economic deregulation days of reckoning for microeconomists economic deregulation of american industry is one of the most important experiments in economic policy of our time 1 in 1977 17 percent of u s gnp was produced by fully regulated industries 2 by 1988 following ten years of partial and complete economic deregulation of large parts of the transportation communications energy and financial industries that total had been cut significantly to 6 6 percent of gnp 3 the political forces behind the decision to change the market conditions under which roughly 600 billion of u s output is produced were strong and varied but according to political scientists martha derthick and paul quirk 1985 p 36 deregulation would never have occurred if economists especially microeconomists had not generally supported it through their research 4 in retrospect it is fair to ask were microeconomists able to develop a theoretical and empirical framework to explain regulation and its effects and to form predictions of deregulation s effects were they able to predict the actual effects of deregulation this paper surveys the evidence to address these questions and of

issues every plan to reform health care financing must confront this paper focuses on three main issues of fundamental health care reform first should experience rating the linkage of premiums to actual loss experience be retained despite widespread support for experience rating among economists the paper argues that it should be abandoned for reasons of efficiency and equity second would abandonment of experience rating cause much redistribution the paper shows that redistribution among industries could require significant transitional adjustments third should companies or individuals be subject to an insurance mandate the paper calls for combining individual mandates which have long term advantages with employer mandates which have short run pluses

the case of risk premia for risky jobs revisited abstract the empirical evidence concerning the existence of risk premia for risky jobs is contradictory some results support the existence of these premia while others do not this note provides a theoretical justification for these contradictory results in a fairly general model where firms and workers can effect the probability of a workplace accident

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

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

moral hazard in health insurance what we know and how we know it we describe research on the impact of health insurance on healthcare spending moral hazard and use this context to illustrate the value of and important complementarities between different empirical approaches one common approach is to emphasize a credible research design we review results from two randomized experiments as well as some quasi experimental studies this work has produced compelling evidence that moral hazard in health insurance exists that is individuals on average consume less healthcare when they are required to pay more for it out of pocket as well as qualitative evidence about its nature these studies alone however provide little guidance for forecasting healthcare spending under contracts not directly observed in the data therefore a second and complementary approach is to develop an economic model that can be used out of sample we note that modeling choices can be consequential different economic models may fit the reduced form but deliver different counterfactual predictions an additional role of the more descriptive analyses is therefore to provide guidance regarding model choice

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

quality vs quantity in military procurement it is often argued that the same expenditures on military procurement would produce a more effective defense if larger numbers of less sophisticated and thus cheaper weapons were purchased this paper shows that such a result can occur even if the military derives no private consumption value from technically sophisticated weapons rather the organization of the decision making process itself can produce this result this suggests some possible solutions through organizing decision making in a different fashion copyright 1990 by american economic association

on the possibility of an inverse relationship between tax rates and government revenues abstract when arthur laffer and other supply side advocates plot total tax revenue as a function of a particular tax rate they draw an upward sloping segment called the normal range followed by a downward sloping segment called the prohibitive range a brief literature review indicates that tax rates on the prohibitive range in theoretical and empirical models have been the result of particularly high tax rates high elasticity parameters or both the labor tax rate which maximizes total revenue for example will depend on the assumed labor supply elasticity this paper introduces a new curve which summarizes the tax rate and elasticity combinations that result in maximum revenues separating the normal area from the prohibitive area a general purpose empirical u s general equilibrium model is used to plot the laffer curve for several elasticities and to plot the newly introduced curve using the labor tax example results indicate that the u s could conceivably be operating in the prohibitive area but that the tax wedge or labor supply elasticity would have to be much higher than most estimates would suggest

