on the dynamics of demand for leisure and the production of health our article develops and estimates a structural model of household health production that jointly determines the demand for leisure and the demand for consumption for elderly males we use a stochastic dynamic programming framework based on the assumption that an individual maximizes lifetime utility subject to budget and time constraints and a health production function by choosing hours of leisure and levels of consumption of health related and health neutral goods and services moreover we use a very comprehensive health index that combines four scales measuring a variety of dimensions in the quality of life the euler equations derived from our model are estimated using data from six biennial panels of the retirement history survey

british bus deregulation competition and demand coordination abstract our framework formally explains some of the recent curious events surrounding deregulation of the british local bus industry the winner takes all nature of this market induces competitive providers to engage in predatory or preemptive behavior in scheduling and pricing unlike previous works we explicitly model consumers responses to firms schedule announcements we show that the market is unstable if demand is uncoordinated but stable otherwise our results highlight the important role played by demand coordinating mechanisms in local bus markets and our results suggest that pure strategy nash equilibria exist in models a la hotelling 1929 whenever demand is effectively coordinated

the role of market forces in assuring contractual performance the conditions under which transactors can use the market repeat purchase mechanism of contract enforcement are examined increased price is shown to be a means of assuring contractual performance a necessary and sufficient condition for performance is the existence of price sufficiently above salvageable production costs so that the nonperforming firm loses a discounted steam of rents on future sales which is greater than the wealth increase from nonperformance this will generally imply a market price greater than the perfectly competitive price and rationalize investments in firm specific assets advertising investments thereby become a positive indicator of likely performance

demand for health insurance and precautionary motives for savings among the elderly abstract this paper examines whether or not the elderly have precautionary motives for savings against uncertain and potentially large medical costs i analyze the relationship between purchases of actuarially unfair health insurance and the individual s ability to self insure in order to create a complete model of this behavior the government programs of medicare and medicaid are also incorporated into the analysis the major results from this paper are that individuals do tend to behave in a manner that is consistent with precautionary behavior and that even among those who do not hold private insurance most act in a manner consistent with their being over insured by medicare

pre announcement and timing the effects of a government expenditure shock abstract an econometric strategy to identify a pre announced fiscal policy shock is proposed i show that the reduced form innovations can be recovered by estimating a vector moving average model using the kalman filter the structural effects are identified exploiting the shock s pre announced nature which leads to potentially different signs of the responses of some endogenous variables during the announcement and after the realization of the shock i illustrate my strategy by identifying a pre announced shock to government consumption expenditures i find that the response of private consumption is significantly negative on impact rises and becomes significantly positive two quarters after the realization of the policy shock

evaluation of the subjective probabilities of survival in the health and retirement study in the health and retirement study respondents were asked about the chances they would live to 75 or to 85 we analyze these responses to determine if they behave like probabilities of survival if their averages are close to average probabilities in the population and if they have correlations with other variables that are similar to correlations with actual mortality outcomes we find that generally they do behave like probabilities and that they do aggregate to population probabilities most remarkable however is that they covary with other variables in the same way actual outcomes vary with the variables for example respondents with higher socioeconomic status give higher probabilities of survival whereas respondents who smoke give lower probabilities we conclude that these measures of subjective probabilities have great potential use in models of intertemporal decision making under uncertainty

the incidence of medicare abstract the medicare program transfers nearly 300 billion annually from taxpayers to beneficiaries this paper considers the incidence of such transfers in the context of a life cycle model with uncertainty about future health care expenditures we find the distributional consequences of the medicare program are roughly neutral in dollar terms households living in high income neighborhoods pay more in taxes but they also receive more in benefits these dollar flows however ignore the insurance value of the medicare system given the incomplete insurance coverage of lower income elderly households prior to the medicare program the money metric benefits to lower income groups exceed the dollar flows suggesting that medicare redistributes more than a simple accounting exercise would suggest

