efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

the relationship between the markets for health insurance and medical malpractice insurance this article evaluates the interdependence of medical malpractice insurance markets and health insurance markets prior research has addressed the performance of these markets individually without specifically quantifying the extent to which they are linked increasing levels of health insurance losses could increase the scale of potential malpractice claims boosting medical malpractice losses or could embody an improvement in medical care quality which will reduce malpractice losses our results for a state panel data set from 2002 to 2009 demonstrate that health insurance losses are negatively related to medical malpractice insurance losses an additional dollar of health insurance losses is associated with a 0 01 0 05 reduction in medical malpractice losses these findings have potentially important implications for assessments of the net cost of health insurance policies

does medical malpractice law improve health care quality we assess the potential for medical liability forces to deter medical errors and improve health care treatment quality identifying liability s influence by drawing on variations in the manner by which states formulate the negligence standard facing physicians using hospital discharge records from the national hospital discharge survey and clinically validated quality metrics inspired by the agency for health care research and quality we find evidence suggesting that treatment quality may improve upon reforms that expect physicians to adhere to higher quality clinical standards we do not find evidence however suggesting that treatment quality may deteriorate following reforms to liability standards that arguably condone the delivery of lower quality care similarly we do not find evidence of deterioration in health care quality following remedy focused liability reforms such as caps on non economic damages awards

negotiation and renegotiation of optimal financial contracts under the threat of predation this paper examines the effect of renegotiation on the ability of financial contracts between a lender and entrant to deter an incumbent s predation in the presence of renegotiation it is more difficult for the entrant to obtain financing and more difficult for the contract to deter predation contracts successfully deter predation in some cases however even if renegotiation occurs at a stage with symmetric information between the entrant and lender giving the entrant constrained by limited liability stronger bargaining power vis a vis the lender improves the efficiency of the optimal contract but the results concerning renegotiation are unchanged copyright 1996 by blackwell publishing ltd

strategic delegation by unobservable incentive contracts many strategic interactions in the real world take place among delegates empowered to act on behalf of others managers make strategic decisions that affect profits sales persons have power over setting prices and lawyers and sports agents represent their clients in bargaining processes one of the central messages of game theory is that this could be at least partly due to the strategic advantage delegation may provide to the delegating party the idea that signing binding and publicly observable contracts with a third party may serve as a beneficial commitment device goes back at least to schelling 1960 and has been put into use in many areas of economics 1 however the observability of contracts appears to be a precondition for them to play a commitment role and for this reason almost all applications of strategic delegation theory are couched in terms of observable contracts the formalization of this intuition is given by katz 1991 who showed that if contracts are unobservable then the nash equilibrium outcomes of a game with and without delegation coincide in particular delegation through unobservable contracts does not change the predicted outcome of games with a unique nash equilibrium these observations in turn call the empirical relevance of the applied delegation studies into serious question since in most real world transactions the signed contracts are unobservable to the outside parties however there are important strategic environments that fall outside the confines of katz s analysis first katz s model does not include the scenarios in which the outcome of the decision of delegating or not delegating is observable to the outside party in contrast in some models it is natural that the outside party observes the outcome of this decision simply because s he

do doctors practice defensive medicine defensive medicine is a potentially serious social problem if fear of liability drives health care providers to administer treatments that do not have worthwhile medical benefits then the current liability system may generate inefficiencies much larger than the costs of compensating malpractice claimants to obtain direct empirical evidence on this question we analyze the effects of malpractice liability reforms using data on all elderly medicare beneficiaries treated for serious heart disease in 1984 1987 and 1990 we find that malpractice reforms that directly reduce provider liability pressure lead to reductions of 5 to 9 percent in medical expenditures without substantial effects on mortality or medical complications we conclude that liability reforms can reduce defensive medical practices

optimal labour contracts when workers have a variety of privately observed reservation wages if a firm does not know the individual ex post outside opportunities of its contracted workforce then it can use hours wages and redundancy payments to screen them will a second best contract have underemployment inefficiency or overemployment and with a stochastic contract are those workers randomly selected for layoff worse off than their retained colleagues involuntary layoff or vice versa involuntary retention the answers depend on the nature of the workers preferences two polar cases are looked at corresponding to permanent and temporary layoff the former is characterized by overemployment and involuntary retention the latter by underemployment and involuntary layoff also examined are simple contracts where all retained workers are paid a common wage and all laid off workers receive a common redundancy payment handling asymmetric information in stochastic contracts has led to two technical innovations first a number of results are proved even though all the truth telling constraints are explicitly included second a new regularity condition is found under which the local constraints are sufficient to ensure global incentive compatibility at an optimum

precommitment in competing vertical chains the design of distribution channels is an important marketing decision since a revision implies costly reorganization hence it makes sense to study strategic motives of alternative distribution devices a precommitment is a strategic move that affects the other players expectations on how oneself will behave and thus induces them to choose in one s own favor schelling 1960 how these tactics can be used by firms to favorably influence competition between vertical chains is the topic of the literature reviewed in this survey jel classification l22 l42 l81