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

misperceived job hazards and welfare abstract bayesian workers produce chemicals hazardously in one sector of a two sector economy having one safe sector adopting an expected ex post welfare perspective we show workers misperceptions of hazards entail a classic externality we characterise chemicals competitive monopoly and socially efficient outputs assuming workers receive identical wage accident compensation contracts under each the value of information which induces workers to place greater stress on firms safety records or sharpens their priors and extend the standard monopoly welfare loss index for sufficient conditions for monopoly to be preferred to competition in chemicals and for size ranking monopoly and efficient chemical outputs

some analytics of the laffer curve abstract it is shown that in a general equilibrium model with one private good one public good labour and an income tax certain widely assumed properties of the laffer curve do not necessarily hold for well behaved functional forms it may not be continuous and may not have an interior maximum its slope depends on technology as well as on the tax elasticity of labour supply for certain technologies a more negative elasticity may imply a more positive slope moreover the relevant tax elasticity is a general equilibrium one which may differ in sign from the widely quoted partial equilibrium one

the impact of medicaid on labor market activity and program participation evidence from the oregon health insurance experiment united states dept of health and human services assistant secretary for planning and evaluation

do physicians financial incentives affect medical treatment and patient health we investigate whether physicians financial incentives influence health care supply technology diffusion and resulting patient outcomes in 1997 medicare consolidated the geographic regions across which it adjusts physician payments generating area specific price shocks areas with higher payment shocks experience significant increases in health care supply on average a 2 percent increase in payment rates leads to a 3 percent increase in care provision elective procedures such as cataract surgery respond much more strongly than less discretionary services non radiologists expand their provision of mris suggesting effects on technology adoption we estimate economically small health impacts albeit with limited precision

government deficits private investment and the current account an intertemporal disequilibrium analysis this paper uses a model with full intertemporal optimization and fischer gray type short run real wage rigidities to demonstrate effects of deficit spending in different employment regimes this study attempts to bring the two strands of short run aggregate demand effects and certain intertemporal aspects together it analyses fiscal policy in the context of a model with full intertemporal optimization underlying private behavior which allows the paper to deal with the intertemporal aspects but it also explicitly incorporates the possibility of short run labour and goods market disequilibrium caused by fischer 1977 gray 1978 type contract based real wage rigidities and within period downward price inflexibility prices are however assumed to be flexible upward in a departure of the standard disequilibrium literature in section 2 the basic model is presented the paper uses a two period full optimization set up where wages and prices are set at the beginning of each period using all available information fiscal policy effects under keynesian unemployment are analyzed in section 3 while section 4 looks at the case of classical unemployment section 5 concludes

indirect tax evasion and product efficiency though a number of papers have considered the issues of income tax evasion few have considered indirect tax evasion one of the exceptions is a paper which considers the very special case of a risk averse monopolist producer the present paper addresses the issue of indirect tax evasion in competitive markets evasion in such a market is shown to be associated with production inefficiency the results also suggest that laffer type curves could arise due to evasion

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

the credibility revolution in empirical economics how better research design is taking the con out of econometrics since edward leamer s memorable 1983 paper let s take the con out of econometrics empirical microeconomics has experienced a credibility revolution while leamer s suggested remedy sensitivity analysis has played a role in this we argue that the primary engine driving improvement has been a focus on the quality of empirical research designs the advantages of a good research design are perhaps most easily apparent in research using random assignment we begin with an overview of leamer s 1983 critique and his proposed remedies we then turn to the key factors we see contributing to improved empirical work including the availability of more and better data along with advances in theoretical econometric understanding but especially the fact that research design has moved front and center in much of empirical micro we offer a brief digression into macroeconomics and industrial organization where progress by our lights is less dramatic although there is work in both fields that we find encouraging finally we discuss the view that the design pendulum has swung too far critics of design driven studies argue that in pursuit of clean and credible research designs researchers seek good answers instead of good questions we briefly respond to this concern which worries us little

black markets and optimal evadable taxation in a simple model of evadable indirect taxation some surprises emerge because of a market thinning effect of high prices high taxes induce multiple equilibria low price black markets and high price legal markets further evadability introduces a bifurcation to optimal taxation for less effective tax administrations the optimal tax system follows a cash cow pattern with one sector bearing all of the tax but for relatively effective administrations the optimum follows a slightly modified ramsey rule this discontinuity results from the mathematics of evasion incentives and may help explain tax reforms commonly seen over the course of economic development