expanding the life cycle model precautionary saving and public policy one of the key puzzles in understanding saving behavior is not so much why people save the title of this session but why people don t save according to the familiar life cycle model households should accumulate wealth to provide for their retirement consumption the surprising result from the data is the sizable fraction of the population who have accumulated so little even among those nearing retirement given that earnings will almost surely decline when households retire such behavior can imply poor living standards for the elderly some might interpret the low wealth accumulation as being evidence of myopia irrationality or a failure of households to enforce mental accounting richard thaler 1994 while others might view the low level of wealth accumulation as evidence of high individual rates of time preference determining the underlying causes of low wealth is crucial for public policies that seek to alleviate low aggregate saving rates in the united states as well as policies that seek to buttress the adequacy of financial resources for the elderly in this paper we outline what we believe to be the causes of why many people do not save we conclude by speculating about government policies that may be most effective at encouraging saving much of the research examining levels of consumption saving and wealth as well as their responsiveness to policy has been done using a life cycle model with the simplifying assumption of perfect certainty alan auerbach and laurence kotlikoff 1987 for example developed a model with 55 overlapping generations of individual lifecycle households each with empirically plausible age earnings profiles and utility parameters and used the model to address tax policy and demographic issues in a regime in which all households are identical within a generation and all generations know future earnings and interest rates more recently a line of inquiry has examined the effects of uncertainty on saving generally in the context of highly stylized models this research has shown that in these models uninsured earnings uncertainty can alter optimal saving behavior in a variety of important ways for a partial review of this precautionary saving literature see hubbard et al 1994 in two recent papers hubbard et al 1993 1994 we have combined these two strands of the literature by examining the implications of a life cycle model of consumption saving and wealth accumulation subject to what we think are the three most important sources of uninsured idiosyncratic risk facing households uncertainty about earnings medical expenses and length of life our intent has been to create a realistic model in which families live for many periods working for part of their lives and retiring later in life to parameterize the uncertainty facing families we estimate tdiscussants christopher carroll federal reserve board john b shoven stanford university laurence kotlikoff boston university

seasonality and the effect of advertising on price does advertising make markets more or less competitive this paper lays out an econometric strategy for estimating the effect of advertising on prices that exploits seasonal demand and imperfect targeting of consumers we find mostly negligible effects of advertising on prices at monthly frequency among the 35 of 131 product categories with sufficient advertising seasonality to justify second stage estimation only nine have a significant effect and those are typically small this finding is essentially the result of the much greater seasonality in advertising than price

life cycle responses to health insurance status this paper studies the lifetime effects of exogenous changes in health insurance coverage e g medicare ppaca termination of employer provided plans on the dynamic optimal allocation consumption leisure health expenditures status health and wealth and welfare we solve simulate and structurally estimate a parsimonious life cycle model with endogenous exposure to morbidity and mortality risks and exogenous health insurance by varying coverage we identify the marginal effects of insurance when young and or when old on allocations statuses and welfare our results highlight positive effects of insurance on health wealth and welfare as well as mid life substitution away from healthy leisure in favor of more health expenses caused by peaking wages and accelerating health issues

pricing and coordination strategically stable equilibria abstract this paper investigates a class of two period games in which the first period interactions have the features of a prisoner s dilemma game and the second period interactions have the features of a coordination game this class of games seems relevant to problems of industrial organization where firms not only compete in prices but also have to coordinate in some other dimensions we find that equilibrium outcomes that we can reject on intuitive grounds are not generated by elements of stable sets a la kohlberg and mertens

uncertain medical expenses and precautionary saving near the end of the life cycle this paper introduces a dynamic structural model of household consumption decisions in which elderly families consider the effects of uncertain future medical expenses when deciding current levels of consumption the model with uncertain medical expenses implies a potentially important role for precautionary saving incentives to explain slow rates of dissaving among elderly americans during retirement rather than just simulating the stochastic dynamic model preference parameters are estimated using panel data on health wealth and expenditures for retired families the health uncertainty model predicts consumption levels closer to observed expenditures than a life cycle model with uncertain longevity however elderly families typically dissave their financial assets more slowly than even the baseline health uncertainty model predicts is optimal