dynamic procurement under uncertainty optimal design and implications for incomplete contracts we characterize the optimal dynamic contract for a long term basic service when an uncertain add on is required later on introducing firm risk aversion has two impacts profits for the basic service can be backloaded to induce cheaper information revelation for this service an income effect which reduces output distortions the firm must also bear some risk to induce information revelation for the add on this risk effect reduces the level of the add on but hardens information revelation for the basic service the interaction between these effects has important implications for the dynamics of distortions contract renegotiation and the value of incomplete contracts

demand inducement and the physician patient relationship the physician patient relationship is a paradigm for any expert client relationship the physician both diagnoses the patient s illness and recommends a treatment this dual role gives the physician incentive to recommend treatments whose costs outweigh their medical benefits these socially inefficient treatments correspond to the notion of physician induced demand the level of inducement chosen by the physician is shown to depend on the price and potential medical benefits of treatment and the relative diagnostic skills of physician and patient this model offers several testable hypotheses some of which are confirmed by related studies

bargaining and strikes strikes are generally regarded as an important economic phenomenon and yet good theoretical explanations of them are hard to come by the difficulty is to understand why rational parties should resort to a wasteful mechanism as a way of distributing the gains from trade why could not both parties be made better off by moving to the final distribution of surplus immediately or if it is uncertain to its certainty equivalent and sharing the benefits from increased production

delegation of monitoring in a principal agent relationship this paper studies a principal agent relationship with moral hazard in which the principal or the supervisor can monitor the agent s hidden action by using identical monitoring technologies the paper shows that delegation of monitoring to the supervisor is profitable because of two effects with delegation the principal can better regulate the incentives incentive effect and can commit to wage structures to which she could not commit without delegation commitment effect as a logical step collusion is introduced and it is shown that even with the possibility of collusion delegation is an optimal strategy

house prices home equity based borrowing and the u s household leverage crisis us household leverage sharply increased in the years preceding the 2007 eco nomic recession the top panel of figure 1 shows the steady rise in household debt since 1975 which accelerated beginning in 2002 in just five years the household sector doubled its debt balance in comparison the contemporaneous increase in corporate debt was modest the middle panel shows that the increase in household debt from 2002 to 2007 translated into a striking rise in household leverage as mea sured by the debt to income ratio during the same time period corporate leverage declined the dramatic absolute and relative rise in us household leverage from 2002 to 2007 is unprecedented compared to the last 25 years one reason for the rapid expansion in household leverage during this period is that mortgage credit became more easily available to new home buyers mian and sufi 2009 strong house price appreciation from 2002 to 2006 however which may have been fueled by the availability of mortgage credit to a riskier set of new home buyers could also have had an important feedback effect on household lever age through existing homeowners given that 65 percent of us households already owned their primary residence before the acceleration in house prices the feedback from house prices to borrowing may be an important source of the rapid rise in household leverage that preceded the economic downturn our central goals in this study are to estimate how homeowner borrowing responded to the increase in house prices and to identify which homeowners responded most aggressively we examine this home equity based borrowing channel using a dataset consisting of anonymous individual credit files of a national consumer credit bureau agency we follow a random sample of over 74 000 us homeowners who owned their homes as of 1997 at an annual frequency from the end of 1997 until the end of 2008 the bottom panel of figure 1 plots the growth in debt of 1997 homeowners over time and shows that existing homeowners borrow significantly more debt as their house prices appreciate from 2002 to 2006 while the aggregate trend is suggestive

wholly owned subsidiary versus technology licensing in the worldwide chemical industry this paper empirically analyzes the determinants of the choice between wholly owned subsidiary and technology licensing as a strategy for expansion abroad we use a new and comprehensive database on worldwide plant level investments in the chemical industry during the 1981 1991 period we find that both cultural distance and the presence of other potential licensors favor the use of licensing as a strategy for expanding abroad whereas prior experience favors the choice of wholly owned subsidiary an implication of this study is that competition in the market for technology can foster the international diffusion of technology through the use of arm s length agreements

discounts as a barrier to entry abstract to what extent can an incumbent manufacturer use discount contracts to foreclose efficient entry we show that off list price rebates that do not commit buyers to unconditional transfers like the rebates in eu commission v michelin ii for instance cannot be anticompetitive this is true even in the presence of cost uncertainty scale economies or intense downstream competition all three market settings where exclusion has been shown to emerge with exclusive dealing contracts the difference stems from the fact that unlike exclusive dealing provisions rebates do not contractually commit retailers to exclusivity when signing the contract jel d43 d86 k21 l13 l14 l42 l60

the costs of low birth weight birth weight has emerged as the leading indicator of infant health and welfare and the central focus of infant health policy this is because low birth weight lbw infants experience severe health and developmental difficulties that can impose enormous costs on society but would the prevention of lbw generate equally sizable cost savings and health improvements estimates of the return to lbwprevention from cross sectional associations may be biased by omitted variables that cannot be influenced by policy such as genetic factors to address this we compare the hospital costs health at birth and infant mortality rates between heavier and lighter infants from all twin pairs born in the united states we also examine the effect of maternal smoking during pregnancy the leading risk factor for lbw in the united states on health among singleton births after controlling for detailed background characteristics both analyses imply substantially smaller effects of lbw than previously thought suggesting two possibilities 1 existing estimates overstate the true costs and consequences of lbw by at least a factor of four and by as much as a factor of 20 or 2 different lbw preventing interventions have different health and cost consequences implying that policy efforts that presume a single return to reducing lbw will necessarily be suboptimal

