comparing the performance of health care systems an alternative approach the health care system in the united states has been diagnosed as a moribund institution by a large number of media commentators and health policy analysts continually rising health care costs and inadequate health insurance coverage for approximately thirty seven million people are cited as two of the most visible symptoms supporting their diagnosis most of these individuals see little chance for the u s health care system to recover given its present design full recovery they believe requires the successful transplant of a health care system from another country the health care systems in europe and canada where government is assigned a much larger role than in the united states are argued to offer universal health care coverage and simultaneously contain health care costs simple comparative statistics appear to support the view that the performance of the u s health care system could be improved through a new health care system design infant mortality in the united states ranked twentieth among twenty four member countries of the organization for economic cooperation and development oecd in 1988 yet health care expenditures in the united states comprised 11 8 percent of gross domestic product in 1989 while the comparable average for all oecd countries was only 7 4 percent 28 these statistics portray the u s health care system as being deficient and therefore unable to offer quality medical services at a reasonable price given the limited stock of information that exists on this issue however it is ill advised to place full blame for the seemingly dismal performance on the u s health care system the simple international comparisons fail to take into account that differences in performance are not solely due to variations in health care systems while the design of a health care system including the financing scheme reimbursement method and organization of production is indeed important because it influences how various economic technological and demographic characteristics of a country are transformed into health outcomes the performance of the health care system also depends on the magnitude of these national characteristics as well a proper analysis would try to determine how the health care system itself specifically influences the performance of health

a cluster analysis on income elasticity variations and us pharmaceutical expenditures this paper examines the relationship between household income and outpatient prescribed medicines in the usa based on a sample of 2872 privately insured patients from the 1987 nmes data set the analysis is performed on regional typologies of different socioeconomic profiles of patients only a few groups show positive income elasticity

innovation and imitation in a duopoly in a duopoly where one firm has the idea for a non patentable innovation the expected profits from the innovation will not be a monotonic function of the cost of innovating furthermore a costly innovation may be undertaken where an inexpensive one would not have been all other things being equal

what drives health care expenditure baumol s model of unbalanced growth revisited the share of health care expenditure in gdp rises rapidly in virtually all oecd countries causing increasing concern among politicians and the general public yet economists have to date failed to reach an agreement on what the main determinants of this development are this paper revisits baumol s baumol w j 1967 macroeconomics of unbalanced growth the anatomy of urban crisis american economic review 57 3 415 426 model of unbalanced growth showing that the latter offers a ready explanation for the observed inexorable rise in health care expenditure the main implication of baumol s model in this context is that health care expenditure is driven by wage increases in excess of productivity growth this hypothesis is tested empirically using data from a panel of 19 oecd countries our tests yield robust evidence in favor of baumol s theory

the effects of regulation on research and development theory and evidence while other aspects of the effects of regulation on resource allocation have received considerable attention the impact of regulation on the innovative p ropensities of regulated firms has generated only limited and somewha t tenuous evidence accordingly this article investigates the effect s of regulation and firm structure on research and development r d expenditures a simple model of the behavior of a firm under a rate o f return regulation suggests that both the stringency of the allowed rate of return constraint and the inclusion or exclusion of r d in a firm s rate base will be key determinants of firm level r d expenditu res the empirical results strongly support the theoretical model copyright 1988 by the university of chicago

social security income and health care spending evidence from the social security notch the paper exploits social security legislation changes to identify the causal effect of social security income on out of pocket medical expenditures of the elderly using the 1986 1994 consumer expenditure survey and an instrumental variables strategy the empirical results show that health care expenditures are responsive to changes in social security income for elderly individuals with less than a high school education the estimated income elasticities are between 1 41 and 3 47 depending on the outcome measures and are statistically significant at conventional levels the findings are in contrast to existing studies that find a small income elasticity at the individual household level this article is protected by copyright all rights reserved

health care expenditures and gdp panel data unit root test results abstract this short paper presents unit root test results for time series on per capita national health care expenditures and gross domestic product in the oecd unlike the country by country test used by hansen p king a 1996 the determinants of health care expenditure a cointegration approach j health econ 15 127 137 the test we employ exploits the panel nature of the oecd data using this approach we are able to reject the null hypothesis that these series contain unit roots no single test is likely to be definitive in this rapidly evolving area of econometric research however our results help to mitigate concern that panel data analyses of national health care expenditures are misspecified