the effect of price advertising on prices evidence in the wake of 44 liquormart the 44 liquormart decision eliminating rhode island s ban on liquor price advertising made rhode island the subject of a natural experiment for measuring the effect of advertising on prices using massachusetts prices as controls we find that advertising stores substantially cut only prices of the products that they advertise prices of other products at both advertising and nonadvertising stores do not change advertising stores cut their prices on products advertised by rivals while nonadvertising stores do not we find no reductions in price dispersion across stores newspaper advertising stores appear to draw a higher share of customers after they advertise

a model of the demand for longevity and the value of life extension we specify a demand function for longevity or quantity of life along with corresponding demand functions for indicators of quality of life and a value of health and life extension function we show that the demand for health must be derived in conjunction with that for longevity and the related consumption plan and that all choices depend on initial individual endowments and terminal conditions our comparative dynamics predictions indicate that optimal health and longevity are increasing functions of endowed wealth rather than necessarily current income that improvements in opportunities to produce health can accentuate the differences between endowed health and attained longevity levels and that the value individuals ascribe to their health may be increasing over a good portion of their life cycle we use this model to analyze observed empirical variations in levels and trends of life expectancy and in exposure to health risks across different population groups

advertising and coordination when market information such as price is difficult to communicate consumers and firms may be unable to take advantage of mutually beneficial scale economies so that coordination failures arise ostensibly uninformative advertising expenditures can be used to eliminate coordination failures by allowing an efficient firm to communicate implicitly that it offers a low price this provides a theoretical explanation for benham s 1972 empirical association of the ability to advertise with lower prices and larger scale advertising becomes necessary for optimal coordination when the identity of the efficient firm is uncertain an application to loss leader pricing is developed

promotional reviews an empirical investigation of online review manipulation abstract firms incentives to manufacture biased user reviews impede review usefulness we examine the differences in reviews for a given hotel between two sites expedia com only a customer can post a review and tripadvisor com anyone can post we argue that the net gains from promotional reviewing are highest for independent hotels with single unit owners and lowest for branded chain hotels with multiunit owners we demonstrate that the hotel neighbors of hotels with a high incentive to fake have more negative reviews on tripadvisor relative to expedia hotels with a high incentive to fake have more positive reviews on tripadvisor relative to expedia jel l15 l83 m31

market power cost reduction and consumer search abstract this paper reconciles two opposing views in the r d and agency literatures about how market power influences incentives to reduce costs i develop a model where consumers search for prices firms set prices and technology is determined endogenously through stochastic investment to show that the relation between market power and cost reduction depends on the context i show that shifts in different parameters induce market power and investment to vary in different ways this view is supported by the ambiguity of the conclusions of the empirical literature on the determinants of r d and productivity growth

moral hazard and the demand for health services a matching estimator approach we estimate the impact of extra health insurance coverage beyond a national health system on the demand for several health services traditionally the literature has tried to deal with the endogeneity of the private extra insurance decision by finding instrumental variables since a priori instrumental variables are hard to find we take a different approach we focus on the most common health insurance plan in portugal adse which is given to all civil servants and their dependents we argue that this insurance is exogenous i e not correlated with the beneficiaries health status this identifying assumption allows us to estimate the impact of having adse coverage on the demand for three different health services using a matching estimator technique the health services used are number of visits number of blood and urine tests and the probability of visiting a dentist results show large positive effects of adse coverage for number of visits and tests among the young 18 30 years old but only the latter is statistically significantly different from zero the effects represent 21 8 and 30 of the average number of visits and tests for the young on the contrary we find no evidence of moral hazard on the probability of visiting a dentist

the rand health insurance experiment three decades later we re present and re examine the analysis from the famous rand health insurance experiment from the 1970s on the impact of consumer cost sharing in health insurance on medical spending we begin by summarizing the experiment and its core findings in a manner that would be standard in the current age we then examine potential threats to the validity of a causal interpretation of the experimental treatment effects stemming from different study participation and differential reporting of outcomes across treatment arms finally we re consider the famous rand estimate that the elasticity of medical spending with respect to its out of pocket price is 0 2 emphasizing the challenges associated with summarizing the experimental treatment effects from non linear health insurance contracts using a single price elasticity