negotiation of profit sharing contracts in industry we examine the properties of profit sharing in a game theoretic oligopoly model of industry profit sharing contracts are viewed as a means of strategic commitment not as an internal incentive system in our model firms choose a contract subject to the employees participation constraint in a first stage and compete on the output market in a second stage we show that the choice of a profit sharing contract by each firm is a non cooperative equilibrium in the case of cournot competition the game under study has the structure of the prisoners dilemma the case of price competition on the output market leads to somewhat different conclusions

contracting with imperfect commitment and noisy communication abstract this paper provides new analytical tools for studying principal agent problems with adverse selection and limited commitment by allowing the principal to use general communication devices we overcome the literature s common but overly restrictive focus on one shot direct communication in addition general communication devices solve two fundamental problems of contracting with imperfect commitment first they allow us to identify the local downward incentive constraints as the relevant ones if the agent s preferences satisfy a single crossing property second we show how one may restrict the cardinality of the message spaces of the communication device an example illustrates our arguments and the suboptimality of one shot direct communication

the impact of liability on the physician labor market abstract this study examines the impact of malpractice reforms on physician behavior using a new measure of liability risk and a nationally representative individual level data set on physician behavior we match our liability measure to data on physician behavior from the physician practice costs and income survey ppcis data from the ppcis bracket a period of substantial state level legal reform between 1983 and 1988 which provides identifying variation in our liability measure we estimate the impact of liability reform on hours worked we find an estimated elasticity of hours worked to liability exposure of 285 for the full sample of physicians the effect for physicians ages 55 or older is much larger we find an elasticity of 1 224 for this category we find that an increase in 1 of expected liability is associated with a 70 1 05 increase in malpractice premiums

contractual contingencies and renegotiation in a dynamic model of asymmetric information between the owner of a firm and a manager we investigate the optimal set of contingencies on which an incentive contract should depend when renegotiation is possible in particular we characterize the circumstances in which the contracting parties find it desirable to deliberately restrict what the owner can monitor thereby limiting the contractible contingencies our findings thus provide an endogenous explanation for contract simplicity in contrast to those based on transactions costs or bounded rationality

the propensity to patent abstract this paper analyzes the relationship between 1974 rd among the exceptions the tendency was toward diminishing returns variables measuring overseas sales federal r d support diversification scope of invention use and invention type had only modest explanatory power there was no significant evidence of disproportionate patent accumulation in the more highly concentrated industries

patents licensing and market structure in the chemical industry abstract the strategies of rent appropriation and industry structure are inter dependent how firms use patents depends upon industry structure and in turn affects industry structure in the 19th century market leaders in the chemical industry combined patents and secrecy to deter entry within cartels patents were used to stabilize cartels and organize technology licensing the role of patents changed in the less concentrated post world war ii markets in bulk organic chemicals and petrochemicals chemical producers use licensing as an important means of generating revenue from process innovations the increased importance of technology licensing is closely related to the emergence of a class of specialized process design and engineering firms that have played an important role in the development and diffusion of process innovations

market growth economies of scale and plant size in the chemical processing industries what factors determine the size of new industrial plants this study uses data on twenty tw o chemical products to test alternative models of capacity expansion including the manne model and a scale frontier model the empiri cal results strongly support the scale frontier model the size of n ew plants increased along a time trend that was unrelated to market c oncentration market growth or the magnitude of investment scale eco nomies entrants typically built smaller plants than incumbents but all firms built plants closer to the technological frontier when smal l plants carried a higher relative cost penalty copyright 1987 by blackwell publishing ltd

naked exclusion efficient breach and downstream competition previous papers by eric b rasmusen j mark ramseyer and john s wiley jr 1991 and ilya r segal and michael d whinston 2000 argue that exclusive contracts can inefficiently deter entry in the presence of scale economies and multiple buyers we first show that these results no longer hold when buyers are final consumers who can breach these contracts and pay expectation damages we then show however that exclusive contracts can inefficiently deter entry if buyers are downstream competitors even in the absence of scale economies and even if breach is possible

optimal labour contracts under asymmetric information an introduction the review of economic studies has instituted a new series of lectures to be given annually by a younger british economist at the association of university teachers of economics meetings the choice of lecturer is determined by a panel whose members are currently professors hahn mirrlees and nobay this paper is a revised version of the first lecture in the series it was presented at the aute meeting held at the university of surrey in april 1982 and was refereed in the usual way mak

ideas for rent an overview of markets for technology this article surveys some of the recent literature on technology markets and summarizes its main issues and insights we structure our analysis in three parts the supply and demand of technology the factors that condition the formation and growth of technology markets industry structure and dynamic issues in addition we summarize some of the studies that have tried to document the size and growth of these markets we find that the literature has focused mainly on the supply of technology but several other aspects of these markets remain under studied including the demand for external technology the role of uncertainty in technology markets and the dynamic interaction between industry structure and the market for technology understanding these will illuminate whether markets for technology will continue to grow or remained confined to pockets of the economy copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press

