smallholder market participation concepts and evidence from eastern and southern africa abstract this paper reviews the evidence on smallholder market participation with a focus on staple foodgrains i e cereals in eastern and southern africa in an effort to help better identify what interventions are most likely to break smallholders out of the semi subsistence poverty trap that appears to ensnare much of rural africa the conceptual and empirical evidence suggests that interventions aimed at facilitating smallholder organization at reducing the costs of intermarket commerce and perhaps especially at improving poorer households access to improved technologies and productive assets are central to stimulating smallholder market participation and escape from semi subsistence poverty traps macroeconomic and trade policy tools appear less useful in inducing market participation by poor smallholders in the region

technology adoption under production uncertainty theory and application to irrigation technology we propose a theoretical framework to analyze the conditions under which a farmer facing production uncertainty due to a possible water shortage and incomplete information will adopt a more efficient irrigation technology a reduced form of this model is empirically estimated using a sample of 265 farms located in crete greece the empirical results suggest that farmers choose to adopt the new technology in order to hedge against production risk in addition we show that the farmer s human capital also plays a significant role in the decision to adopt modern more efficient irrigation equipment

physician induced demand for surgery following up the earlier findings by fuchs on surgeon induced demand this paper makes numerous data and econometric improvements in conducting a test of neoclassical and inducement theories a simultaneous equation model is used to estimate physician demand and equilibrium fees for surgery from a sample of 350 psus over the 1969 76 period the results provide definite support for the notion of competitive market failure particularly in large metropolitan areas other things equal fees and utilization are higher in surgeon rich areas although our estimated shift elasticities were only about one third those found by fuchs a statistically significant albeit small price elasticity of demand for surgery was also obtained in contrast to fuchs increasing monopoly and disequilibrium models are also tested without altering the basic findings where surgeons were in short supply their availability significantly affected surgery rates although a small supply effect was found in plentiful areas as well

credit market constraints consumption smoothing and the accumulation of durable production assets in low income countries investments in bullocks in india in this paper we formulate and estimate a finite horizon structural dynamic model of agricultural investment behavior that incorporates the major features of low income agricultural environments income uncertainty constraints on borrowing and rental markets and the use of investment assets to generate income and smooth consumption the model is fit to longitudinal indian household data on farm profits bullock stocks and pump sets the estimated structural parameters are used to assess the effects on the life cycle accumulation of bullocks agricultural profits and welfare associated with complete markets and bullock liquidity and with second best policies that provide assured sources of income to farmers and weather insurance

contracts as a barrier to entry it is shown that an incumbent seller who faces a threat of entry into his or her market will sign long term contracts that prevent the entry of some lower cost producers even though they do not preclude entry completely moreover when a seller possesses superior information about the likelihood of entry it is shown that the length of the contract may act as a signal of the true probability of entry

quasi experimental evidence on the effectiveness of heart attack treatment in germany medical technological progress has been shown to be the main driver of health care costs a key policy question is whether new treatment options are worth the additional costs in this analysis we

a neo schumpeterian model of health services innovation the paper presents and empirically applies a neo schumpeterian model of innovation capable of studying interactions between service providers patients and policy makers and how these complex interactions determine the timing direction and success of innovations in the public sector the model is tested using a case study that traces the introduction and development of ambulatory surgery in a spanish hospital the multi agent model applies the ideas of schumpeter to services encompassing schumpeter s five types of innovation and re introducing the policy maker as a key agent in the innovation process the model has a number of advantages over previous reduced form models first it can analyse the interactions between the economic social and political spheres that make up the complex selection environment of innovations second it captures the recursive impact of radical innovations on agents competences and preferences and their relative power this brings politics power and rhetorical persuasion to the fore third it provides an improved set of definitions for radical and incremental innovation these are not only important for understanding the sources and drivers of innovation but also for the accurate measurement of innovation

policy watch medicare public policies are often made without much recourse to economic reasoning economists are sometimes unaware of what is happening in the world of public affairs as a result both the quality of public decision making and the role that economists play in it are less than optimal this feature contains short articles on topics that are currently on the agendas of policymakers thus illustrating the role of economic analysis in illuminating current debates suggestions for future columns and comments on past ones should be sent to daniel weinberg c o journal of economic perspectives hhes division bureau of the census department of commerce washington d c 20233