health care expenditure and gdp are they broken stationary in this paper we analyse the stationarity of the real per capita health care expenditure hce and real per capita gdp for a sample of oecd countries allowing for the presence of multiple structural breaks one novelty of the paper is that it permits the presence of structural breaks that affect both the level and the slope of the time series after the cross section dependence is accounted for we have found that these variables can be characterised as stationary processes evolving around a broken trend

regulation and preemptive technology adoption two rival firms must decide if and when to adopt a new technology knowing how adoption costs decline over time and how profit flows vary with adoption patterns in many cases price and entry regulations beneficially slow technology adoption by making preemption strategies less attractive in some cases these regulations can so discourage a firm from preemption as to change the order in which firms adopt new technologies speeding one firm s adoption date and slowing the other s in the context of a particular scenario for cable and telephone companies adoption of new fiber optic technologies the case for lifting the cross ownership ban depends on the extent to which telephone companies are able to implement a superior technology reregulation of cable companies strengthens this case

the determinants of canadian provincial health expenditures evidence from a dynamic panel this article seeks to reveal the magnitude of the income elasticity of health expenditure and the impact of non income determinants of health expenditure across canada for this purpose panel data on gross domestic product the relative price of health care the share of publicly funded health expenditure the share of senior population and the life expectancy at birth have been used to investigate the determinants of canadian provincial health expenditures over a 28 year period dynamic models of health expenditure are analysed via generalized instrumental variables giv and generalized method of moments gmm results indicate that the long run income elasticity of health expenditure is substantially lower than one thus health care is far from being a luxury in canada

demand for medical care consumption and cointegration abstract this paper considers a generalized version of grossman s health capital model and derives a cointegration restriction the restriction is tested using aggregate us data and the results are consistent with the prediction of the model

determinants of health care expenditure in africa a cross sectional study the paper presents some quantitative evidence on the relationship between certain socioeconomic and demographic factors and per capita health care expenditure in africa first gnp per capita percentage of births attended by health staff and foreign aid received per capita together explained 78 3 of the variance in health care expenditure second per capita gnp is the most significant factor explaining differences in health care expenditure contrary to what has been found in comparisons of health care expenditure in the organization for economic cooperation and development oecd countries we found that the income elasticity is close to unity furthermore aid was consistently significant and positive in the three models estimated third variables such as crude birth rate and the population under 15 years of age as percentage of total population were not significant

health care expenditure and integration in the countries of the european union national health care differs between the member states of the european union in the quality and quantity demanded and supplied reflecting different economic structures and health care organization and delivery systems since health care expenditure depends primarily on the level of economic development and the structure of the population only convergence in economic performance and the standards of living can lead to convergence of health expenditure standards

unit root and cointegration tests timeseries versus panel estimates for international health expenditure models classical regression estimates of the determinants of the oecd health expenditures are useful for policy formulation and evaluation however if the underlying timeseries data are not collectively stationary in levels the estimated parameters are faulty and can misguide health policy until very recently the crucial stationarity tests were ignored in a large number of studies on international comparisons stationarity adf phillips perron ips heterogeneous panel and cointegration engle granger bivariate johansen s multivariate tests are conducted here using 1960 1997 health expenditures data 1998 cd rom of 19 oecd countries it is found that extending the time series data length affects the order of integration and number of cointegrating vectors however it is arguable whether the order of integration decreases or increases as more observations are added for testing the failure of the johansen and engle granger cointegration tests for most of the oecd countries cautions policy makers against

aggregate health care expenditures and national income is health care a luxury good it is well known that a strong relationship exists between national expenditures on health care and national income this has been used to suggest that health care is a luxury good and that factors such as the type of health care delivery system in a country are of little importance in determining expenditure levels this paper argues that these implications rely upon the application of microeconomic analysis to macroeconomic data and that this is not appropriate as well as raising questions about the inferences drawn from previous studies new empirical evidence is presented which casts some doubts on previous findings international comparisons are based on purchasing power parity rather than exchange rate conversions underlining the importance of prices as well as quantities in the relationship and leading to the conclusion that the aggregate data show health care to be if anything a necessity rather than a luxury good