on the strategic role of high leverage in entry deterrence abstract this paper examines the strategic role of high levels of debt and bankruptcy threats in deterring entry into monopolistic markets in the context of an infinite horizon entry game we show that if a potential entrant has access to debt financing with limited liability the unique sub game perfect equilibrium involves the entrant successfully issuing a high level of debt entering the market and being met with cooperation if in addition to the entrant the incumbent also has access to debt with limited liability it will be highly levered and will completely pre empt any entry in equilibrium finally if the incumbent faces a variety of potential entrants with differing abilities to capture market shares its optimal capital structure will help pre empt the entry of the tougher entrants while allowing the weaker ones to share the market the results of extreme leverage are also shown to hold in an alternative formulation analyzed by kreps and wilson 1982 and milgrom and roberts 1982 and thus are robust to model specifications the empirical implications and possible application to high leverage industries are briefly discussed

physician financial incentives and cesarean delivery new conclusions from the healthcare cost and utilization project this paper replicates gruber et al s gruber j kim j mayzlin d 1999 physician fees and procedure intensity the case of cesarean delivery journal of health economics 18 4 473 490 analysis of the effect of physician financial incentives on cesarean delivery rates using their data sample selection criteria and specification coincident trends explain much of their estimated positive relation between fees and cesarean utilization which also falls somewhat upon the inclusion of several childbirth observations that had been inadvertently excluded from their estimation sample the data ultimately indicate that a 1000 increase in current dollars in the reimbursement for a cesarean section increases cesarean delivery rates by about one percentage point one quarter of the effect estimated originally

patents learning by doing and market structure in the chemical processing industries for a sample of 24 chemical products count data models are used to evaluate firms propensity to patent and the link between patented process innovations and output prices the results show that process patenting was largely an outgrowth of learning by doing propensity to patent increased with firm size but decreased with market concentration reductions in output prices were strongly linked to learning by doing and more weakly to the rate of patenting producer firms appear to have been more successful than non producers in appropriating the value of patented process innovations

contract theory and implications for perennial energy crop contracting abstract this article provides an overview of modern contract theory and discusses the implications of the theory for contracting for perennial dedicated energy crops we discuss some of the unique challenges of contracting for dedicated energy crops used for the production of advanced biofuels and survey some of the relevant concepts and research from the contract theory literature to address these challenges we focus primarily on the mechanism design or complete contracts approach to contracting which involves optimizing some objective function e g profits costs etc with respect to contract terms subject to important incentive constraints the solution to these optimization problems typically highlight important tradeoffs that a contract designer needs to consider in order to maximize profits and or minimize costs

repeated insurance contracts and learning this article considers a repeated insurance model with incomplete information in which the insurer and the consumer both learn over time about the unknown risk category of the consumer care choices by young consumers affect the informational value of the accident history under an optimal scheme of long term insurance contracts young consumers will always be subsidized by old consumers and consumers who are reassessed as low risk types are always subsidizers i e reverse experience ratings we compare this optimal scheme with the set of contracts that would emerge in a competitive market if only short term contracting were possible these sequentially competitive contracts can lead to over investment in care by both young and old consumers relative to the optimum in contrast to the underinvestment problem associated with moral hazard in insurance

international trends in technological progress evidence from patent citations 1980 2011 we analyse cross country trends in several aspects of technological progress during 1980 2011 by examining the us patent citations data our estimation results on patent quality and citation lags relative to the us reveal the following the emerging asian economies of korea taiwan and china have achieved substantial catch up in the case of korea and taiwan progress has been made in both patent quality and citation lags china has achieved improvement in patent quality but not in citation lag in contrast advanced economies of europe and japan have displayed steady decline in patent quality while the us has strengthened its position

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

commitment through renegotiation proof contracts with third parties the paper analyzes contracts as means of strategic commitment that is commitment against outside parties to the agreement it considers the example of an incumbent firm which enters a contractual relationship with its workers in order to deter entry it assumes away the possibility for the parties to precommit not to make pareto improving renegotiations of the agreement once entry has taken place under symmetric information the contract is thus found to be useless for entry deterrence if the incumbent firm or workers possess some private information excessive post entry production levels can however be sustained ex post since output reductions may not be incentive compatible while information asymmetries are usually welfare decreasing when the goal is optimal risk sharing they can thus be welfare improving for the contracting parties when commitment against outsiders is the goal of the contract the role of the renegotiation process as a constraint on sustainable agreements is stressed in the paper and the general relevance of strategic contractual commitment is discussed

cutting fertility effects of cesarean deliveries on subsequent fertility and maternal labor supply despite the growing incidence of cesarean deliveries cds procedure costs and benefits continue to be controversially discussed in this study we identify the effects of cds on subsequent fertility and maternal labor supply by exploiting the fact that obstetricians are less likely to undertake cds on weekends and public holidays and have a greater incentive to perform them on fridays and days preceding public holidays to do so we adopt high quality administrative data from austria women giving birth on different days of the week are pre treatment observationally identical our instrumental variable estimates show that a non planned cd at parity 0 decreases lifecycle fertility by almost 13 6 this reduction in fertility translates into a temporary increase in maternal employment