the irrelevance of inference a decision making approach to the stochastic evaluation of health care technologies the literature which considers the statistical properties of cost effectiveness analysis has focused on estimating the sampling distribution of either an incremental cost effectiveness ratio or incremental net benefit for classical inference however it is argued here that rules of inference are arbitrary and entirely irrelevant to the decisions which clinical and economic evaluations claim to inform decisions should be based only on the mean net benefits irrespective of whether differences are statistically significant or fall outside a bayesian range of equivalence failure to make decisions in this way by accepting the arbitrary rules of inference will impose costs which can be measured in terms of resources or health benefits forgone the distribution of net benefit is only relevant to deciding whether more information is required a framework for decision making and establishing the value of additional information is presented which is consistent with the decision rules in cea this framework can distinguish the simultaneous but conceptually separate steps of deciding which alternatives should be chosen given existing information from the question of whether more information should be acquired it also ensures that the type of information acquired is driven by the objectives of the health care system is consistent with the budget constraint on service provision and that research is designed efficiently

intra firm bargaining under non binding contracts we present a new methodology for studying the problem of intra firm bargaining based on the notion that contracts cannot commit the firm and its agents to wages and employment we develop and analyse a general non cooperative multilateral bargaining framework between the firm and its employees and consider outcomes which are immune to renegotiations by any party equilibrium firm profits are characterizable as both a weighted average of a neo classical non bargaining firm s profits and a generalization of shapley value for a corresponding cooperative game furthermore the resulting payoffs induce economically significant distortions in the firm s input and organizational design decisions

informal insurance arrangements with limited commitment theory and evidence from village economies recent work on consumption allocations in village economies finds that idiosyncratic variation in consumption is systematically related to idiosyncratic variation in income thus rejecting the hypothesis of full risk pooling we attempt to explain these observations by adding limited commitment as an impediment to risk pooling we provide a general dynamic model and completely characterise efficient informal insurance arrangements constrained by limited commitment and test the model using data from three indian villages we find that the model can fully explain the dynamic response of consumption to income but that it fails to explain the distribution of consumption across households

adoption of agricultural innovations in developing countries a survey this paper reviews various studies which have provided a description and possible explanation to patterns of innovation adoption in the agricultural sector the survey points out that the tendency of many studies to consider innovation adoption in dichotomous terms adoption nonadoption may not be appropriate in many cases where the actual decisions are defined over a more continuous range more attention needs to be given to the socio cultural and institutional environment in area studies so that their interrelation with economic factors affecting adoption can be inferred the presence of several interrelated innovations is another aspect that needs to be considered more carefully in future research since a number of simultaneous decisions may be involved furthermore the possibility of regular sequential patterns in adopting components of a new technological package should be specifically addressed in future studies finally the impact of differential adoption rates on land holding distribution merits attention in future research

determinants of healthcare spending a state level analysis within the high and rising level of healthcare spending for the us as a whole is substantial variation in spending across states yet relatively little attention has been given to the empirical analysis of interstate differences in aggregate healthcare expenditures and therefore little empirical evidence exists at the state level to guide policymakers using data for all 50 states for the year 1998 we estimate an empirical model that includes structural and reduced form healthcare spending equations and a health production function to assess the significance size and relative importance of factors that prior research indicates may play an important role in explaining interstate variation in medical care expenditures and the main pathways through which they operate our results indicate higher levels of healthcare spending for state populations with higher income less education fewer uninsured residents less healthy lifestyles larger proportion of elderly residents greater availability of medical

endogenous cost effectiveness analysis and health care technology adoption abstract increased health care spending has placed pressure on public and private payers to prioritize spending cost effectiveness ce analysis is the main tool used by payers to prioritize coverage of new therapies we argue that reimbursement based on ce is subject to a form of the lucas critique the goals of ce policies may not materialize when firms affected by the policies respond optimally to them for instance because costs in ce analysis reflect prices set optimally by firms rather than production costs observed ce levels will depend on how firm pricing responds to ce policies observed ce is therefore endogenous when ce is endogenously determined policies aimed at lowering spending and improving overall ce may paradoxically raise spending and lead to the adoption of more resource costly treatments we empirically illustrate whether this may occur using data on public coverage decisions in the united kingdom

effects of tax reform on labor supply investment and saving the u s tax system received two major overhauls during the 1980s the tax cuts of 1981 and the tax reform act of 1986 supporters of both reforms argued that major changes in tax policy could boost saving investment labor supply and entrepreneurship eventually it was argued such changes could reverse the slowdown in economic growth that began in the early 1970s and spur improvements in american living standards the aim of this paper is to assess whether the goals of increased labor supply and capital formation were achieved

population aging in healthcare a minor issue evidence from switzerland our study shows that population aging substantially affects healthcare expenditure hce this conclusion supports the popular but recently strongly contested view that the coming population aging will threaten the fiscal sustainability of health systems we contribute to this debate first by estimating the determinants of swiss healthcare expenditure hce with outlier robust dynamic regressions and second by projecting swiss hce based on the estimates produced and new population scenarios medical advances and gdp per capita also play a decisive role governments can mitigate hce growth by improving the health status of the population and by stimulating cost effective and productive medical advances