innovation adoption and welfare under uncertainty the incentives of firms to adopt a new process need not coincide with maximum expected consumer surplus or social welfare if there is uncertainty before the process is adopted and if the only loss from failure is a fixed cost in some cases no firm will adopt an innovation likely to fail although expected welfare is maximized if one adopts in other cases both firms will adopt an innovation likely to succeed although expected welfare is maximized if one firm adopts this occurs because rivalry between firms leads them to adopt together when total expected profits are higher if one firm adopts copyright 1992 by blackwell publishing ltd

innovation and imitation in an asymmetrically regulated industry abstract we model a game of innovation and imitation between a regulated firm and an unregulated firm although regulation may slow the industry wide pace of innovation it does not necessarily do so in fact by weakening the regulated firm s incentive to imitate a rival s successful new technology regulation may make the rival s innovation profitable thereby accelerating innovation by extension giving the regulated firm stronger incentives may backfire by producing either excessive or insufficient innovation these negative outcomes are more likely the greater is the cost reducing potential offered by the new technology

the economics of moral hazard revisited pauly s 1968 pauly m 1968 the economics of moral hazard comment american economic review 58 531 537 analysis of the welfare loss from insurance assumes that medical care consumption is not determined by income but recent studies suggest it is this study argues that 1 pauly s analysis overstates the welfare loss because it includes the effect of income on consumption 2 the relevant income effect is derived from income transfer from the healthy to the ill that occur when the probability of illness is less than 1 and 3 the welfare loss can be considered the transaction cost of insurance

public private mix of health expenditure a political economy and quantitative analysis this paper constructs a simple model to examine decisions on public and private health spending under majority voting in the model agents with heterogeneous incomes choose how much to consume and spend on health care and vote for public health expenditure the health status of an agent is determined by a ces composite of public and private health expenditure the existence and uniqueness of the voting equilibrium are established a quantitative exercise reveals the importance of the relative effectiveness of public and private health expenditure and their substitutability in determining the public private mix of health expenditure and in accounting for the observed differences across a sample of 22 advanced democratic countries

equity in the finance and delivery of health care some tentative cross country comparisons textabstractequity is widely acknowledged to be an important goal in the field of health care indeed mclachlan and maynard 1982 have gone so far as to suggest that the vast majority of the population would elect for equity to be the prime consideration p 556 a view endorsed by mooney 1986 p 145 several researchers have investigated how successful their own country s delivery and or financing system is in achieving its stated equity goals in general the strategy of these studies is to compare the current situation with some ideal or target situation le grand 1978 for example in what has become a classic study in the field compares the distributions across socio economic groups of illness and public expenditure on health care in britain in 1972 and concludes that the national health service nhs has failed to achieve equity in the delivery of health care

review of the literature on the determinants of healthcare expenditure this study reviews the literature on determinants of healthcare expenditure for the period 1998 to 2007 the methodology combines searches in the mesh database of pubmed with the search in the principal journals of health economics 20 primary studies were found that met the criteria for inclusion no single pattern of results is clearly identified among the 20 articles four consider income to be the principal determinant of healthcare expenditure two of them jointly with population ageing six highlight population ageing as against six others that emphasize the proximity to death the remaining six do not focus on a specific variable or focus on another variable e g technological progress or territorial decentralization 11 of the 20 articles calculate the income elasticity of demand only two of them obtaining a value greater than 1 thus cataloguing healthcare expenditure as a luxury good there is therefore no unanimity in the variables and econometric regressions of healthcare expenditure in

is health care really a luxury much of the work which has led to a widely held view that the income elasticity of health care spending exceeds one has been based on international cross section data or on pooled cross sections and time series in this paper we re examine this view in the context of long run equilibrium relationships between non stationary time series possibly including autonomous trends our results cast doubt upon the usefulness of pooling and upon the notion of an elasticity above one