the dynamics of incentive contracts the paper studies a simple two period principal agent model in which the principal updates the incentive scheme after observing the agent s first period performance the agent has superior information about his ability the principal offers a first period incentive scheme and observes some measure of the agent s first period performance cost or profit which depends on the agent s ability and unobservable first period effort the relationship is entirely run by short term contracts in the second period the principal updates the incentive scheme and the agent is free to accept the new incentive scheme or to quit the strategies are required to be perfect and updating of the principal s beliefs about the agent s ability follows bayes rule the central theme of the paper is that the ratchet effect leads to much pooling in the first period first for any first period incentive scheme there exists no separating equilibrium second when the uncertainty about the agent s ability is small the optimal scheme must involve a large amount of pooling the paper also gives necessary and sufficient conditions for the existence of partition equilibria and looks at the effect of cost uncertainty

participation constraints in adverse selection models abstract this paper characterizes the optimal contract offered by an uninformed principal to an informed agent when the latter s reservation utility depends on his type the informational rent is nonmonotonic so that interior types may have a vanishing rent or be excluded from trade the paper identifies conditions for the optimal contract to be separating to be nonstochastic and to induce full participation it also discusses the nature of the solution when bunching occurs the results are applied to nonlinear pricing under price cap regulation and bypass competition and to competition in nonlinear pricing journal of economic literature classification numbers d82 d42 d23 d78 l51 l15

strategic trade policy design with asymmetric information and public contracts this paper examines strategic trade policy under asymmetric information with publicly observable contracts we analyse both the cases of unilateral and bilateral intervention we find that the requirement of incentive compatibility undermines the strategic precommitment effect when public funds are costly even with no restrictions on the form of the policies second when firms sell substitute goods the introduction of a rival interventionist government may reduce the cost of informational rents to each government third it turns out that under bilateral intervention there exists a continuum of symmetric equilibria with levels of output and corresponding levels of welfare in the exporting countries which can be ranked the requirement of ex post participation constraints for the firm limits the set of subsidies which can be offered to the firm in particular under bilateral intervention the equilibrium levels of output which are implemented under adverse selection are below their values under ex ante uncertainty i e below the equilibrium levels of output which are achieved when firms sign their contracts before the realization of their costs ever since the inception of research on strategic trade policy with the seminal paper by brander and spencer 1985 economists have been warning that the informational requirements of rent shifting policies are enormous and unlikely to be met in practice because the policy recommendations are highly sensitive to the particularities of the market in response a number of recent papers have begun to address the specific ways that informational failures affect policy and to modify policy recommendations to take such failures into account this paper analyses the implications of asymmetric information for strategic trade policy under both unilateral and bilateral intervention our complete information benchmark is a simple trade policy designed to shift rents similar to brander spencer two firms are competing in a third country and receive export subsidies from their respective governments however we place no restrictions on the form of these export policies previous literature has shown that under complete information a large number of outcomes may be sustained as equilibria of delegation games such as this moreover the introduction of uncertainty about the state of nature on the part of both

financial innovations and managerial incentive contracting the top executives demands for financial instruments that enable them to hedge the risk exposure in their compensation has increased drastically in the last decade we analyse the implications of a manager s hedging ability for effort incentives we show that if the manager s hedging opportunity is limited to a known fixed number of trading rounds with risk neutral third parties then the equilibrium effort is not affected at all if the manager has the opportunity to hedge without committing to a last trading round however she hedges completely and no effort incentives can be sustained therefore limiting the manager s opportunity to hedge to a fixed known number of trading rounds is crucial for sustaining incentives jel classification g30 g32

malpractice law and health care reform optimal liability policy in an era of managed care abstract because fee for service health insurance insulates providers from the costs of treatment decisions it may lead to defensive medicine precautionary treatment with minimal expected medical benefit administered out of fear of legal liability by giving providers higher powered incentives managed care may affect optimal liability policy among elderly medicare beneficiaries with heart disease in 1984 1994 we find that liability reducing tort reforms reduce defensive practices in areas with high and low managed care enrollment but that managed care and liability reform are substitutes we consider some implications of these results for the current debate over the appropriateness of extending malpractice liability to managed care organizations

strategic trade policy and welfare foreign equity ownership is shown empirically to weaken significantly and occasionally reverse common strategic trade policy results existing levels of u s cross ownership for example reduce the average optimal export subsidy by 47 relative to the brander and spencer journal of international economics 1985 18 83 100 value in industries with particularly high cross ownership and relatively small imputed labor rents optimal subsidies fall to less than one seventh of their former level previous studies which overlook high rates of cross ownership overstate the effectiveness of strategic policies most sharply in sectors with above average expected profitability scope for strategic investments and barriers to rent dissipation

can the theory of incentives explain decentralization this survey presents within a single model three theories of decentralization of decision making within organizations based on private information and incentives renegotiation collusion and limits on communication are three sufficient conditions for decentralization to be optimal cet article presente dans un cadre unifie un survol de trois theories de la decentralisation de la prise de decision dans les organisations ces theories reposent sur la presence d information privee et des incitations qui en decoulent la renegociation la collusion et les limites a la communication representent trois conditions suffisantes pouvant expliquer l optimalite de la decentralisation this abstract was borrowed from another version of this item