consumption and income seasonality in thailand many households in developing countries rely on seasonal agriculture for their incomes this paper investigates whether household consumption expenditure tracks income across seasons using data from thailand i contrast the seasonal consumption patterns of households with different seasonal income patterns and estimate the responsiveness of seasonal consumption to seasonal income i find little evidence that consumption tracks income over the course of the year the findings suggest that observed seasonal consumption patterns are the result of seasonal variations in preferences or prices common to all households rather than an inability of households to use savings behavior to smooth consumption

the insurance value of medical innovation abstract economists think of medical innovation as a valuable but risky good producing health benefits but increasing financial risk for consumers and healthcare payers this perspective overlooks how innovation can lower physical risks borne by healthy patients facing the prospect of future disease we present an alternative framework that accounts for all these sources of value and links them to the value of healthcare insurance we show that any innovation worth buying reduces overall risk and generates positive insurance value on its own we conduct a stylized numerical exercise to assess the potential empirical significance of our insights our calculations suggest that conventional methods meaningfully understate the value of historical health gains and disproportionately undervalue treatments for the most severe illnesses where physical risk to consumers is the costliest these calculations also suggest that the value of physical insurance from new technologies may exceed the financial spending risk that they pose

resale price maintenance and interlocking relationships dampening of interbrand as well intrabrand competition is often advanced to justify per se illegality of rpm we analyze this argument in a context where rival manufacturers distribute their products through the same competing retailers we show that rpm indeed limits the exercise of competition at both levels and can generate industry wide monopoly pricing the impact on prices depends on the extent of potential competition at either level as well as on the parties influence in determining the terms of the contracts our analysis sheds a new light on ongoing legal developments and is supported by recent empirical studies

on the marginal welfare cost of taxation this paper develops a rigorous partial equilibrium analysis of the determinants of margin al welfare cost mwc of taxes on labor earnings it shows that four key parameters interact to determine the magnitude of mwc using aggregate data and plausible ranges of values for the parameters mwc can vary from under 10 percent to more than 300 percent of marginal tax revenue intermediate parameter values sugge st mwc is in the 25 50 percent range however the more extreme estimates cannot be ruled out on the basis of available evidence suggesting that mwc cannot yet be copyright 1987 by american economic association

exclusive dealing and entry when buyers compete rasmusen et al 1991 and segal and whinston 2000 show that an incumbent monopolist might prevent entry of a more efficient competitor by exploiting externalities among buyers we show that their results hold only when downstream competition among buyers is weak under fierce downstream competition if entry took place a free buyer would become more competitive and increase its output and profits at the expense of buyers that sign an exclusive deal with the incumbent anticipating that orders from a single buyer would trigger entry no buyer will sign the exclusive deal and entry will occur this result is robust across different specifications of the game jel k21 l12 l42

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

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

risks and farmers investment in productive assets in nigeria the majority of farmers in sub saharan africa ssa lack the means to mitigate the impact of risks associated with rainfall and commodity prices due to capital constraints and the imperfect insurance market in these countries because most ssa farmers are risk averse they may be willing to invest in productive assets that can mitigate the impacts of such risks if their capital constraints are relaxed through external financial assistance we test this hypothesis by using panel data on investment behavior of nigerian farmers who received financial assistance on productive assets the empirical results show that farmers facing higher rainfall risks are more likely to invest in irrigation pumps that can mitigate the impact of rainfall risks while those facing higher risks of white gari price are more likely to invest in milling machines that enable them to process cassava into flour instead of gari which supports our hypothesis

insurance and incentives for innovation in medical care economists have frequently pointed to the distorting effects of health insurance as a major contributor to rapidly increasing health costs relatively little is known however about the influence of changing medical technology on expenditures if increases in expenditures are in part the result of development of costly but worthwhile new technologies a common view among noneconomists failure to take account of this may lead to over statement of the distortive effects of insurance on the other hand some observers have questioned whether the benefits derived from expensive medical innovations always exceed the costs 18 others have suggested that resources devoted to the development of very expensive technologies might be better used for other kinds of medical research 16 3 in light of these arguments it appears that the relationships between medical insurance and technological change may be quite important if the extent of insurance coverage influences the rate and direction of technological change in medicine then the long run welfare effects of insurance are more complex than current models 5 6 allow it is sometimes argued informally that such an influence existsthat the presence of insurance biases the system toward innovations that expand capabilities while increasing expenditures and away from those that reduce costs 15 20 such a hypothesis has however never been developed as an implication of a formal economic model even the term bias in the argument is unclear it appears to be used in a normative sense but it has not been explained clearly why such a bias if it exists leads to welfare losses even if it is true for example that the presence of insurance leads to the adoption of a more costly mix of medical innovations than would otherwise occur this is not obviously undesirable to facilitate the purchase of costly but beneficial medical care is the purpose of insurance this paper defines bias in technological change in a normative sense it employs a simple model of insurance and profit maximizing innovators and develops sufficient