institutions infrastructure and trade we work with a panel of bilateral trade flows from 1988 to 2002 exploring the influence of infrastructure institutional quality colonial and geographic context and trade preferences on the pattern of bilateral trade we are interested in threshold effects and so emphasize those cases where bilateral country pairs do not actually trade we depart from the institutions and infrastructure literature in this respect using selection based gravity modeling of trade flows we also depart from this literature by mixing principal components to condense our institutional and infrastructure measures with a focus on deviations from expected values for given income cohorts to control for multicollinearity infrastructure and institutional quality are significant determinants not only of export levels but also of the likelihood exports will take place at all our results support the notion that export performance and the propensity to take part in the trading system at all depends on institutional quality and access to well developed transport and communications infrastructure indeed this dependence is far more important empirically than variations in tariffs in explaining sample variations in north south trade this implies that policy emphasis on developing country market access instead of support for trade facilitation may be misplaced

mobile telecommunications and the impact on economic development using annual data from 192 countries over the period 1990 2007 we assess the impact of mobile telecommunications on economic growth we find that this impact is smaller for countries with a low mobile penetration usually low income countries while in low income countries the mobile telecommunications contribution to annual gdp growth is 0 11 for high income countries this is 0 20 the increasing returns from mobile adoption are also emerging when assessing the impact on productivity growth to promote mobile telecommunications penetration liberalization policies along with appropriate regulatory frameworks are recommended such policies should be pursued more forcefully in cases where serious shortcomings exist harald gruber and pantelis koutroumpis

zipf s law for cities an explanation zipf s law is a very tight constraint on the class of admissible models of local growth it says that for most countries the size distribution of cities strikingly fits a power law the number of cities with populations greater than s is proportional to 1 s suppose that at least in the upper tail all cities follow some proportional growth process this appears to be verified empirically this automatically leads their distribution to converge to zipf s law

on the evolution of market institutions the platform design paradox we study competition among market designers who create new trading platforms when boundedly rational traders learn to select among them we ask whether walrasian platforms leading to market clearing trading outcomes will dominate the market in the long run if several market designers compete we find that traders learn to select non market clearing platforms with prices systematically above the market clearing level provided at least one such platform is introduced by a market designer this in turn leads market designers to introduce non market clearing platforms hence platform competition induces non competitive market outcomes

disentangling the heterogeneous income elasticity and dynamics of health expenditure in this article we empirically study the impact of per capita income on health care expenditure and its dynamics over time in a sample of 14 oecd countries for the period 1971 to 2009 a simple model built upon one developed by newhouse 1977 suggests that health care is a necessity in the short run but it cannot be rejected to be a luxury good in the long run our findings provide strong empirical evidence that a year s health expenditure is conditioned by the previous one interestingly our results reveal increasing income inelasticity over time along with huge heterogeneity across countries finally this article supports the hypothesis of conditional convergence in health care spending among countries in designing policies which facilitate the sustainability of national health systems we emphasize that ceteris paribus the greater the participation of public health the lower the growth rate of health spending high share of children and elderly over working age population opposite influences w

household production of health investment analysis and applications michael grossman s health investment model provides significant insights into allocations between both leisure and income and health and nonhealth goods our geometric extension i integrates labor leisure choice with the consumer s production of both health and nonhealth goods and ii distinguishes between medical expenditures and healthcare investment this provides a framework for examining the effects of changes in incomes and wages alternative insurance arrangements including managed care travel times waiting times and schooling observed differences between the income elasticities for health goods and health investment can be resolved through relative resource intensities in the production of health and nonhealth goods

imitation costs and patents an empirical study it has long been recognised that the costs of imitating new products have an important effect on the incentives for innovation in a market economy as arrow i962 and others have pointed out if firms can imitate an innovation at a cost that is substantially below the cost to the innovator of developing the innovation there may be little or no incentive for the innovator to carry out the innovation in their discussions of the innovation process economists frequently have called attention to the major role played by the costs of imitation but there has been little or no attempt to measure these costs to test various hypotheses concerning the factors influencing them or to estimate their effects in this paper we report some findings of what seems to be the first study of this topic in addition we present data regarding the effects of patents on imitation costs and on the rate of innovation

new panel results on cointegration of international health expenditure and gdp this article tests for existence of cointegration between health expenditure and gdp using data from 25 oecd countries for the period 19607ndash 1997 the empirical modelling is based on a heterogeneous bivariate vector error correction panel model that allows for trending data as well as intercepts and trends in the cointegrating relations univariate country by country and panel unit root tests generally fail to reject the null of a unit root in the health expenditure and gdp variables country by country results based on the johansen multivariate likelihood based inference indicate somewhat mixed results on country specific cointegration with a rank of one found for 12 countries and a rank of zero for the remaining 13 countries application of a new panel test for cointegration rank with higher power than the individual tests indicates that health expenditure and gdp are cointegrated around linear trends