uncertain lifetime life protection and the value of life saving abstract the analytic innovation is treating life s end as uncertain and life expectancy as partly the product of individuals efforts to self protect against mortality and morbidity risks the demand for self protection is modeled in a stochastic life cycle framework under alternative insurance options the model helps explain the trend and systematic diversity in life expectancies across different population groups as well as the wide variability in reported value of life saving estimates the analysis yields a closed form solution for individuals value of life saving that is estimable empirically it reflects the impacts of specific personal characteristics and alternative insurance options on both life expectancy and its valuation

coordination economies advertising and search behavior in retail markets we introduce a model of the retail firm in which consumers and active firms benefit collectively from coordination of sales at fewer firms using this model we show that ostensibly uninformative advertising plays a key role in bringing about coordination economies by directing consumer search toward firms that offer the best deals optimal consumer search takes the form of a simple rule of thumb that uses observed advertising information to guide search both industry concentration and social surplus are higher in the presence of advertising relative to a no advertising benchmark jel d83 l15 many observed advertisements seem to be at odds with rational behavior in a variety of ads mostly on tv and radio multiproduct sellers provide little hard information choosing instead to impart only vague slogans that are suggestive of good deals examples are plentiful a hardware store

are americans saving optimally for retirement we solve each household s optimal saving decisions using a life cycle model that incorporates uncertain lifetimes uninsurable earnings and medical expenses progressive taxation government transfers and pension and social security benefits with optimal decision rules we compare household by household wealth predictions from the life cycle model using a nationally representative sample we find making use of household specific earnings histories that the model accounts for more than 80 percent of the 1992 cross sectional variation in wealth fewer than 20 percent of households have less wealth than their optimal targets and the wealth deficit of those who are undersaving is generally small

adaptive learning models of consumer behavior abstract in a model of dynamic duopoly optimal price policies are characterized assuming consumers learn adaptively about the relative quality of the two products a contrast is made between belief based and reinforcement learning under reinforcement learning consumers can become locked into the habit of purchasing inferior goods such lock in permits the existence of multiple history dependent asymmetric steady states in which one firm dominates in contrast belief based learning rules must lead asymptotically to correct beliefs about the relative quality of the two brands and so in this case there is a unique steady state

does medicare save lives health insurance characteristics shift at age 65 as most people become eligible for medicare we measure the impacts of these changes on patients who are admitted to hospitals through emergency departments for conditions with similar admission rates on weekdays and weekends the age profiles of admissions and comorbidities for these patients are smooth at age 65 suggesting that the severity of illness is similar on either side of the medicare threshold in contrast the number of procedures performed in hospitals and total list charges exhibit small but statistically significant discontinuities implying that patients over 65 receive more services we estimate a nearly 1 percentage point drop in 7 day mortality for patients at age 65 equivalent to a 20 reduction in deaths for this severely ill patient group the mortality gap persists for at least 9 months after admission

multiplicity of equilibria in search markets with free entry and exit abstract in this paper i show that there may be multiple equilibria in search markets with production cost heterogeneity if firms may enter or exit the industry i provide a monotonicity property which is necessary and sufficient for uniqueness multiplicity vanishes as the search cost gets small multiple equilibria can be ranked by welfare

the effects of health insurance and self insurance on retirement behavior this paper provides an empirical analysis of the effects of employer provided health insurance medicare and social security on retirement behavior using data from the health and retirement study we estimate a dynamic programming model of retirement that accounts for both saving and uncertain medical expenses our results suggest that medicare is important for understanding retirement behavior and that uncertainty and saving are both important for understanding the labor supply responses to medicare half the value placed by a typical worker on his employer provided health insurance is the value of reduced medical expense risk raising the medicare eligibility age from 65 to 67 leads individuals to work an additional 0 074 years over ages 60 69 in comparison eliminating 2 years worth of social security benefits increases years of work by 0 076 years