the interaction between forms of insurance contract and types of technical change in medical care a simple three parameter description of medical technology is introduced to investigate the relationships between technical change welfare and type of insurance contract the value of a particular change in technology depends on the existing form of contract the marginal equilibrium expected utility to consumers of different types of technical change hinges on the manner in which the insurance arrangement is designed to mitigate moral hazard these results open the way for a positive model of the effects of insurance arrangements on the types of technology that are adopted and the effects of technical changes on the prevalent forms of insurance contract

direct versus indirect standardization in risk adjustment direct and indirect standardization procedures aim at comparing differences in health or in health care expenditures between subgroups of the population after controlling for observable morbidity differences there is a close analogy between this problem and the issue of risk adjustment in health insurance traditional methods of risk adjustment are analogous to indirect standardization they are equivalent to the so called conditional egalitarian mechanism in social choice in general they do not remove incentives for risk selection even if the effect of non morbidity variables is correctly taken into account a method of risk adjustment based on direct standardization does remove the incentives for risk selection but at the cost of violating a neutrality condition stating that insurers should receive the same premium subsidy for all members of the same risk group direct standardization is equivalent to the egalitarian equivalent or proportional mechanism in social choice the conflict between removing incentives for risk selection and neutrality is unavoidable if the health expenditure function is not additively separable in the morbidity and efficiency variables

risk selection and the specification of the conventional risk adjustment formula we argue that a sharp distinction must be made between the empirical problem of finding the best equation for explaining medical expenditures and the normative question of deriving capitations which give health plans the appropriate incentives we propose a procedure taken from the social choice literature to go from the estimated equations to the capitations if the estimated equations are not additively separable in legitimate and illegitimate risk adjusters it is impossible to remove all incentives for risk selection while respecting at the same time a straightforward requirement of horizontal equity this has immediate implications for the choice of the functional form moreover in so far as the conventional risk adjustment literature only includes so called legitimate risk adjusters in the estimations its results may suffer from omitted variables bias we illustrate our general methodological points with empirical results obtained from a cross section of 321 111 belgian patients

employee choice of health insurance a new specification of health insurance plan choice is developed that uses a nonparametric functional form for the loss function used to evaluate insurance premiums and uncertain out of pocket expenditure the approach is implemented on data resulting from one firm s implementation of a new health plan with three distinct health insurance options health expenditure differences greater than 500 percent are observed indicating extremely strong biased selection plan choices are consistent with a convex loss function for small losses which suggests that consumers underweight high loss low probability outcomes relative to low loss high probability ones copyright 1989 by mit press

medical care costs how much welfare loss hardly a week goes by without a front page newspaper article on rising health care costs and the uninsured in this article i focus mainly on costs arguing that the issue has been somewhat misconceived while the level of medical care spending in the u s is a cause for concern the welfare losses associated with rises in that level of spending may not be as large as the public rhetoric can make them seem in fact cost containment may not be as urgent as is widely supposed and some proposed cost containment policies may result in welfare losses for the insured and even increase the number of uninsured

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

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

the response of drug expenditure to nonlinear contract design evidence from medicare part d we study the demand response to non linear price schedules using data on insurance contracts and prescription drug purchases in medicare part d we exploit the kink in individuals budget set created by the famous donut hole where insurance becomes discontinuously much less generous on the margin to provide descriptive evidence of the drug purchase response to a price increase we then specify and estimate a simple dynamic model of drug use that allows us to quantify the spending response along the entire non linear budget set we use the model for counterfactual analysis of the increase in spending from filling the donut hole as will be required by 2020 under the affordable care act in our baseline model which considers spending decisions within a single year we estimate that filling the donut hole will increase annual drug spending by about 150 or about 8 percent about one quarter of this spending increase reflects anticipatory behavior coming from beneficiaries whose spending prior to the policy change would leave them short of reaching the donut hole we also present descriptive evidence of cross year substitution of spending by individuals who reach the kink which motivates a simple extension to our baseline model that allows in a highly stylized way for individuals to engage in such cross year substitution our estimates from this extension suggest that a large share of the 150 drug spending increase could be attributed to cross year substitution and the net increase could be as little as 45 per year