evidence on the determinants of canadian provincial government health expenditures 1965 1991 abstract real per capita provincial government expenditures on health care over the period 1965 1991 are examined using pooled time series cross section regression analysis key determinants of real per capita provincial government expenditures on health care over the period 1965 1991 are real provincial per capita income the proportion of the provincial population over age 65 and real provincial per capita federal transfer revenues established program financing had a negative and significant impact on real per capita provincial government health expenditures in newfoundland and quebec an income elasticity of 0 77 implies that health care is not a luxury good

the effect of information and communication technologies on urban structure this paper examines the effects of information and communication technologies ict on urban structure improvements in ict may lead to changes in urban structure for example because they reduce the costs of communicating ideas from a distance hence they may weaken local agglomeration forces and thus provide incentives for economic activity to relocate to smaller urban centres we use international data on city size distributions in different countries and on country level characteristics to test the effect of ict we find robust evidence that increases in the number of telephone lines per capita encourage the spatial dispersion of population in that they lead to a more concentrated distribution of city sizes so far the evidence on internet usage is more speculative although it goes in the same direction we argue that the internet is likely to have similar or even larger effects on urban structures once its use has spread more thoroughly through different economies

r d rivalry with licensing or imitation the authors study the rivalry between two firms to develop an innovation in a dynamic setting that allows for post development dissemination of the innovation such as licensing or imitation this dissemination may cause the noninnovating firm to benefit from the discovery when this occurs conventional results in the economics of r d no longer need apply they find that industry leaders will tend to develop minor innovations but will develop major innovations only if imitation is difficult copyright 1987 by american economic association

comparing french and us hospital technologies a directional input distance function approach french and us hospital technologies are compared using directional input distance functions the aggregation properties of the directional distance function allow comparison of hospital industry level performance as well as standard firm level performance with regard to productive efficiency in addition the underlying constituents of efficiency in the short run congestion and technical inefficiency and in the long run scale inefficiency are analysed by decomposing the overall measure by virtue of using the directional distance function it is also possible to obtain an estimate of a lower bound on allocative inefficiency it is found that french and us hospitals use quite different technologies long run scale inefficiencies cause most of the french hospitals inefficiency while short run technical inefficiency is the main source of overall productive inefficiency in the us hospitals

conversion factor instability in international comparisons of health care expenditure parkin mcguire and yule 1987 hereafter pmy report that a regression of per capita health care expenditure on per capita income using different conversion factors exchange rates gdp ppps health ppps gave rise to different results in this note we apply updated data to the same empirical relationship in contrast to pmy we find no noticeable conversion factor instability in that relationship either with respect to the health care income elasticity or with the magnitude of multiple correlation coefficient

granger causality between total expenditure on health and gdp in oecd evidence from the toda yamamoto approach abstract in this paper a modified version of the granger causality test proposed by toda and yamamoto is used to investigate causality between gdp and healthcare expenditure in oecd countries the findings indicate that bidirectional granger causality is predominant

an econometric analysis of health care expenditure a cross section study of the oecd countries this paper is an empirical examination of the determinants of aggregate health care expenditure the paper presents a systematic analysis of relationships across 19 oecd countries showing the effects of aggregate income institutional and socio demographic factors on health care expenditure the results indicate that institutional factors of the health systems in addition to per capita gross domestic product gdp contribute significantly to the explanation of the health care expenditure variation between countries for example the way physicians in outpatient care are paid and the mixture of public private funding and inpatient outpatient care

health care expenditure in the last months of life in oecd countries a considerable share of health care expenditure hce is spent for the care of the terminally ill this paper derives the demand for hce in the last 2 years of life from a model that accounts for age mortality risk and wealth the empirical tests are based on data of deceased members of a major swiss sick fund the empirical evidence confirms most of the hypotheses derived from the model i e i hce increases with closeness to death ii for retired individuals hce decreases with age and iii low income individuals as compared to high income individuals incur lower hce in the last months of life