strategic environmental policy under incomplete information this paper introduces incomplete information into recent analyses of strategic environmental policy it is shown how asymmetric information between planners and producers affects national incentives to impose strategic environmental standards on domestic industries in international oligopolistic competition relative to the full information case incomplete information is likely to mitigate allocative distortions originating from strategic behaviour a countervailing effect tending to raise distortion is however revealed from the analysis this effect is absent when governments intervene in free trade through direct production subsidies the results suggest that incentives to capture foreign rents are less reduced due to private information when environmental standards rather than direct production subsidies are the strategic instrument

physician payments and infant mortality evidence from medicaid fee policy while efforts to improve the health of the uninsured have focused on demand side policies such as increasing insurance coverage supply side changes may be equally important yet there is little direct evidence on the effect of policies designed to increase the supply of medicaid services to the poor we provide such evidence by examining the relationship between infant mortality and the ratio of medicaid fees to private fees for obstetrician gynecologists we build a state and year specific index of the fee ratio for 1979 1992 a period of substantial variation in relative medicaid fees we find that increases in fee ratios are associated with significant declines in the infant mortality rate we also find that higher fees raise payments made to physicians and clinics under the medicaid program but reduce payments to hospitals finally we compare the cost effectiveness of reducing infant mortality by increasing fee ratios to the efficacy of reducing mortality by expanding the medicaid eligibility of pregnant women although our results are sensitive to the time period used we conclude that raising fee ratios is at least as cost effective as increasing eligibility this abstract was borrowed from another version of this item

experience rating of unemployment insurance and the incidence of unemployment among workers who are laid off from their previous jobs more than 70 percent collect benefit payments from the unemployment insurance ui system these benefits are widely asserted to reduce the rate at which unemployed individuals find new jobs so that measured unemployment is increased by unemployment insurance a large body of empirical evidence now exists that shows this effect on the duration of unemployment spells 2 far less attention both in policy debate and in research has been paid to the fact that the unemployment insurance system encourages persons to become unemployed in this paper i focus on the empirical structure and the effects of these incentives the results show that unem

market rivalry and learning by doing abstract the failure to link learning by doing to its market effects and the complementary failure to consider market models in which competition extends to the search for cost efficiency can have unfortunate implications for economic policy this paper considers how the firm s equilibrium investment in learning arises in a two period oligopoly implications of these results for the manufacture of high technology products particularly by japanese semiconductor firms are developed

learning by doing in a t period production planning analytical solution abstract the firms in many industries shift down the production cost function as they accumulate experience learning by doing the intertemporal production decision of the firm under learning by doing can be formulated as a dynamic optimization problem though properties of the solution to that problem are known in general this analytical solution has not been presented in the literature in this paper we present the analytical solution for a class of discrete time t period learning by doing problems this allows us to gain insight into practical aspects such as determining when current losses are expected to occur or when the firm will become fully efficient examples are provided

pricing in microinsurance markets summary microinsurance markets have exhibited strong growth rates in recent years great parts of the industry are however challenged by fundamental issues of providing insurance products one of the most significant of which is pricing risk in this paper we provide a nontechnical analysis of insurance pricing problems and a review of the set of opportunities that can address some of the specific pricing constraints in microinsurance markets a key contribution of this paper is the investigation of conventional techniques as potential solutions for improving the pricing of insurance risk in microinsurance markets

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

strategic aspects of vertical delegation abstract this paper offers an overview of the strategic aspects of situations where either institutionally or contractually a firm delegates some of its decisions to another firm a subsidiary an internal division etc delegation may have several kinds of strategic benefits in the short term it may improve the competitive position of the firm or induce a more lenient behavior from its competitors in the long run it may be used to deter the entry of potential competitors to foreclose market access or to induce actual competitors to exit the paper analyzes the trade off between these possible benefits and the agency costs of delegation and emphasizes the key issues of credibility and commitment

preemptive patenting and the persistence of monopoly this article takes a different tack and inquires whether institutions such as the patent system create opportunities for firms with monopoly power to maintain their monopoly power the results apply to other situations such as brand identification spatial location and capacity expansion which share the characteristic that early or preemptive actions may lower the returns to potential competitors

the fable of fisher body abstract general motors s gm s acquisition of fisher body is the classic example of market failure in the literature on contracts and the theory of the firm according to the standard account in 1926 gm merged vertically with fisher body a maker of auto bodies because of concerns over transaction specific investment and contractual holdup that account exhibits errors of historical fact and interpretation general motors acquired a 60 percent interest in fisher body in 1919 moreover the contractual arrangements and working relationship prior to the 1926 merger exhibited trust rather than opportunism fisher body s production technology did not exhibit asset specificity the merger reflected economic considerations specific to that time not some immutable market failure we demonstrate that vertical integration was directed at improving coordination of production and inventories assuring gm of adequate supplies of auto bodies and providing gm with access to the executive talents of the fisher bro

