who are willing to pay the most for insurance are those who are the most risk averse and so have the lowest expected cost indeed it is natural to think that in many instances individuals who value insurance more may also take action to lower their expected costs drive more carefully invest in preventive health care and so on researchers have taken steps toward estimating the welfare consequences of detected selection and of potential public policy interventions in this essay we present a graphical framework for analyzing both theoretical and empirical work on selection in insurance markets this graphical approach provides both a useful and intuitive depiction of the basic theory of selection and its implications for welfare and public policy as well as a lens through which one can understand the ideas and limitations of existing empirical work on this topic

imperfect risk adjustment risk preferences and sorting in competitive health insurance markets abstract i develop a model of insurer price setting and consumer welfare under risk adjustment a policy commonly used to combat inefficient sorting due to adverse selection in health insurance markets i use the model to illustrate graphically that risk adjustment causes health plan prices to be based on costs not predicted by the risk adjustment model residual costs rather than total costs either weakening or exacerbating selection problems depending on the correlation between demand and costs predicted by the risk adjustment model i then use a structural model to estimate the welfare consequences of risk adjustment finding a welfare gain of over 600 per person year

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

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

the welfare cost of unpriced heterogeneity in insurance markets we consider the welfare loss of unpriced heterogeneity in insurance markets which results when private information or regulatory constraints prevent insurance companies to set premiums reflecting expected costs we propose a methodology which uses survey data to measure this welfare loss after identifying some types which determine expected risk and insurance demand we derive the key factors defining the demand and cost functions in each market induced by these unobservable types these are used to quantify the efficiency costs of unpriced heterogeneity we apply our methods to the us long term care and medigap insurance markets where we find that unpriced heterogeneity causes substantial inefficiency

scale and scope economies in the multi product banking firm abstract the multi product nature of the banking firm is examined utilizing the translog cost function this analysis indicates that contrary to conventional wisdom natural monopoly scale economies and product specific decreasing costs are not robust characterizations of the banking industry there is however evidence that the cost function is characterized by economies of scope the implications of these results are discussed and extensions of this approach suggested

one pool to insure them all age risk and the price s of medical insurance asymmetric information can lead to adverse selection and market failure in a dynamic setting asymmetric information also limits reclassification risk this certainty offsets the costs of adverse selection using a dynamic model of endogenous insurance choice and price calibrated to the u s medical insurance market i find that asymmetric information is pareto improving when information is fully asymmetric however when insurers can discriminate by age group but not within age groups the young benefit by paying less for insurance the insurance market for the near elderly collapses because it is no longer implicitly subsidized by the participation of the young

redistribution by insurance market regulation analyzing a ban on gender based retirement annuities we illustrate how equilibrium screening models can be used to evaluate the economic consequences of insurance market regulation we calibrate and solve a model of the united kingdom s compulsory annuity market and examine the impact of gender based pricing restrictions we find that the endogenous adjustment of annuity contract menus in response to such restrictions can undo up to half of the redistribution from men to women that would occur with exogenous social security like annuity contracts our findings indicate the importance of endogenous contract responses and illustrate the feasibility of employing theoretical insurance market equilibrium models for quantitative policy analysis

equilibria in health exchanges adverse selection versus reclassification risk this paper studies equilibrium and welfare in a class of regulated health insurance markets known as exchanges we use detailed health plan choice and utilization data to model individual level i projected health risk and ii risk preferences we combine the estimated distributions of risk and risk preferences with a model of competitive insurance markets to predict allocations and prices

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

on the definition and measurement of bank output this study offers a theory and technique for the derivation of a new concept for bank output in an effort to bridge a gap in banking theory banks as costs minimizing firms is the background for most bank cost studies however this element plays very little explicit role in analyzing banks within the monetary process this gap might be bridged by extracting the flow of moneyness embodied in bank activities and using it as the output measure this measure might then be used to develop a comprehensive theory of banks as producers as well as vehicles for the implementation of monetary policy

scale economies in banking a restructuring and reassessment the issue of scale economies in banking has a rich history most earlier studies report modest operating cost scale economies for small institutions those with less than about 50 million of deposits in 1968 dollars but are unclear where these economies might end if at all unfortunately these studies are limited in four important respects first those that were well specified did not measure the total cost of banking operations but concentrated on estimating scale economies for individual banking functions e g demand deposits separately from commercial loans second an average cost curve that could take a u shape over the full range of banks was not fitted either because larger banks were not included or because of the functional form used cobb douglas consequently the optimum or minimum cost size of a bank or office could not be determined third the variables measuring the costs of branching were misspecified fourth the branch