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

competition and efficiency in the end stage renal disease program abstract estimated coefficients for medical service production or cost functions are subject to a competitive amenity bias which may result in the failure to identify factors that affect economic efficiency our investigation of productivity of dialysis facilities did indeed indicate both the likelihood of bias and some qualitative results these results suggest that it will be difficult to estimate cost and that variation in the level of reimbursement will in competitive markets affect the level of amenity delivered to patients incurred cost amenity and patient well being will all vary positively with the reimbursement level determining the right level of reimbursement requires a policy decision on how much total amenity society wishes to deliver to beneficiaries of public programs

moral hazard and selection among the poor evidence from a randomized experiment not only does economic theory predict high risk individuals to be more likely to purchase insurance but insurance coverage is also thought to crowd out precautionary activities in spite of stark theoretical predictions there is conflicting empirical evidence on adverse selection and evidence on ex ante moral hazard is very scarce using data from the seguro popular experiment in mexico this paper documents patterns of selection on observables into health insurance as well as the existence of non negligible ex ante moral hazard more specifically the findings indicate that i agents in poor self assessed health prior to the intervention have all else equal a higher propensity to take up insurance and ii insurance coverage reduces the demand for self protection in the form of preventive care curiously however individuals do not sort based on objective measures of their health

the oregon health insurance experiment evidence from the first year in 2008 a group of uninsured low income adults in oregon was selected by lottery to be given the chance to apply for medicaid this lottery provides an opportunity to gauge the effects of expanding access to public health insurance on the health care use financial strain and health of low income adults using a randomized controlled design in the year after random assignment the treatment group selected by the lottery was about 25 percentage points more likely to have insurance than the control group that was not selected we find that in this first year the treatment group had substantively and statistically significantly higher health care utilization including primary and preventive care as well as hospitalizations lower out of pocket medical expenditures and medical debt including fewer bills sent to collection and better self reported physical and mental health than the control group

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

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

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

the incidence of mandated maternity benefits i consider the labor market effects of mandates which raise the costs of employing a demographically identifiable group the efficiency of these policies will be largely dependent on the extent to which their costs are shifted to group specific wages i study several state and federal mandates which stipulated that childbirth be covered comprehensively in health insurance plans raising the relative cost of insuring women of childbearing age i find substantial shifting of the costs of these mandates to the wages of the targeted group correspondingly i find little effect on total labor input for that group jel 118 j32 h51 in an era of tight fiscal budget constraints mandating employer provision of workplace benefits to employees is an attractive means for a government to finance its policy agenda consequently in recent years there has been a growth of interest in mandated benefits as a tool of social policy for example the centerpiece of president bill clinton s health care proposal is mandated employer provision of health insurance and more than 20 states have man

income tax compliance in a principal agent framework previous analyses have modeled income tax evasion as a portfolio problem deriving the optimal consumption of the risky asset unreported income under the assumption of a fixed probability of detection the purpose of this paper is to examine some of these issues in tax compliance starting from a different set of assumptions in particular we compare alternative audit policies to the standard random audit policy we focus on an audit cutoff policy in which an agent triggers an audit if his or her reported income is too low and is not audited if reported income is sufficiently high this paper establishes two major results first random audit rules are weakly dominated by audit cutoff rules it can be shown given lump sum taxes and fines that these audit cutoff rules are the least cost policies which induce truthful reporting of income second the dominance of audit cutoff rules over random audit rules holds for lump sum as well as proportional taxation in fact the equilibrium consequences of the two are equivalent

on indirect tax evasion abstract this paper examines some aspects of the decision to evade indirect taxes in the context of a monopolistic firm in particular the degree of interdependence between the tax shifting and the tax evasion decisions is analyzed both in the case of a fixed and of a variable probability of being detected it is shown that in the first case the shifting and evasion decisions are separable while in the second case this is no longer true in this latter case a rule according to which the probability decreases with larger declarations can be said to be an efficient one the conditions for a firm s becoming a completely submerged one are derived and finally direct and indirect tax evasion are compared it is shown that for decreasing risk aversion an indirect tax is evaded as a percentage less than a profit tax of equal yield