pricing profits and technological progress in the pharmaceutical industry the decades old debate over pharmaceutical industry prices profits and innovation has again intensified a number of events coalesced to refocus public interest on pharmaceuticals contributing to public concern were bureau of labor statistics price index increases for pharmaceuticals far outpacing those for the products of other industries another prominent characteristic of the pharmaceutical industry has been its extraordinarily high reported profitability this article examines the phenomena that precipitated the current pharmaceuticals debate their historical antecedents and the principal questions at issue in the author s considered judgment a pell mell march toward regulation of pharmaceutical industry pricing could seriously impair the industry s incentives for investment in new products

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

medical insurance technological change and welfare concerns have been expressed about the welfare effects of expensive innovations in medical care financed largely through medical insurance this paper develops a model which considers such issues it is shown that even if insurance is purchased optimally subject to a plausible constraint on the form of the contract innovations may be adopted that have the effect of reducing expected welfare the question of how the benefits of medical innovations ought to be measured in the presence of insurance is also explored

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

understanding the twentieth century growth in u s school spending persistent increases in spending on elementary and secondary schools have gone virtually undocumented real expenditure per student increased 3 percent per year over the period 1890 1990 decomposition of the spending growth shows that it resulted from a combination of falling pupil staff ratios increasing real wages to teachers and rising expenditure outside of the classroom although the expansion of education for the handicapped has had a disproportionate effect on spending most of the growth in expenditure during the 1980s came from other sources significant teacher salary increases particularly for females have failed to keep up with wages in other occupations

optimal non linear health insurance abstract most theoretical and empirical work on efficient health insurance has been based on models with linear insurance schedules a constant co insurance parameter in this paper dynamic optimization techniques are used to analyse the properties of optimal non linear insurance schedules in a model similar to one originally considered by spence and zeckhauser american economic review 1971 61 380 387 and reminiscent of those that have been used in the literature on optimal income taxation the results of a preliminary numerical example suggest that the welfare losses from the implicit subsidy to employer financed health insurance under us tax law may be a good deal smaller than previously estimated using linear models

exclusive dealing and entry when buyers compete comment in this paper fm s equilibrium analysis is shown to contain some errors fixing these errors changes their conclusions for some of the cases they consider exclusive deals written between an incumbent and competitive downstream buyers will still often arise in equilibrium thereby block ing efficient entry inefficient exclusion arises to protect industry profits from competition the issue centers on how competition works when upstream firms sell to consumers through two com peting downstream buyers in the case upstream firms can offer downstream buyers two part tariffs the analysis of competition in this setting turns out to be surprisingly subtle and the analysis here should be of more general interest to those modeling competition in vertical settings the particular model fm consider is based on the cost specification in segal and whinston 2000 sect iv in which the incumbent faces a potential entrant that has a lower cost of production but faces some fixed cost of entry two identical downstream buyers compete in prices for final consum ers exclusive deals involve the incumbent offering buyers a fixed compensation for agreeing not to purchase from the entrant fm derive their results under two different assumptions on wholesale pricing upstream firms are required to set linear wholesale prices section i and upstream firms are allowed to offer two part tariff contracts section ii since restricting upstream firms to charge linear wholesale prices to buyers seems inconsistent with assuming the incumbent can offer exclu sive contracts with a fixed compensation in the initial stage and since linear wholesale prices can lead to double marginalization problems the focus in this paper is on the less restrictive case consid ered by fm where upstream firms are allowed to offer downstream buyers two part tariffs 1 in this setting correcting fm s analysis shows that entry arises only when scale economies are not too important and the entrant s efficiency advantage is sufficiently large when either

buyer power and exclusion in vertically related markets suppliers and consumer organizations have become increasingly concerned by the build up of buyer power of retailers in many markets a major concern is that strong retailers will abuse their power to exclude products and rival retailers from the market to be able to increase prices to consumers as a consequence remedies to limit buyer power are discussed and implemented in many countries in this paper we compare the incentives for exclusion and the effect on consumers prices under both buyer and seller power we study a model with a dominant upstream manufacturer and a competitive fringe of producers offering their products to two differentiated downstream retailers we compare the equilibrium outcome of this model when i the dominant supplier holds all the bargaining power and ii the retailers have all the bargaining power we show that full or partial exclusion of either the competitive product or downstream retailers occurs when inter and intrabrand competition are strong this is true both under seller and buyer power however in contrast to the received literature we find that buyer power weakly enhances welfare compared to seller power because buyer power will lead to both more product variety less exclusion and lower retail prices