economies of scale and economies of scope in multiproduct financial institutions a study of british columbia credit unions this paper investigates the production technology facing computerized credit unions in canada a full system of translog cost equations is estimated in order to test for economies of scale economies of scope and other production characteristics in a multiproduct context the regression results indicate that most of the credit unions in our sample experience significant increasing returns to scale as they expand their level of output there is also evidence of cost complementarity or economies of scope in their mortgage and other lending activities as a result legislation which limits the ability of credit unions to grow and diversify will likely raise the operating costs of this important group of financial institutions additional structural tests of the most general translog specification suggest that none of the restrictive production conditions commonly imposed by other researchers using cobb douglas and ces specifications provide a valid representation of credit union technology the results of many earlier studies are therefore open to question this paper presents a number of structural tests of the production technology facing large computerized credit unions in canada a full system of translog cost equations is estimated using detailed cross sectional data on british columbia credit unions the parameter estimates obtained from our multiproduct specification allow us to test for economies of scale economies of scope and factor substitution unlike many earlier studies the present paper introduces the various outputs as separate variables instead of crudely proxying them with a single output measure such as total assets the total number of loans or the number of depositors by explicitly recognizing the multiproduct nature of the intermediation process we are able to address more interesting production questions and remove some of the bias caused by misspecification and measurement error in simpler approaches the flexible translog specification allows us to estimate the sensitivity of costs to proportionate increases in all outputs economies of scale as well as the cost savings firms realize by producing several outputs jointly rather than specializing in the production of one economies of scope the test results reported in the latter part of the paper suggest that increasing returns to scale exist in almost all of the credit unions in our sample though

deriving risk adjustment payment weights to maximize efficiency of health insurance markets risk adjustment is critical to the functioning of regulated health insurance markets to date estimation and evaluation of a risk adjustment model has been based on statistical rather than economic objective functions we develop a framework where the objective of risk adjustment is to minimize the efficiency loss from service level distortions due to adverse selection and we use the framework to develop a welfare grounded method for estimating risk adjustment weights we show that when the number of risk adjustor variables exceeds the number of decisions plans make about service allocations incentives for service level distortion can always be eliminated via a constrained least squares regression when the number of plan service level allocation decisions exceeds the number of risk adjusters the optimal weights can be found by an ols regression on a straightforward transformation of the data we illustrate this method with the data used to estimate risk adjustment payment weights in the netherlands n 16 5 million

scale economies and cost complementarities in commercial banks on and off balance sheet activities abstract bank off balance sheet obs activities have grown dramatically and have become significantly important especially at large banks we investigate whether failure to incorporate obs products may lead to a misspecification problem models that exclude deposits from the output specification suggest economies of scale which vanish when deposits are included we find that inclusion of obs products has little effect on the scale economies measures with only a few exceptions the results provide no evidence of cost complementarities in joint production the tremendous growth of bank obs activities in the 1980s may be explained by the very small approximately zero pecuniary cost of these activities

market equilibrium with hidden knowledge and self selection the problem of the existence of a competitive equilibrium in models with hidden knowledge and self knowledge has been discussed previously by m rothschild and j e stiglitz 1976 c a wilson 1977 and j g riley 1979 recent analyses of such models by i cho and d kreps 1986 and riley argue for a particular outcome the pareto dominant separating zero profit one the authors prove the existence of such an outcome under very general conditions and generalizing the reactive equilibrium concept introduced by riley they prove this outcome is the unique reactive equilibrium copyright 1987 by the econometric society

incentive compatible guaranteed renewable health insurance premiums theoretical models of guaranteed renewable insurance display front loaded premium schedules such schedules both cover lifetime total claims of low risk and high risk individuals and provide an incentive for those who remain low risk to continue to purchase the policy questions have been raised of whether actual individual insurance markets in the us approximate the behavior predicted by these models both because young consumers may not be able to afford front loading and because insurers may behave strategically in ways that erode the value of protection against risk reclassification in this paper the optimal competitive age based premium schedule for a benchmark guaranteed renewable health insurance policy is estimated using medical expenditure data several factors are shown to reduce the amount of front loading necessary indeed the resulting optimal premium path increases with age actual premium paths exhibited by purchasers of individual insurance are close to the optimal renewable schedule we estimate finally consumer utility associated with the feature is examined