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

incentive effects of workers compensation insurance abstract this paper uses micro level data from the current population survey to estimate the determinants of participation in state workers compensation programs in the united states the principal finding is that higher workers compensation benefits are associated with greater participation in the workers compensation program after accounting for a variety of covariates in addition the waiting period is found to have a substantial negative effect on program participation finally time series estimates based on the cross sectional model show that the growth in workers compensation claims in the 1970s corresponds reasonably well with the growth in real benefits in this time period

arm breaking consumer credit and personal bankruptcy the consumer credit transaction is analyzed as a contract which provides insurance as well as present consumption for the borrower creditors remedies such as arm breaking are shown to facilitate provision of insurance forgiveness of debts when lenders cannot monitor outcomes alternatively if outcomes are observable but lenders do not ex ante know the risk associated with each borrower the market may generate an excessive amount of arm breaking and agreements to forgo discharge following bankruptcy as low risk borrowers signal their characteristics suggesting that government limitations on such provisions might be efficient the secured credit transaction is shown to be a complex contract which attempts to provide efficient repayment seller incentives for performance and mitigation following default and insurance for the borrower garnishment and discharge of debts following bankruptcy are also considered

are insurance and self insurance substitutes an experimental approach abstract our theory driven laboratory experiment tests a broadened ehrlich and becker substitutability property between insurance and self insurance the data show that an increase in insurance prices does lead to a substitution effect between insurance and self insurance disentangling the two components of the coverage whether and how much to invest suggests that the substitution effect is multilayered a rise in the unit price is likely to crowd the subjects out of the insurance market while fostering the likelihood of investing in self insurance also the demand for insurance of those who remain in the market decreases whereas their demand for self insurance increases however the substitutability effect is mitigated by insufficient sensitivity of the subjects to the price therefore a price subsidy policy is far from being as damaging to self insurance as theory suggests conversely a high priced insurance policy does not encourage investment in loss reduction activities as much as it should policy issues notably for public health as well as for insurers policy are discussed as this research suggests possible ways of steering the pricing policy for insurance

tax evasion inflation and stabilization abstract this paper focuses on the public resort to tax evasion in developing countries as an adjustment tactic during economic downturn we show using a theoretical model of intertemporal consumption that tax compliance declines when current income declines expectations about future income improve or inflation rises we then apply the model empirically to the cases of argentina brazil and chile three countries which have long experience with tax evasion and inflation over the last 40 years and find confirmation

ramsey pricing and supply side incentives in physician markets in this paper i develop a theory of optimal prices using a relative value scale where there are fixed costs of medical practice i consider a regulator constrained to set prices in excess of marginal cost in markets where physicians can create demand at the margin under these conditions basing prices on physician costs alone is shown to be suboptimal instead prices should anticipate the behavior of physicians by setting profit margins highest for services least susceptible to demand creation this is equivalent to a form of ramsey pricing used in this case to minimize the deadweight loss of oversupply

are patient regarding preferences stable evidence from a laboratory experiment with physicians and medical students from different countries abstract we quantify patient regarding preferences by fitting a bounded rationality model to data from an incentivized laboratory experiment where chinese medical doctors german medical students and chinese medical students decide under different payment schemes we find a remarkable stability in patient regarding preferences when comparing subject pools and we cannot reject the hypothesis of equal patient regarding preferences in the three groups the results suggest that a health economic experiment can provide knowledge that reach beyond the student subject pool and that the preferences of decision makers in one cultural context can be of relevance in a very different cultural context

stability in the federal employees health benefits program recently the federal employees health benefits program has been the subject of much discussion in washington as a result of the rather large premium increases in 1982 and 1983 the delayed open season of 1981 and the benefit reductions enrollees responded in may 1982 to the changes a record number switched plans it appears that enrollees were simply responding to the new premiums and benefits in this paper we describe the economic incentives faced by enrollees in the fehbp we find that due to the strong incentives for enrollees to leave certain high cost plans continued instability should be expected in fact the disparity between expected benefits and premium is so great for some plans e g the blue cross high option that their survival is questionable this lack of stability raises important questions about the viability of some pro competition proposals involving multiple insurer systems