contracting with externalities the paper studies inefficiencies arising in contracting between one principal and n agents when the utility of each agent depends on all agents trades with the principal when the principal commits to a set of publicly observable bilateral contract offers the arising inefficiency is due entirely to the externalities imposed on non signers in contrast when the principal s offers are privately observed the distortion is due to the externalities given agents equilibrium trades comparison of the two externalities determines the relative efficiency of the two contracting regimes in both cases we show that when n is large each agent can be treated as non pivotal provided that appropriate continuity assumptions are satisfied we also study the case in which the principal can condition each agent s trade on other agents messages we characterize the set of such mechanisms in which each agent s participation is voluntary when the principal can commit to any such mechanism she implements the first best outcome while threatening each deviator with the harshest possible punishment however in the presence of noise that goes to zero slower than n goes to infinity in the limit we obtain a generally inefficient outcome in which each agent feels non pivotal

transactions costs and agricultural household supply response we develop and estimate a model of supply response when transactions costs create a situation where some producers buy others sell and others do not participate in markets we present two rationales for why producing households may have different relationships to the market proportional and fixed transactions costs using data on mexican corn producers we estimate an empirical model that allows for separate tests of the significance of both types of transactions costs revealing that both fixed and proportional transactions costs matter for the estimation the results provide consistent estimates of supply elasticity and measures of the relative importance of factors determining both proportional and fixed transactions costs

average marginal tax rates from social security and the individual income tax we extend previous estimates of the average marginal tax rate from the federal individual income tax to include social security our computations consider the tax rates on employers employees and the self employed the income that accrues to persons with earnings below the ceiling and the effective deductibility of employers social security contributions from workers taxable income the next effect of social security on the average marginal tax rate is below 02 until 1966 but then rises to 03 in 1968 04 in 1973 05 in 1974 06 in 1979 and 07 in 1982 this abstract was borrowed from another version of this item

retailer power recent developments and policy implications retailing is big business ranking firms by revenue retailing includes belgium s largest company delhaize le lion tesco and j sainsbury from the uk top ten the giant metro group in germany and wal mart stores number four in the usa and the eighth largest company in the world with 119 billion turnover and 825 000 employees fortune 3 8 98 retailing is getting more concentrated over time the top ten grocers in europe were 28 of the market in 1992 but 36 by 1997 1 the behaviour of retailers matters for consumers cross country studies of pricing for near identical products e g cars televisions compact discs branded sportswear groceries find big differences between prices across european countries and between europe and the usa 2 the european commission is to start examining why europeans pay substantially more on average than us consumers

an ordered tobit model of market participation evidence from kenya and ethiopia do rural households in developing countries make market participation and volume decisions simultaneously or sequentially this article develops a two stage econometric method to test between these two competing hypotheses regarding household level marketing behavior the first stage models the household s choice of whether to be a net buyer autarkic or a net seller in the market the second stage models the quantity bought sold for net buyers sellers based on observable household characteristics using household data from kenyan and ethiopian livestock markets we find evidence in favor of sequential decision making the welfare implications of which we discuss

symposium on health care reform the papers in this symposium focus on two major issues of health economics in the context of president clinton s health security act cost containment and labor market effects of financing insurance the act proposes to limit public and private spending a key issue is the extent to which without a limit but with a standardized basic plan supplementary insurance will exist to allow scope for individual choice the act s financing will have an ambiguous effect on labor supply but will encourage formation of small low wage firms several features including community rating and standardization of dependent coverage imply substantial redistribution

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

projecting long term medical spending growth we present a dynamic general equilibrium model of the u s economy and the medical sector in which the adoption of new medical treatments is endogenous and the demand for medical services is conditional on the state of technology we use this model to prepare 75 year medical spending forecasts and a projection of the medicare actuarial balance and we compare our results to those obtained from a method that has been used by government actuaries our baseline forecast predicts slower health spending growth in the long run and a lower medicare actuarial deficit relative to the previous projection methodology

on crop biodiversity risk exposure and food security in the highlands of ethiopia this paper investigates the effects of crop genetic diversity on farm productivity and production risk in the highlands of ethiopia using a moment based approach the analysis uses a stochastic production function capturing mean variance and skewness effects welfare implications of diversity are evaluated using a certainty equivalent measured as expected income minus a risk premium reflecting the cost of risk we find that the effect of diversity on skewness dominates its effect on variance meaning that diversity reduces the cost of risk the analysis also shows that the beneficial effects of diversity