economies of superscale in commercial banking most previous studies of scale economies in banking have excluded banks larger than 1 billion in assets thus study by contrast estimates cost functions for the 100 largest us commercial banks hedonic terms are incorporated to correct for the aggregated nature of the call report data available for these banks in addition we attempt to quantify the cost benefit of diversification in the model we estimate efficient bank scale to range from 15 billion to 37 billion in total assets a thousandfold increase over some previous findings these results are supported by comparison of actual average costs as well as by casual historical observation and the level of widespread concern over interstate banking our findings suggest some cost incentive or benefit to expansion or consolidation among large regional banks including interstate expansion or consolidation

imperfect competition in selection markets policies to correct market power and selection can be misguided when these forces coexist we build a model of symmetric imperfect competition in selection markets that parameterizes the degree of market power and selection we use graphical price theoretic reasoning to characterize the interaction between these forces using a calibrated model of health insurance we show that the risk adjustment commonly used to offset adverse selection can reduce coverage and social surplus conversely in a calibrated model of subprime auto lending realistic levels of competition can generate an oversupply of credit implying that greater market power is desirable

private information and insurance rejections across a wide set of nongroup insurance markets applicants are rejected based on observable often high risk characteristics this paper argues that private information held by the potential applicant pool explains rejections i formulate this argument by developing and testing a model in which agents may have private information about their risk i first derive a new no trade result that theoretically explains how private information could cause rejections i then develop a new empirical methodology to test whether this no trade condition can explain rejections the methodology uses subjective probability elicitations as noisy measures of agents beliefs i apply this approach to three nongroup markets long term care disability and life insurance consistent with the predictions of the theory in all three settings i find significant amounts of private information held by those who would be rejected i find generally more private information for those who would be rejected relative to those who can purchase insurance and i show it is enough private information to explain a complete absence of trade for those who would be rejected the results suggest that private information prevents the existence of large segments of these three major insurance markets publication abstract

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

the complementarity between risk adjustment and community rating distorting market outcomes to facilitate redistribution abstract we analyze optimal risk adjustment in competitive health insurance markets when insurers have better information on their customers risk profiles than the sponsor of health insurance in the optimal scheme the sponsor uses reinsurance to screen insurers with bad and good risks in order to lower premiums for enrollees with high expected healthcare costs we then explore the effects of adding a community rating requirement to complement this risk adjustment scheme with community rating insurers have incentives to distort contract generosities to cherry pick low cost consumers however the reduced generosity for low cost types makes screening through reinsurance easier allowing the sponsor to redistribute more when costs for reinsurance are low or the sponsor s bias towards high cost consumers is high community rating dominates risk rating

an example of non existence of riley equilibrium in markets with adverse selection abstract rothschild and stiglitz 1976 proposed a model of a competitive market with adverse selection and showed that a pure strategy nash equilibrium may not exist among the solutions proposed to deal with this problem a particularly influential one is the notion of riley or reactive equilibrium riley 1979 we give an example that shows that a riley equilibrium may not exist if consumers are not ordered

winners and losers from regional integration agreements how are the benefits and costs of a customs union divided between member countries outcomes depend on the comparative advantage of members relative to each other and relative to the rest of the world countries with a comparative advantage between that of their partners and the rest of the world do better than countries with an extreme comparative advantage consequently integration between low income countries tends to lead to divergence of member country incomes while agreements between high income countries cause convergence results suggest that developing countries are likely to be better served by north south than by south south agreements

a reexamination of economies of scale in banking using a generalized functional form note using a sample of 1 205 unit banks for the years 1972 77 clark 1984 addresses a number of critical issues in ascertaining the nature of the cost function underlying the banking industry the generalized functional form methodology used by clark is ideal for empirically analyzing these questions this paper addresses three issues evolving from clark s study first a number of econometric problems that were not addressed by clark can arise in the application of the functional form method since the findings of clark have major implications for the question of scale economies in banking it is important to verify that these findings are not an econometric artifact second and more importantly the major modifications that have occurred in the structure of the banking industry during the past few years suggest that the corresponding operating parameters may have changed substantially from those in clark s 1972 77 sample finally previous literature has debated the relative scale economies of independent banks versus multi bank holding company mbhc affiliates the methodology of clark provides a unique opportunity to extend previous research on this issue

categorizing risks in the insurance industry this paper analyzes the welfare implications of imperfectly categorizing risks in the insurance industry under conditions of asymmetric information firms initially unable to distinguish the risk type of individuals are provided with imperfect information concerning risk membership the paper then compares various wilson type equilibria to determine the welfare implications of firms imperfectly categorizing risks it is shown that only in the case where the initial equilibrium is of the nash no subsidy type is there a pareto type improvement in welfare