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

how the demand for insurance became behavioral abstract recent developments in research on insurance reveal a shift towards behavioral insurance decisions remain rational but in a broader framework of reference that accounts for the role of loss aversion ambiguity framing reference points and emotions in people s decisions in this special issue many of those points are discussed in connection with the demand for insurance some of the major insurance puzzles such as insufficient demand for coverage the crowding out effect between insurance mechanisms and the opportunism in the insurance market that arises from asymmetric information are covered this paper introduces 24 texts on behavioral insurance

taking the dogma out of econometrics structural modeling and credible inference without a doubt there has been a credibility revolution in applied econometrics one contributing development has been in the improvement and increased use in data analysis of structural methods that is the use of models based in economic theory structural modeling attempts to use data to identify the parameters of an underlying economic model based on models of individual choice or aggregate relations derived from them structural estimation has a long tradition in economics but better and larger data sets more powerful computers improved modeling methods faster computational techniques and new econometric methods such as those mentioned above have allowed researchers to make significant improvements while angrist and pischke extol the successes of empirical work that estimates treatment effects based on actual or quasi experiments they are much less sanguine about structural analysis and hold industrial organization up as an example where progress is less dramatic indeed reading their article one comes away with the impression that there is only a single way to conduct credible empirical analysis this seems to us a very narrow and dogmatic approach to empirical work credible analysis can come in many guises both structural and nonstructural and for some questions structural analysis offers important advantages in this comment we address the criticism of structural analysis and its use in industrial organization and consider why empirical analysis in industrial organization differs in such striking ways from that in fields such as labor which have recently emphasized the methods favored by angrist and pischke

the threat of cream skimming in the post reform nhs the allocation of budgets to general practitioners to enable them to purchase selected hospital services has been one of the most imaginative elements of the recent national health service reforms in britain however reliance on historic costs budgeting has weakened the efficiency incentives of fund holding while perpetuating the large variations in resource use endemic in general practice on the other hand policy changes aimed to introduce elements of capitation funding although welcome raise the spectre of cream skimming the paper explores the potential for protection against cream skimming offered by incorporating chronic health factors into the formula

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

what to expect when you are expecting are health care consumers forward looking a fundamental question in health insurance markets is how do health care consumers dynamically optimize their medical utilization under non linear insurance contracts our paper tests the neoclassical prediction that a fully forward looking agent only responds to their expected end of year price our unique identification strategy studies families during the year of childbirth who will likely satisfy their annual deductible thereby knowing their expected end of year price we find that during the year of a childbirth fathers increase medical spending by 11 per month after their deductible is satisfied rejecting the null of fully forward looking consumers this behavior cannot be explained by fathers increasing utilization in response to the childbirth itself furthermore this myopia translates to a 21 24 decrease in total annual medical spending relative to the counterfactual of fully forward looking behavior and is concentrated in elective procedures we find no response in low value or urgent care our findings suggest the need for modeling non linear incentives while accounting for myopic behavior when studying the medical utilization responses to health insurance

tax compliance and firms strategic interdependence we focus on a relatively neglected area of the tax compliance literature in economics the behaviour of firms we examine the impact of alternative audit rules on receipts from a tax on profits in the context of strategic interdependence of firms the enforcement policy can have an effect on firms behaviour in two dimensions their market decisions as well as their compliance behaviour an appropriate design of the enforcement policy can thus have a double dividend by manipulating firms in both dimensions

worker investments in safety workplace accidents and compensating wage differentials the theory of compensating wage differentials cwds assumes that firms supply and workers demand workplace safety predicting a positive relationship between accident risk and wages this article allows for safety provision by workers which predicts a countervailing negative relationship between individual risk and wages firms pay higher wages for higher safety related productivity using national longitudinal survey of youth panel data and data on fatal and nonfatal accidents our precise cwds imply a value of a statistical injury of 45 4 thousand and a value of a statistical life of 6 3 million in line with our model individual risk and wages are negatively correlated