national and international tests of the new drug cost offset theory the new drug cost offset theory argues that new drugs pay for themselves by keeping people out of expensive medical facilities however few studies have tested this theory at the macroeconomic level to determine if system wide savings actually accrue this article provides two tests of the new drug cost offset theory by examining the impact of new drugs on aggregate medical care costs using time series data for the united states and also by using a panel data set of countries belonging to the organization for economic cooperation and development in support of the new drug cost offset theory the results from both tests imply the typical new drug slows the growth of overall medical care spending

the evolution of medical spending risk how has the economic risk of health spending changed over time for u s households we describe trends in aggregate health spending in the united states and how private insurance markets and public insurance programs have changed over time we then present evidence from consumer expenditure survey microdata on how the distribution of household spending on health that is out of pocket payments for medical care plus the household s share of health insurance premiums has changed over time this distribution has shifted up over time households spend more on medical care and insurance than they used to but for the purposes of measuring change in risk it is not the mean but the dispersion of this distribution that is of interest we consider two measures of dispersion that serve as proxies for household risk the standard deviation of the distribution of household health spending and the ratio of the 90th percentile of spending to the median the so called 90 50 gap we find surprisingly that neither has increased despite the rapid rise in aggregate health spending this conclusion holds true for broad subgroups of the population for example the nonelderly as a group but not for some narrowly defined subgroups for example low income families with children we next consider how much risk households should face from the perspective of economic efficiency household risk may not have changed much over the past several decades but do we have any evidence that this level represents either too much or too little risk finally we discuss implications for public policy in particular for current debates over expanding health insurance coverage to the uninsured

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

health spending and public pension evidence from panel data abstractthis article empirically investigates the determinants of aggregate health expenditure in a panel of oecd countries from 1980 to 2005 we differ from most existing studies by testing some new determinants motivated by recent theoretical advances in the literature we find that a one percentage increase in public pension payments per elderly person leads to approximately a one third percentage increase in aggregate health spending and this effect is significant and robust across a variety of model specifications a back of the envelope calculation based on this estimate suggests that the expansion of the public pension programme on average accounts for approximately over one fifth of the rise in aggregate health expenditure as a share of gdp in the set of oecd countries during 1980 2005 in addition we find that the estimated effect of gdp per capita in our model ranges from 0 66 to 0 80 which is consistent with the results from some recent studies and thus further reinforces the finding in the

growth and welfare under endogenous lifetime we study the role of endogenous healthcare choices by households to extend their expected lifetimes on economic growth and welfare in a decentralized overlapping generations economy with the realistic feature that households savings are held in annuities we characterize healthcare spending in the decentralized market equilibrium and its effects on economic growth we then identify the moral hazard effect in healthcare investments when annuity rates are conditioned on average mortality and explain the conditions under which it will lead to over investment in healthcare moreover we specify the general equilibrium effects and macroeconomic repercussions associated with this moral hazard effect calibrating our model to oecd data we find that the moral hazard effect may be substantial and implies sizeable welfare losses of approximately 1 5 at a more general level our study suggests that welfare improvements from longevity increases may be quite lower than sometimes assumed when considered in planner economies

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

coordination and discrimination in contracting with externalities divide and conquer abstract the paper studies bilateral contracting between n agents and one principal whose trade with each agent generates externalities on other agents it examines the effects of prohibiting the principal from i coordinating agents on her preferred equilibrium and ii making different contracts available to different agents these effects depend on whether an agent is more or less eager to trade when others trade more the prohibitions reduce the aggregate trade in the former case and have little or no effect in the latter case the inefficiencies under different contracting regimes are linked to the sign of the relevant externalities and are shown to be typically reduced by both prohibitions

addressing uncertainty in medical cost effectiveness analysis implications of expected utility maximization for methods to perform sensitivity analysis and the use of cost effectiveness analysis to set priorities for medical research this paper examines the objectives for performing sensitivity analysis in medical cost effectiveness analysis and the implications of expected utility maximization for methods to perform such analyses the analysis suggests specific approaches for optimal decision making under uncertainty and specifying such decisions for subgroups based on the ratio of expected costs to expected benefits and for valuing research using value of information calculations though ideal value of information calculations may be difficult certain approaches with less stringent data requirements may bound the value of information these approaches suggest methods by which the vast cost effectiveness literature may help inform priorities for medical research

estimation of limited dependent variable models with dummy endogenous regressors applied economists have long struggled with the question of how to accommodate binary endogenous regressors in models with binary and nonnegative outcomes i argue here that much of the difculty with limited dependent variables comes from a focus on structural parameters such as index coefcients instead of causal effects once the object of estimation is taken to be the causal effect of treatment several simple strategies are available these include conventional two stage least squares multiplicative models for conditional means linear approximation of nonlinear causal models models for distribution effects and quantile regression with an endogenous binary regressor the estimation strategies discussed in the article are illustrated by using multiple births to estimate the effect of childbearing on employment status and hours of work