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

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

time consistent health insurance currently available health insurance contracts often fail to insure long term illnesses sick people can suffer large increases in premiums or denial of coverage i describe insurance contracts that solve this problem their key feature is a severance payment a person who is diagnosed with a long term illness and whose premiums are increased receives a lump sum equal to the increased present value of premiums this lump sum allows him or her to pay the higher premiums required by any insurer people are not tied to a particular insurer or a group and the improvement is free insurance companies can operate at zero economic profits and consumers can pay exactly the same premium they do with standard contracts

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

technical change organizational form and the structure of bank production of those technological characteristics related to the nature of competition among firms in an industry or market scale economies and technical change are especially important economies of scale are said to exist when an equiproportional increase in all inputs results in a greater than proportional increase in output or equivalently when an increase in output at constant input prices leads to a less than proportional increase in total costs thus average costs decline as output expands depending upon the extent to which costs decline as output increases regulation of the firms in the industry may be necessary l the literature analyzing scale economies in commercial banking is voluminous the early studies on scale economies in banking include those by benston 1965 1972 greenbaum 1967 murphy 1972 and bell and murphy 1968 more recent studies include those by benston hanweck and humphrey 1982 and clark 1984 2 this literature has established that mild scale economies exist in bank

agglomeration and economic development import substitution vs trade liberalisation this paper analyses a model of economic development in which international differences in industrial structure and income are caused by the agglomeration of industry in a subset of countries economic development may not be a gradual process of convergence by all countries but instead involve countries moving sequentially from the group of poor countries to the group of rich countries the role of trade policy in promoting industrialisation is studied while both import substitution and unilateral trade liberalisation may be successful in attracting industry they attract different sectors and welfare levels are higher under trade liberalisation

estimating the poverty impacts of a prospective doha development agenda this paper summarises the findings from a major international research project on the poverty impacts of a potential doha development agenda it draws on an intensive analysis of the dda framework agreement and associated scenarios the implications for world markets are established using a global modelling framework the outputs of which form the basis for a dozen country case studies of the national poverty impacts of the dda scenarios liberalisation targets under the dda have to be quite ambitious if the round is to have a measurable impact on poverty we expect the near term poverty impacts to be mixed some countries experience small poverty increases and others more substantial poverty declines on balance poverty is reduced under the core dda scenario and this reduction is more pronounced in the longer run deeper cuts in developing country tariffs are found to make the dda more poverty friendly it is also clear that in order to generate significant poverty reductions in the near term complementary domestic reforms are required to enable households to take advantage of the new market opportunities over the long run sustained poverty reduction depends on stimulating economic growth which suggests that trade reforms must go beyond tariffs and subsidies also addressing barriers to services trade and investment

product design in selection markets insurers choose plan characteristics to sort for profitable consumers in a model with multidimensional types this sorting incentive is proportional to the covariance among marginal consumers between marginal willingness to pay and cost to the insurer standard forms of cost sharing successfully repel costly consumers but reducing plan comprehensiveness instead alienates the risk averse in a perfectly competitive equilibrium the sorting incentive must vanish market power increases insurance quality and welfare nonetheless a competitive equilibrium with positive insurance is possible when insurance value is suciently negatively correlated with cost however in a calibration to handel hendel and whinston 2013 s data equilibrium still fails to exist

pricing regulation and imperfect competition on the massachusetts health insurance exchange abstract we analyze insurance pricing regulation under imperfect competition on the massachusetts health insurance exchange differential markups lead to price variation apart from cost variation coarse insurer pricing strategies identify consumer demand younger consumers are twice as price sensitive as older consumers older consumers thus face higher markups over costs modified community rating links prices for consumers differing in both costs and preferences and changes the marginal consumer firms face stricter regulations transfer resources from low cost to high cost consumers reduce firm profits and increase overall consumer surplus

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

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

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

a south south survival strategy the potential for trade among developing countries trade between developing countries or south south trade has been growing rapidly in recent years following significant reductions in tariff barriers however significant barriers remain and there is currently reluctance among many developing countries to undertake further reductions instead preferring to focus on opening up access to developed country markets or to maintain the status quo given that multilateral liberalisation may results in the erosion of preferential access enjoyed by some developing countries this emphasis on northern markets represents a missed opportunity for developing countries to assess this we compare the potential effects of the removal of barriers on south south trade with the gains from developed country liberalisation and from regional free trade areas within africa asia and latin america a general equilibrium model gtap containing information on preferential bilateral tariffs is used to estimate the impacts the results indicate that the opening up of northern markets would provide annual welfare gains benefits to developing countries of 24 billion however the removal of south south barriers has the potential to generate gains 60 larger by contrast the potential gains from further regional agreements on a continental basis are limited in africa and asia although scope remains in latin america the results imply that giving greater emphasis to removing barriers between as well as within continents could prove a successful southern survival strategy and more