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

health and other asset holdings despite clear evidence of correlations between financial and medical statuses and decisions most models treat financial and health related choices separately this article bridges this gap by proposing a tractable dynamic framework for the joint determination of optimal consumption portfolio holdings health investment and health insurance we solve for the optimal rules in closed form and capitalize on this tractability to gain a better understanding of the conditions under which separation between financial and health related decisions is sensible and of the pathways through which wealth and health determine allocations welfare and other variables of interest such as expected longevity or the value of health furthermore we show that the model is consistent with the observed patterns of individual allocations and provide realistic estimates of the parameters that confirm the relevance of all the main characteristics of the model

the aggregate effects of health insurance evidence from the introduction of medicare this paper investigates the effects of market wide changes in health insurance by examining the single largest change in health insurance coverage in american history the introduction of medicare in 1965 i estimate that the impact of medicare on hospital spending is over six times larger than what the evidence from individual level changes in health insurance would have predicted this disproportionately larger effect may arise if market wide changes in demand alter the incentives of hospitals to incur the fixed costs of entering the market or of adopting new practice styles i present some evidence of these types of effects a back of the envelope calculation based on the estimated impact of medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain about half of the increase in real per capita health spending over this time period

price and advertising signals of product quality we present a signaling model based on ideas of phillip nelson in which both the introductory price and the level of directly uninformative advertising or other dissipative marketing expenditures are choice variables and may be used as signals for the initially unobservable quality of a newly introduced experience good repeat purchases play a crucial role in our model a second focus of the paper is on illustrating an approach to refining the set of equilibria in signalling games with multiple potential signals

the effects of health wealth and wages on labour supply and retirement behaviour this paper estimates a life cycle model of labour supply retirement and savings behaviour in which future health status and wages are uncertain individuals face a fixed cost of work and cannot borrow against future labour pension or social security income the method of simulated moments is used to match the life cycle profiles of labour force participation hours worked and assets that are estimated from the data to those that are generated by the model the model establishes that the tax structure of the social security system and pensions are key determinants of the high observed job exit rates at ages 62 and 65 removing the tax wedge embedded in the social security earnings test for individuals aged 65 and older would delay job exit by almost one year by contrast social security benefit levels health and borrowing constraints are less important determinants of job exit at older ages for example reducing social security benefits by 20 would cause workers to delay exit from the labour force by only three months

the entry deterring effects of inflexible regulation this paper investigates the signalling role of tax policy in promoting or hindering the ability of a monopolist to practise entry deterrence we show that environmental policy can facilitate the incumbent firm s concealment of information from potential entrants thus deterring entry and yet entail welfare improvements furthermore we demonstrate that entry deterrence is more likely to arise when environmental regulation cannot be rapidly revised across time if market conditions change inflexible regimes than when regulatory agencies can adjust environmental policy over time les effets de dissuasion de l entree d une reglementation inflexible ce texte examine le role de signalisation d une politique fiscale qui promeut ou reduit l habilete d un monopole a pratiquer la dissuasion de l entree de concurrents on montre qu une politique environnementale peut faciliter la dissimulation d information par la firme en place vis a vis les concurrents potentiels et donc les dissuader d entrer et pourtant engendrer des ameliorations de bien etre de plus on montre que la dissuasion de l entree est davantage susceptible d emerger quand la reglementation environnementale ne peut pas etre revisee rapidement dans le temps si les conditions de marche se modifient regimes inflexibles que quand les agences de reglementation environnementales peuvent ajuster la politiques dans le temps

cheap talk coordination and entry we show how costless nonbinding nonverifiable communication cheap talk can achieve partial coordination among potential entrants into a natural monopoly industry where the payoffs are qualitatively like the battle of the sexes the analysis would apply equally in other economic situations with such payoffs for example bargaining under complete information or choosing compatibility standards while cheap talk helps achieve asymmetric coordination in a symmetric mixed strategy equilibrium it cannot achieve complete coordination if the game involves even a small amount of conflict