on the determination of the us aggregate health care expenditure per capita real health care expenditure is examined against three major groups of explanatory variables economic demographic and health stock and it is found that the three groups of variables have an impact on real health care spending other subcategories such as real private and government health care pharmaceutical dental home nursing ambulatory personal medical consumption and in patient expenditures have also been examined and have been found to be affected by the explanatory variables for several subcomponents there is evidence of supplier inducement of the demographic group of variables the ageing population had an impact only on the per capita real overall and private health care outlay and pharmaceutical spending also cointegrating relationships were found and consistent estimators of the elasticities found

the effect of broadband on european union trade a regional spatial approach the positive effect of information and communication technologies ict on trade between countries has been widely studied in the literature but how ict impacts regional trade is limited due to the lack of regional trade data in this paper we test whether broadband as a proxy for ict increases bilateral trade at the regional level in europe we use a novel regional trade database of european union regions and estimate an origin destination flow gravity model for 2007 and 2010 accounting for spatial dependence among trade flows our results indicate that broadband is positive and significant in explaining trade patterns between european regions during both time periods

population and income is there a puzzle abstract this note presents wide evidence on the relationship between population and income for 125 countries for which data was available for the period 1950 2000 the main result is that there is a weak but negative relationship between population growth and per capita gdp as income increases population expands at a slower rate this relationship appears to be stronger for african countries and for asian countries before 1970

emerging markets and heavy tails abstract emerging countries are held to be subject to more frequent and more pronounced external and internal shocks than their developed counter parts this suggests that key variables pertaining to their markets including their exchange rates will be marked by greater likelihood of extreme observations and large fluctuations we focus on the hypothesis that compared to developed country exchange rates emerging country exchange rates will be more pronouncedly heavy tailed we find support for the hypothesis using recently proposed robust tail index estimation methods which in particular perform well under heavy tailed dependent garch processes that are often used for modeling exchange rates according to the estimation results reported in the paper variances may be infinite for several emerging country exchange rates tail index values p 2 6 2 8 appear to be at the dividing boundary between the two sets of countries while the moments of order p 2 6 2 8 are finite for most of the developed country exchange rates they may be or are infinite for most of the emerging country exchange rates we also study the impact of the on going financial and economic crisis and find that heavy tailedness properties of most exchange rates did not change significantly with the onset of the crisis at the same time some foreign exchange markets have experienced structural changes in their heavy tailedness properties during the crisis

the normative economics of health care finance and provision whereas in many countries the crisis in medical care has been seen in terms of excess spending on health services in the uk it has been seen at least by most of those who manage and work in the nhs as a crisis of underfunding this has come about as the result of the government s successful attempts to restrain the rate of growth of real spending on the nhs which in turn reflects the government s belief that its principal effective weapon against what it perceives to be inefficiency in the nhs is to challenge management itself reformed and to some extent liberated by systematic financial squeezes the same concern has given rise to a host of proposals for reform of the nhs most of which involve a much greater role for private insurance private finance of other kinds such as out of pocket payments and private provision of health care itself

the determinants and effects of health expenditure in developed countries previous studies of international differences in health spending have been restricted to the use of relatively small samples of cross sectional data our objective here is to re examine the results of previous work using a sample of 560 pooled time series and cross section observations results confirm the importance of gdp as a determinant of health spending with an estimated income elasticity at or around unity but also suggest that oecd countries should not be regarded as a single homogeneous group the importance of some non income variables is also confirmed although the direct effect of these factors appears to be small

public financing of health expenditures insurance and health outcomes the effects of public financing of health expenditures insurance coverage and other factors on health outcomes are examined within health production models estimated using 1960 1992 data across 20 oecd countries mortality rates are found to depend on the mix of health care expenditures and the type of health insurance coverage increases in the publicly financed share of health expenditures are associated with increases in mortality rates increases in inpatient and ambulatory insurance coverage are associated with reduced mortality the effects of gdp health expenditures and age structure on mortality are similar to those in previous studies tobacco use alcohol use fat consumption female labour force participation and education levels are also significantly related to overall mortality rates increases in income inequality are associated with lower mortality rates suggesting that the negative relationship between inequality and health outcomes suggested by some previous studies does not remain w