the role of commitment in dynamic contracts evidence from life insurance we use data on life insurance contracts to study the properties of long term contracts in a world where buyers cannot commit to a contract the data are especially suited to test a theory of dynamic contracting since they include information on the entire proele of future premiums all the patterns in the data et the theoretical predictions of a model with symmetric learning and one sided com

the efficiency effects of categorical discrimination in the insurance industry recent public policy debate has focused concern on the equity dimensions of categorical discrimination based on sex age or race in insurance and similar markets we consider the efficiency effects of such discrimination and establish that costless imperfect categorization always enhances efficiency when categorization entails a nonnegligible resource cost however no unambiguous efficiency ranking of informational regimes is possible when categorization is costless we demonstrate that government having no better information than market participants can effect redistribution without assuming dictatorial control of the market implying that a market equilibrium with costless categorization is potentially pareto superior to one without it when categorization is costly however the market may categorize when pareto improvements are not possible

selection in health insurance markets and its policy remedies selection adverse or advantageous is the central problem that inhibits the smooth efficient functioning of competitive health insurance markets even and perhaps especially when consumers are well informed decision makers and insurance markets are highly competitive and offer choice such markets may function inefficiently due to risk selection selection can cause markets to unravel with skyrocketing premiums and can cause consumers to be under or overinsured in its simplest form adverse selection arises due to the tendency of those who expect to incur high health care costs in the future to be the most motivated purchasers the costlier enrollees are more likely to become insured rather than to remain uninsured and conditional on having health insurance the costlier enrollees sort themselves to the more generous plans in the choice set these dual problems represent the primary concerns for policymakers designing regulations for health insurance markets in this essay we review the theory and evidence concerning selection in competitive health insurance markets and discuss the common policy tools used to address the problems it creates we emphasize the two markets that seem especially likely to be targets of reform in the short and medium term medicare advantage the private plan option available under medicare and the state level individual insurance markets

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

dynamic inefficiencies in insurance markets evidence from long term care insurance we examine whether unregulated private insurance markets efficiently provide insurance against reclassification risk the risk of becoming a bad risk and facing higher premiums to do so we examine the ex post risk type of individuals who drop their long term care insurance contracts relative to those who are continually insured consistent with dynamic inefficiencies we find that individuals who drop coverage are of lower risk ex post than individuals who were otherwise equivalent at the time of purchase but who do not drop out of their contracts these findings suggest that dynamic market failures in private insurance markets can preclude the efficient provision of insurance against reclassification risk this abstract was borrowed from another version of this item

constrained efficient equilibria in selection markets with continuous types abstract we prove the existence of the constrained efficient miyazaki 1977 wilson 1977 spence 1978 equilibrium in competitive markets with adverse selection when the distribution of unobservable types is continuous our existence proof applies under extremely general assumptions about individual preferences when we restrict preferences to have the widely used in the selection markets literature quasilinear form we characterize the properties of this equilibrium by developing a simple and computationally efficient numerical method for constructing it applying this method we show in a natural setting how one would compute the equilibrium allocation potentially facilitating empirical work using the mws equilibrium we illustrate this empirical application in the context of policy interventions and show that the welfare implications of a coverage mandate critically hinge on whether the market implements a constrained efficient allocation like the mws equilibrium or a constrained inefficient allocation like in azevedo and gottlieb 2017

homogeneity restrictions on the translog cost model a note benston hanweck and humphrey bhh 1 first applied the translog cost model to empirical analyses of depository institutions cost characteristics subsequent studies by benston berger hanweck and humphrey bbhh 2 murray and white 7 gilligan and smirlock 4 and gilligan smirlock and marshall gsm 5 have employed this type of flexible form cost function as a regularity condition the translog cost model should be linearly homogenous in all input prices that is given the following translog cost function

the development trinity how regional integration impacts growth inequality and poverty developing countries today have become more active participants in regional trade agreements this raises questions about how the benefits of integration are distributed and the extent to which lower income countries are able to capture development gains historically such impacts have been difficult to identify with precision this paper seeks to address this gap by empirically analysing the impact of regional integration on development particularly the effects on growth and welfare using both bilateral and regional integration measures we show that the ability to capture gains from integration varies across developing country regional groups with developing asia benefiting on par with developed countries the findings in the paper indicate that trade and trade policy play an important role in reducing inequality and poverty in developing countries it also shows that regionalism can function as a channel to make multilateralism a more adept way of addressing national challenges