an economic analysis of factor usage and workplace regulation reply safety in the workplace has long been a subject of interest for economists much of this attention has focused on the presence of risks on the job and the tendency of workers and others to underestimate these risks adam smith 16 96 7 notes this optimism and as george stigler 19 points out jevons felt that workplace hazards were ignored by those most directly concerned this lack of faith in the market to provide adequate safety or to compensate those who face such risks is evident in the law regulating the workplace primarily workers compensation wc and the occupational safety and health act osha these policies are in the judgment of many modern economists justified by the misperception of risks 5 12 13 however other economists have argued that despite their intentions such laws may not have one of the primary effects they are directed to accomplish the reduction of workplace accidents relatively little research has been devoted to another aspect of safety regulation its cost perhaps because these costs are thought to be very small 2 it is on this issue that this paper focuses what is the impact of workplace regulation on firm decision making to accomplish this a model is developed in section ii which examines the impact on a firm s factor choices attributable to the imposition of workplace safety regulation the theory examines wc and osha both singly and jointly and their effects on the level of and changes in relative factor usage these considerations form the bulk of section iii this model yields some interesting conclusions about the effects of regulation in the workplace the primary implication of the theory is that all increases in safety are paid for through lowered output and factor employment moreover this result holds true whether the additional safety is the product of direct safety regulation osha or through indirect forms of regulation like wc these results are possibly more striking given the findings of empirical work done on the impact of wc and osha on safety this body of research has to

tax evasion and optimal commodity taxation abstract this paper incorporates tax evasion into ramsey s optimal taxation problem it provides i a precise and intuitive characterization of the tradeoff between optimal tax rates and audit probabilities and ii a modified version of the ramsey equation it also proves that in the presence of tax evasion a the well known requirement of proportional reduction in compensated demands b the traditional result on the optimality of uniform taxation when income is exogenous and c the equivalence of wage and uniform commodity taxes are no longer valid

avoiding tax avoidance a repeated game theoretic approach abstract we propose an optimal auditing scheme for the tax authorities who face a given tax and penalty functions and a given budget constraint under our proposed strategy individuals can be classified into one of three groups each group is characterized by two parameters i the probability of being audited in that group and ii into which group will an individual move if ii a he reported truthfully ii b he cheated it is then shown that there is a choice of these parameters so that in equilibrium i e when every individual maximizes his payoff given the auditing strategy the percentage of individuals that cheat is arbitrarily small

reputations for safety market performance and policy remedies this paper examines the provision of industrial safety in a competitive labor market under the assumption that it takes time for workers to learn about changes in safety levels at a firm it is shown that safety will in general be underprovided and that in some cases government enforced workmen s compensation can bring improvements the results hold even though in equilibrium all workers are perfectly informed about the level of safety prevailing at each firm and each is free to move to any firm he likes

hospital profits the effects of reimbursement policies this paper provides a theoretical and empirical analysis of the effect of cost based reimbursement cbr on hospital costs and charges it takes issue with previous analyses which have treated cbr as paying economic costs plus a mark up and have concluded that the mark up is too small to significantly distort hospital decision making the basic thesis here is that if reimbursement is based on costs accounting costs become a price to cost paying patients and will be optimized to maximize revenue a hospital serving both cost and charge paying private patients can set two price schedules accounting profits ratio of charges to costs are not a measure of economic profit but of relative prices to these two groups of patients in the absence of constraints from regulation or patient co payment the optimum level of accounting costs would be infinite in practice the medicare reimbursement formula links allowable costs to charges received from charge paying patients this formula creates incentives for the hospital to raise charges above the single price profit maximizing monopoly level this inflationary effect of the medicare formula does not presuppose that medicare pays less than full cost the empirical analysis of hospital laboratory costs and charges generally supports the predictions for other departments the conclusions are consistent but more tentative because of data limitations overall evidence suggests minimal cross subsidy between cost and charge paying patients comparisons of cost and charge levels in for profit voluntary non profit and government hospitals are presented but it is emphasized that inferences about relative efficiency and profitability cannot be drawn from accounting data given the incentives created by cbr