the impact of medical liability standards on regional variations in physician behavior evidence from the adoption of national standard rules i explore the association between regional variations in physician behavior and the geographical scope of malpractice standards of care i estimate a 30 50 percent reduction in the gap between state and national utilization rates of various treatments and diagnostic procedures following the adoption of a rule requiring physicians to follow national as opposed to local standards these findings suggest that standardization in malpractice law may lead to greater standardization in practices and more generally that physicians may indeed adhere to specific liability standards in connection with the estimated convergence in practices i observe no associated changes in patient health jel i11 i18 j44 k13 a large literature in health economics and medicine has explored the regional practice patterns of physicians and other medical providers and has endeavored to understand i why some regions spend so much in the care of patients relative to other regions and ii whether high spending regions generate superior health outcomes in this paper i explore a potential contribution to the observed disparities in care that has been suggested by leading theoretical scholars in the area variations literature phelps 1992 but that has yet to be explored empirically laws respecting the geographical nature of the standards of care employed in medical malpractice actions in addition to shedding potentially valuable light on each of the above puzzles this investigation may at the same time offer novel insight into the fundamental question of whether physicians are responsive to the specific standards expected of them under the law a common thread that emerges throughout those studies that have endeavored to explore the causes behind the regional variations phenomenon is the inability

the learning curve and pricing in the chemical processing industries data on 37 chemical products are used to test a number of hypotheses about the learning curve and industrial price behavior the results document a strong and consistent learning effect learning is found to be a function of cumulated industry output and cumulated investment rather than calendar time standard economies of scale appear significant but small in magnitude relative to the learning effect variations in the slope of the learning curve are linked to differences in r d expenditures and capital intensity market concentration is found to be a strong influence on price flexibility and the timing of learningrelated price changes

a penny for your quotes patent citations and the value of innovations the use ofpatents in economic research has been seriously hindered by the fact that patents vary enormously in their importance or value and hence simple patent counts cannot be informative about innovative output the purpose of this article is to put forward patent counts weighted by citations as indicators of the value of innovations thereby overcoming the limitations of simple counts the empirical analysis of a particular innovation computed tomography scanners indeed shows a close association between citation based patent indices and independent measures of the social value of innovations in that field moreover the weighting scheme appears to be nonlinear increasing in the number of citations implying that the informational content of citations rises at the margin as in previous studies simple patent counts are found to be highly correlated with contemporaneous rd however here the association is within afield over time rather than cross sectional

fees versus royalties and the private value of a patent we compare how much profit an owner of a patented cost reducing invention can realize by licensing it to an oligopolistic industry producing a homogeneous product by means of a fixed fee or a per unit royalty our analysis is conducted in terms of a noncooperative game involving n 1 players the inventor and the n firms in this game the inventor acts as a stackelberg leader and it has a unique subgame perfect equilibrium in pure strategies it is shown that licensing by means of a fixed fee is superior to licensing by means of a royalty for both the inventor and consumers only a drastic innovation is licensed to a single producer

public health insurance and medical treatment the equalizing impact of the medicaid expansions abstract we investigate the impact of expanding public health insurance on the medical treatment received by women at childbirth using vital statistics data on every birth in the us over the 1987 1992 period the effects of insurance status on treatment are identified using the tremendous variation in eligibility for public insurance coverage under the medicaid program over this period among low education mothers who were largely uninsured before being made eligible for medicaid eligibility for this program was associated with significant increases in the use of a variety of obstetric procedures among women with more education however there is a countervailing effect on procedure use most of these women had private insurance before becoming medicaid eligible and some may have been crowded out onto the public program moving from insurance which reimburses medical care more generously to insurance with much less generous reimbursement this movement was accompanied by reductions in procedure use thus on net the medicaid expansions had an equalizing effect increasing the treatment intensity of the previously uninsured while lowering it among the previously insured

incentives equality and contract renegotiations theory and evidence in the chinese banking industry renegotiation plays an important role in contract theory but the empirical study of renegotiation is almost non existent in the literature using a unique dataset from the chinese banking industry we find that the large majority of managerial incentive contracts are renegotiated after performances are realized we develop a model of contract renegotiation where supervisors and managers sign incentive contracts and then renegotiate them in the unique equilibrium of the model incentive contracts are almost always renegotiated ex post even though renegotiation is fully anticipated incentive contracts affect performance the predictions of the model find strong support from our empirical results

herding in delegated portfolio management when is comparative performance information desirable abstract we address the issue of investors asset allocation decisions when portfolio management is delegated to an agent contrary to predictions from traditional financial theory it is shown that investors may not induce their manager to allocate funds to the asset with the highest return instead they may herd in their asset allocation decision and induce trade in a particular asset because another manager is trading in it and despite the presence of a more profitable alternative doing so allows investors to write an efficiency improving relative performance contract on the other hand herding leads investors to design wage contracts strategically resulting in more aggressive and thus less profitable trade in equilibrium we show that herding occurs when the cost of information is high information precision is low and when managers are sufficiently risk averse moreover when investors can decide whether or not to disclose information about their manager s performance they will not do so

malpractice risk and medical treatment selection abstract we study how legal and financial incentives affect medical decisions using patient level data from italy we identify the effect of a change in medical liability pressure by exploiting the geographical distribution of hospitals across court districts where some districts increase the predictability of expected damages per injury while others do not using a difference in differences identification strategy we show that as certainty of compensation increases c sections increase by 6 5 percentage points there is no statistically significant effect on secondary health outcomes of either mothers or newborns but the increase is higher for low risk than high risk mothers the increase is driven by hospitals that have lower quality are governed by inefficient court districts face lower expected damages and are paid more per c section