a model of advertising format competition on the use of celebrities in ads we develop a model that endogenizes both advertising format ads with or without celebrity endorsements and the endorsement fee marketing studies suggest that celebrities enhance brand recall and perception of product value in our model ads featuring celebrities occur when the product market is large endorsements are likely for products sold nationally and when products are sufficiently similar that the persuasive character of advertising looms large in demand running shoes beauty products soft drinks for example celebrity endorsement fees are increasing in market size and in the degree of similarity of the products being advertised un modele de concurrence de formats de publicite sur l usage des celebrites dans les pubs les auteurs developpent un modele dans lequel le format de la publicite publicites avec ou sans de l appui de celebrites et les couts de cet endossement sont des variables endogenes les etudes de marketing suggerent que les celebrites rehaussent le fait qu on se rappelle de la marque et la perception de la valeur du produit dans le modele propose les pubs mettant en vedette des celebrites sont utilisees quand le marche du produit est grand quand le produit est vendu nationalement et quand les produits sont suffisamment similaires pour que la nature persuasive de la publicite joue un role important dans la demande chaussures de course produits de beaute liqueurs douces par exemple les couts de l endossement par les celebrites s accroissent avec la taille du marche et le degre de similarite des produits publicises

healthy bodies and thick wallets the dual relation between health and economic status there is abundant evidence of a quantitatively large association between many measures of economic status including income and wealth and a variety of health outcomes such as mortality or morbidity however considerable and often heated debate remains especially across disciplines about the direction of causation and about why the association arises although medical scientists are often convinced that the dominant if not exclusive pathway is that variation in socioeconomic status produces health disparities they are increasingly debating among themselves about why low economic status might lead to poor health at least for modern industrial countries 1 the old standby arguments the less well to do have access to less or lower quality medical care or a stronger pattern of deleterious personal behaviors have been rejected as insufficient instead a series of intriguing competing theories have arisen that emphasize long term impacts of early childhood or even inter uterine environmental factors the cumulative effects of prolonged exposures to individual stressful events or reactions to macro societal factors such as rising levels of income inequality a common link is that each theory attempts to document the physiological processes through which low economic status leads to poorer health while these scientific questions are extremely important this research has taken place with little input from economists economists are now making contributions about the alternative pathway the impact poor health may have on economic resources poor health may restrict a family s capacity to earn income or to accumulate assets by limiting work or by raising medical expenses at a minimum this work should provide a caution against exaggerating the magnitude of causation from economic status to health outcomes but the potential contribution runs deeper as people age the evolving variation in individual health outcomes may offer additional statistical information to estimate parameters of household savings and consumption behavior that so far have proven to be somewhat elusive thus incorporating health uncertainty and risk into economic models should eventually enrich our understanding of basic tenets of household behavior the first section of this paper documents the size of the association between health and one prominent economic status measure household wealth section two deals with how health influences economic status by sketching out reasons why health may alter household savings and eventually wealth and then providing estimates of the empirical magnitude of these effects section three shifts attention to the alternative pathway the links between economic status and health and summarizes 2major controversies and evidence surrounding these issues

the demand for health and health concerns after 30 years michael grossman s seminal model stressed that health production requires both goods and time yet recent empirical health research focuses primarily on personal medical care to the exclusion of other inputs to health future research should place greater emphasis on the roles of non medical consumption goods population level inputs and time in producing health capital improved information technology will allow researchers to dissect how education promotes efficiency in combining goods and time to produce health economic analyses of child health which is the antecedent of adult health must proceed in tandem with medical advances in understanding health development in childhood

the distribution of lifetime medicare benefits taxes and premiums evidence from individual level data abstract the absence of individual level data linking earnings histories to the receipt of medicare benefits has hampered the study of the program s distributional properties data developed by the social security administration for an early cohort of medicare beneficiaries includes both earnings records and medicare payment records and thus overcomes this limitation for this early cohort lifetime benefits and taxes are found to rise with lifetime earnings but taxes rise more rapidly resulting in redistribution from higher to lower earning beneficiaries lifetime benefits in the top decile of the earnings distribution are 19 higher than in the bottom decile but taxes and premiums are four times higher in the top than in the bottom decile once taxes and premiums are subtracted net benefits in the top decile are 79 of net benefits in the bottom decile