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

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

naked exclusion comment the ability of an incumbent firm to deter entry by writing exclusionary contracts with customers has been a subject of contention in the antitrust literature the courts concern with such exclusionary contracts has been challenged by those who argue that an incumbent faced with buyers whose interest is to promote entry and competition would have to pay buyers more for the inclusion of exclusionary provisions than it could possibly gain from exclusion in a provocative article eric b rasmusen et al 1991 henceforth rrw have argued that an incumbent may in fact be able to exclude rivals profitably using such contractual provisions because it can exploit buyers lack of coordination in essence if buyers expect other buyers to sign such provisions then they may see little reason not to do so themselves the rrw argument is potentially an important one because most alleged instances of entry deterrence through exclusionary contracts with customers occur in situations with multiple buyers unfortunately however rrw s two main results contain errors in this note we reconsider the rrw model providing correct characterizations of the likelihood and cost of exclusion for an incumbent firm our results indicate that while the intuition suggested by rrw is valid the equilibrium likelihood and cost of exclusion differ from what rrw derive moreover our analysis illuminates some further aspects of exclusionary contracting with multiple buyers among these issues we focus on how an incumbent can use discriminatory offers to exploit the externalities that exist among buyers in the provision of competition in section i we review the basic assumptions of the rrw model in sections ii and iii we then consider in turn the cases of simultaneous and sequential offers studied by rrw for the simultaneous model we distinguish between settings in which the incumbent can and cannot discriminate in its offers to different buyers this distinction is the source of the problem in rrw s analysis their simultaneous offer model assumes no discrimination but the proof of their proposition 2 assumes at times that discrimination is feasible we show that absent the ability to discriminate the incumbent can exclude profitably only when buyers fail to coordinate on their most preferred continuation equilibrium in contrast we show that when discrimination is possible the incumbent need not rely on a lack of buyer coordination to segal department of economics landau building stanford university stanford ca 94305 e mail ilya segal stanford edu whinston department of economics northwestern university 2003 sheridan road evanston il 60208 e mail mwhinston nwu edu we thank eric rasmusen john wiley and participants in the berkeley stanford iofest the university of copenhagen vertical restraints conference and a seminar at the antitrust division of the u s department of justice for helpful comments we thank federico echenique for excellent research assistance 1 for example a recent department of justice investigation concerned the use of exclusive contracts by the leading provider of computerized ticketing services ticketmaster most major cities have several large concert sports venues in many cities ticketmaster has exclusive contracts with a very large share of these venues 2 the other leading response to the argument that contracts with buyers cannot be a profitable method of exclusion is given in philippe aghion and patrick bolton 1987 section i one factor limiting the applicability of the aghion and bolton theory however is that it involves partial exclusion the contracts signed are not fully exclusionary they involve finite stipulated damages and the profitability of the strategy arises from extracting rents from an entrant when entry occurs indeed in the aghion and bolton model contracts that fully exclude offer no benefits over writing no contract at all in section iii of their paper aghion and bolton also discuss a two buyer version of their model in which externalities arise across buyers in contrast to the analysis here and in rrw they allow the incumbent to make an offer to a buyer i that is conditional on the acceptance decision of the other buyer 3 r innes and r j sexton 1994 also discuss the use of discriminatory offers in the context of a model in which buyers can form coalitions with the entrant

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

further toward a theory of agricultural insurance the economic theory of contracts is applied to agricultural insurance to show that given full information pareto optimal insurance contracts are actuarially fair provide full coverage and differ for each individual the information problems of moral hazard and adverse selection prevent pareto optimality from being attained several second best solutions to these problems are applied to agricultural insurance it is shown that information collection and the application of contract design principles are second best solutions which may achieve the benefits of insurance at less cost than the current practice of public subsidies in theory agricultural insurance is an efficient risk sharing mechanism in practice however agricultural insurance has been a costly means of transferring risk from farmers to governments and or other insurers to induce farmers to participate in agricultural insurance governments have borne significant subsidy costs hazell pomareda and valdes p 295 in a recent study ahsan ali and kurian aak concluded that public subsidies are necessary to make agricultural insurance viable they also showed that insurance will increase output relative to a case with no insurance thus insurance is beneficial particularly in less developed countries where increasing food supplies is a policy goal for this reason they concluded that public subsidization of insurance also is desirable their conclusions are derived from a simplified model of production with one output and one input in this article we consider a more general production model with multiple inputs and outputs we show that aak s conclusion about the benefits of insurance may not hold depending on the nature of the inputs and outputs as defined by the production function carl h nelson is an assistant professor of agricultural economics