diversification incentives under price based and cost based regulation this article considers two schemes of regulationforfirms that serve both monopoly markets and markets subjected to substantial competition the first form cost based regulation combines elements of rate of return regulation on monopoly markets with filly distributed cost pricing much like the form of regulation currently in place in the domestic telephone industry the secondform price based regulation would establish rate caps on noncompetitive services and allow the firm to enter into competitive markets and charge whatever prices it might like in those markets models of both forms of regulation are developed and analyzed with respect to incentives for cost misreporting choice of technology cost reducing innovation choices of prices and output levels and diversification into competitive markets

health care is an individual necessity and a national luxury applying multilevel decision models to the analysis of health care expenditures health care is neither a necessity or a luxury it is both since the income elasticity varies with the level of analysis with insurance individual income elasticities are typically near zero while national health expenditure elasticities are commonly greater than 1 0 the debate over whether health care is or is not a luxury good arises primarily from the failure to specify levels of analysis clearly so as to distinguish variation within groups from variation between groups apparently contradictory empirical results are shown to be consistent with a simple nested multilevel model of health care spending

adoption of cost saving innovations by a regulated firm regulatory lag is generally credited with providing monetary incentives for the adoption of cost saving technological changes by regulated firms because regulators can not instantaneously adjust price ceilings in response to cost changes these incentives are inherent to the process of price regulation in a dynamic world a firm which decreases production costs through technological innovation will enjoy excess profits until the regulators lower price to a level consistent with the new conditions the longer the delay before regulatory response to a decrease in cost the greater are the profits which can be derived from a cost reduction and therefore the greater is the incentive for adoption of technological change 2 the passive nature of this incentive mechanism is an important characteristic although regulatory agencies typically have authority to force price decreases upon firms which do not take advantage of potential cost savings this power is limited by the difficulty of proving that a firm is laggard rather than the victim of unfortunate circumstances thus the regulated firm which foregoes potential profit from adopting a costsaving innovation today may generally reap that profit at some convenient time tomorrow indeed it is the main contention of this paper that in many circumstances a regulated monopolist can maximize the present value of profits only by delaying adoption of an innovation that is rather than completely adopting a cost saving innovation when it becomes available a profit maximizing regulated firm will choose to adopt the innovation only gradually through time the profitability of such delaying procedure may be illustrated by a simple example consider a situation in which the price of a firm s product is fixed by a regulatory authority but periodically adjusted according to the following cost plus markup scheme at each review price for the following period is set equal to average cost of the previous period plus an allowed markup that is price in period i 1 is set equal to m times average cost in period i m 1 this situation is illustrated in figure 1 a firm is initially producing output qo at cost co qo with price set by the regulators at mco qo qo suppose a cost saving innovation is discovered which if employed would decrease average production cost to c1 q q if the firm were to adopt this innovation immediately it would earn a profit equal to the area of the rectangle abcd in figure ia at the next regulatory review price would be lowered to the level m times the new average cost i e to p1 and profit would fall to that amount represented by the area aefg this amount of profit would be earned each period thereafter however suppose that the firm were to adopt this innovation in two steps rather than completely adopting the innovation when it first becomes available this option is sketched in figure lb in the initial period the firm adopts the innovation throughout approximately half its operations thereby lowering average cost only to oh in the next period the firm completes the adoption process lowering average cost to the final level oa although this procedure would yield profit equal only to hicd in the initial period it would result in a price in the next period equal to p1 i e equal to m times oh since average cost in that period would fall to oa profit would equal ajkl in the next period price would be at the new equilibrium level og and profit would equal aefg this amount of profit would be earned each period thereafter given the demand and cost functions illustrated in figure 1 the second alternative assistant professor of economics vanderbilt university see william baumol and alfred kahn ch 2 2see elizabeth bailey

stationarity of health expenditures and gdp evidence from panel unit root tests with heterogeneous structural breaks this paper re examines the stationarity of national health care expenditures and gdp in a panel setting utilizing data from 20 oecd countries over the period from 1960 to 1997 previous research in this area has recognized the drawback of not allowing for structural breaks in their unit root tests and noted that their empirical results may not be robust we advance the literature by utilizing a recently developed panel lm unit root test that allows for heterogeneous level shifts in contrast to previous analyses that did not consider breaks our results reject the unit root null hypothesis for both series