survival versus consumption we develop an indirect method to estimate utility and willingness to pay wtp for reductions in the risk of death at various ages using a life cycle model of consumption we assume that an individual sets his consumption level each year so as to maximize his expected lifetime utility alternative assumptions about opportunities for borrowing and annuities characterize two polar types of societies in our robinson crusoe case an individual must be entirely self sufficient and annuities are not available in our perfect markets case an individual can borrow against future earnings and purchase actuarially fair annuities we show that under these assumptions wtp is the sum of livelihood discounted expected future earnings and consumer surplus to illustrate our methods we derive wtp for an average financially independent american man under plausible assumptions the model is calibrated to 1978 earnings e g 18 000 per year for men aged 45 54 with at least some income in the robinson crusoe case wtp increases from 500 000 at age 20 to a peak of 1 250 000 at age 40 and declines to 630 000 at age 60 in the perfect markets case age variations are less pronounced wtp is 1 050 000 at age 20 peaks at 1 070 000 at age 25 and declines to 600 000 at age 60 these results suggest that individuals value risks to their lives at several times the pro rata share of their future earnings

the value of life and the rise in health spending over the past half century americans spent a rising share of total economic resources on health and enjoyed substantially longer lives as a result debate on health policy often focuses on limiting the growth of health spending we investigate an issue central to this debate is the growth of health spending a rational response to changing economic conditions notably the growth of income per person we develop a model based on standard economic assumptions and argue that this is indeed the case standard preferences of the kind used widely in economics to study consumption asset pricing and labor supply imply that health spending is a superior good with an income elasticity well above one as people get richer and consumption rises the marginal utility of consumption falls rapidly spending on health to extend life allows individuals to purchase additional periods of utility the marginal utility of life extension does not decline as a result the optimal composition of total spending shifts toward health and the health share grows along with income in projections based on the quantitative analysis of our model the optimal health share of spending seems likely to exceed 30 percent by the middle of the century

life expectancy and old age savings rich people women and healthy people live much longer than their poor male and sick counterparts two extremes taken from our analysis of single people in the assets and health dynamics of the oldest old ahead dataset illustrate this point an unhealthy 70 year old male at the twentieth percentile of the permanent income distribution expects to live only 6 more years that is to age 76 in contrast a healthy 70 year old woman at the eightieth percentile of the permanent income distribution expects to live 16 more years thus making it to age 86 such significant differences in life expectancy could all else equal lead to significant differ ences in saving behavior a related observation is that people with high permanent incomes keep large amounts of assets until very late in life table 1 also based on the

what did medicare do the initial impact of medicare on mortality and out of pocket medical spending abstract we study the impact of the introduction of one of the major pillars of the social insurance system in the united states the introduction of medicare in 1965 our results suggest that in its first 10 years the establishment of universal health insurance for the elderly had no discernible impact on elderly mortality however we find a substantial reduction in the elderly s exposure to out of pocket medical expenditure risk specifically we estimate that the introduction of medicare was associated with a 40 decline in out of pocket spending for the top quartile of the out of pocket spending distribution a stylized expected utility framework suggests that the welfare gains from such reductions in risk exposure alone may be sufficient to cover almost two fifths of the costs of medicare these findings underscore the importance of considering the direct insurance benefits from public health insurance programs in addition to any indirect benefits from an effect on health

fiscal policy in general equilibrium this paper studies four classic fiscal policy experiments within a quantitatively restricted neoclassical model the authors main findings are as follows 1 permanent changes in government purchases can lead to short run and long run output multipliers that exceed one 2 permanent changes in government purchases induce larger effects than temporary changes 3 the financing decision is quantitatively more important than the resource cost of changes in government purchases and 4 public investment has dramatic effects on private output and investment these findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy copyright 1993 by american economic association