managerial incentives and collusive behavior abstract i characterize the effects of empirically observed managerial incentives on long run oligopolistic competition when managers have a preference for smooth time paths of profits as revealed by the empirical literature on income smoothing manager led firms can sustain collusive agreements at lower discount factors capped bonus plans and incumbency rents with termination threats make collusion supportable at any discount factor independent of contracts duration when managers have these preferences incentives and demand fluctuates price wars during booms need not occur the most collusive price may then be pro cyclical

malpractice law physicians financial incentives and medical treatment how do they interact abstractthe effects of malpractice law and financial incentives on physicians are typically studied independently this paper shows that to make both positive and normative statements about medical malpractice liability one must consider physicians legal and financial incentives jointly i develop a simple model to show that when treatment is unprofitable at the margin mitigation of liability lowers treatment levels conversely when treatment is profitable mitigation of liability raises them motivated by this simple theoretical framework i analyze the impact of a tort reform in texas that mitigated malpractice liability consistent with the theory the rate of cesarean sections among commercially insured mothers for whom the procedure is considered profitable increased by 2 percentage points relative to the rate of cesarean sections among mothers covered by medicaid for whom the procedure is thought to be unprofitable

implicit contracts a survey 7mplicit contracts resolve the distribution of uncertainty and utilization of specific human capital between risk averse workers and less risk averse firms incomplete contracts are required to yield involuntary layoffs in contract markets otherwise contracts are efficient and pareto optimal by construction there is a close relation between contract theory and neoclassical labor market theory contracts smooth consumption but increase the volatility of labor supply and labor utilization to demand disturbances because contractural insurance eliminates the income effects of socially diversifiable risks this result is similar to the intertemporal substitution hypothesis however the price mechanism in a contract is substantially different contracts embody a nonlinear two part pricing scheme the lump sum part allocates the income consumption consequences of risks and the marginal pricing part allocates production and labor utilization this implicit pricing mechanism is in all respects flexible though the observed average hourly wage combines both parts and may give the outward appearanceof rigidity furthermore the observed average wage rate in a contract does not reflect marginal conditions necessary for structural econometric estimation indivisibilities appear necessary to account for the split between work sharing and layoffs contracts with private information are also considered in the nonlinear pricing context this abstract was borrowed from another version of this item

does regulation of physicians reduce health care spending the medical community argues that physician fear of legal liability increases health care spending theoretically though the effect could be positive or negative and empirical evidence has supported both cases previous studies however have ignored the fact that physicians face risk from industry oversight groups like state level medical licensing boards in addition to civil litigation risk this article addresses this omission by incorporating previously unused data on punishments by oversight groups against physicians known as adverse actions along with malpractice payments data to study state level health care spending my analysis suggests that contrary to conventional wisdom spending does not rise in response to increased risk an increase in adverse actions of 16 the year to year average is associated with statistically significant annual decreases in state spending on hospital care of approximately 22 million and on prescription drugs of nearly 10 million malpractice payments are estimated to have smaller statistically insignificant effects

auditing claims in the insurance market with fraud the credibility issue abstract this paper characterizes the equilibrium of an insurance market where opportunist policyholders may file fraudulent claims we assume that insurance policies are traded in a competitive market where insurers cannot distinguish honest policyholders from opportunists the insurer policyholder relationship is modelled as an incomplete information game in which the insurer decides to audit or not the market equilibrium depends on whether insurers can credibly commit or not to their audit strategies we show that a no commitment equilibrium results in a welfare loss for honest individuals which may even be so large that the insurance market completely shuts down we also show that transferring monitoring costs to a budget balanced common agency would mitigate the commitment problem

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

equilibrium long term labor contracts the paper presents a labor market equilibrium analysis of implicit contract theory a two period single good model is used to propose consistent notions of labor market equilibrium for long term employment contracts both when labor is specialized and cannot move in the second period and when there is free mobility without costs the result that long term contracts emerge in equilibrium even without mobility costs is novel and contrary to common beliefs the main features of equilibrium are that risk neutral firms will insure risk averse workers against downside risk yielding downward rigid wages wages are not fully rigid as in earlier work on contract theory because workers may quit and wages have to be bid up to retain them the firm gets its return of the insurance deal by paying less than marginal product in the first period the resulting equilibrium is second best and lies between productive efficiency and full insurance workers gain from long term contracts in comparison to spot markets whereas owners may not in the model with specialized skills there exist transfer payments such that both parties are better off within an equilibrium with long term contracts

arm s length relationships we show that lowering the cost of acquisition of information that a principal obtains about the performance of an agent may make it more difficult for the principal to commit to threats hence it will weaken incentives and can therefore be counterproductive this phenomenon is explored in a framework where improving the quality of information makes a commitment not to renegotiate less credible applications to the theory of the firm are briefly explored

competing vertical structures precommitment and renegotiation we consider a model where two agents privately informed about their own characteristics play a normal form game on behalf of two uninformed principals we analyze the existence of precommitment effects through public announcements of contracts in a model where agency contracts designed ex ante can always be secretly renegotiated at the ex ante and interim stages we show that the existence of precommitment effects depends both on the strategic complementarity of the agents actions and on the direct effect of the opponents actions on each principal s welfare in our model the possibility of renegotiation is crucial for the existence of precommitment effects the results are introduced through an example of cournot and bertrand competition between firms viewed as vertical structures