signaling future actions and the potential for sacrifice we consider extensions of games where some players have the option of signaling future actions by incurring costs the main result is that in a class of games if one player can incur costs then forwards induction selects her most preferred outcome surprisingly the player does not have to incur any costs to achieve this the option alone suffices however when all players can incur costs one player s attempt to signal a future action is vulnerable to a counter signal by the opponent this vulnerability to counter signaling distinguishes signaling future actions from signaling types

the impact of capital structure on advertising competition an empirical study this article examines the interaction between capital structure and advertising competition using a sample of firms that raise significant amounts of capital we find that firms whose financial leverage has decreased as a result of their new funding increase their advertising significantly more than firms whose leverage has increased we also find that these firms industry rivals respond less aggressively with their own advertising when they have more debt in their capital structure overall our results support the view that financial leverage has a dampening effect on the intensity with which a firm chooses to compete in the product market

a model of declining health and retirement the declining u s average retirement age has been difficult to reconcile with cross section evidence that poor health is a primary cause of early retirement this paper reconciles those observations by building a grossman type model of investment in health distinguished from its predecessor by a more formal treatment of initial conditions a discontinuous mid life increase in health investment retirement is shown in general to be part of the optimal investment strategy time series productivity increases are shown to lower the optimal retirement age while varying health endowments and depreciation rates are shown to be able to account for cross section retirement age variations

coordination failures in immigration policy abstract we propose a theoretical framework for analyzing the problems associated to unilateral immigration policy in receiving countries and for evaluating the grounds for reform of international institutions governing immigration we build a model with multiple destination countries and show that immigration policy in one country is influenced by measures adopted abroad as migrants choose where to locate in part in response to differences in immigration policy this interdependence gives rise to a leakage effect of immigration policy an international externality well documented in the empirical literature in this environment immigration policy becomes strategic and unilateral behavior may lead to coordination failures where receiving countries are stuck in welfare inferior equilibria we then use an equilibrium refinement to show that the selected equilibrium differs from the pareto dominant one and argue that multilateral institutions that help receiving countries make immigration policy commitments would address this inefficiency

how social security and medicare affect retirement behavior in a world of incomplete markets this paper provides an empirical analysis of how the u s social security and medicare insurance system affect the labor supply of older males in the presence of incomplete markets for loans annuities and health insurance we estimate a detailed dynamic programming dp model of the joint labor supply and social security acceptance decision focusing on a sample of males in the low to middle income brackets whose only pension is social security the dp model delivers a rich set of predictions about the dynamics of retirement behavior and comparisons of actual vs predicted behavior show that the dp model is able to account for wide variety of phenomena observed in the data including the pronounced peaks in the distribution of retirement ages at 62 and 65 the ages of early and normal eligibility for social security benefits respectively we identify a significant fraction of health insurance constrained individuals who have no form of retiree health insurance other than medicare and who can only obtain fairly priced private health insurance via their employer s group health plan the combination of significant individual risk aversion and a long tailed pareto distribution of health care expenditures implies that there is a significant security value for these individuals to remain employed until they are eligible for medicare coverage at age 65 overall our model suggests that a number of heretofore puzzling aspects of retirement behavior can be viewed as artifacts of particular details of the social security rules whose incentive effects are especially strong for lower income individuals and those who do not have access to fairly priced loans annuities and health insurance

consumption and investment demand when health evolves stochastically abstract the health capital model of grossman 1972 is extended to account for uncertainty in the rate at which a stock of health depreciates two general versions of the model are contemplated one with a fully functioning financial market and the other in its absence the comparative dynamics of the feedback form of the consumption and health investment demand functions are studied in these general settings where it is shown that the key to deriving refutable results is to determine how a parameter or state variable affects the expected lifetime marginal utilities of health and wealth to add further reach to the results a simplified stochastic control problem is explicitly solved yielding estimable structural feedback demand functions

introductory price as a signal of cost in a model of repeat business a two period game between firms and consumers is considered firms are privately informed about their individual costs and consumers must pay a search cost in order to learn a firm s current price consumers thus have incentive to use introductory price as a signal of cost and hence second period price recent refinements of the sequential equilibrium concept are employed and the resulting equilibria involve low introductory prices introductory sales