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

a model to optimize investments in health technologies quality of care and research funds for health technologies compete with funds for implementing health technologies as well as funds for conducting research to reduce uncertainty around treatment and implementation cost effectiveness no study has yet shown how to allocate a combined budget for health technologies implementation and research the purpose of this work was to present an allocation model with the goal to maximize health based on a constrained optimization formulation we show that considering opportunities to invest in implementation and research may justify considerable disinvestment in health technologies this may reduce the willingness to pay for new health technologies significantly

accounting for future costs in medical cost effectiveness analysis most medical cost effectiveness analyses include future costs only for related illnesses but this approach is controversial this paper demonstrates that cost effectiveness analysis is consistent with lifetime utility maximization only if it includes all future medical and non medical expenditures estimates of the magnitude of these future costs suggest that they may substantially alter both the absolute and relative cost effectiveness of medical interventions particularly when an intervention increases length of life more than quality of life in older populations current methods overstate the cost effectiveness of interventions which extend life compared to interventions which improve the quality of life

the competition effects of industry wide vertical price fixing in bilateral oligopoly this paper examines the competition and welfare effects of vertical price fixing through industry wide resale price maintenance rpm arrangements such as those benefiting from exemption from a general prohibition against rpm a bilateral oligopoly framework is employed incorporating differentiation between manufacturer products and between retailer services transactions between the stages involve prices being determined through bargaining we do not find rpm to be universally undesirable however where retailer power is strong the social effects of rpm are likely to be adverse since the practice can assist in coordinating final price levels and prevent socially desirable countervailing power arising

heterogeneous returns to chemical fertilizer at the intensive margins insights from nepal increased fertilizer use is considered important for agricultural development in low income countries promoting increased use of chemical fertilizer by lowering its price may be ineffective if demand is price inelastic in theory the price elasticity of demand depends on the returns to its use but the evidence is scarce furthermore while returns are often estimated for small changes in chemical fertilizer use returns to larger changes in its use intensive margins are less understood through the inter zonal comparisons in nepal we provide indicative evidence that greater returns to chemical fertilizer are associated with greater price elasticities of demand moreover the evidence suggests that returns at the intensive margins rather than returns to small changes may largely account for inter zonal differences in returns to chemical fertilizer within nepal the results suggest that better understanding the returns at the intensive margins is critical for effective agricultural inputs policies in developing countries

upfront payments and exclusion in downstream markets although upfront payments are often observed in contracts between manufacturers and retailers little is known about their competitive effects or the role retailers play in securing them in this article we consider a model in which two competing retailers make take it or leave it offers to a common manufacturer we find that upfront payments are a feature of equilibrium contracts and in all equilibria only one retailer buys from the manufacturer these findings support the claims of small manufacturers who argue that they are often unable to obtain widespread distribution for their products because of upfront payments copyright 2007 rand

physician response to fee changes with multiple payers this paper develops a general model of physician behavior with demand inducement encompassing the two benchmark cases of profit maximization and target income behavior it is shown that when income effects are absent physicians maximize profits and when income effects are very strong physicians seek a target income the model is used to derive own and cross price expressions for the response of physicians to fee changes in the realistic context of more than one payer under the alternative behavior assumptions of profit maximization and target income behavior the implications for public and private fee policy and empirical research on physician response to fees are discussed

risk sharing and information in village economies arrangements for achieving efficient risk sharing vary depending on the information available to agents in the economy the usual euler equation restricts efficient allocations in an economy which obeys the permanent income hypothesis while efficient allocations in an economy with private information and long term contracts satisfy a symmetric restriction but not the euler equation full insurance arrangements are unique in that they satisfy both restrictions we look at an environment in which it seems likely that long term contracts play a role in mitigating the effects of private information three village economies in south india the evidence that consumption allocations satisfy the private information restriction is quite strong for households in two of the three villages the evidence for the third village suggests that while consumption for some households satisfies the private information restrictions other households consumption obey the permanent income hypothesis

does retailer power lead to exclusion this article examines whether retailer bargaining power and upfront slotting allowances prevent small manufacturers who have no bargaining power from obtaining adequate distribution in contrast to the findings of marx and shaffer 2007 who show that all equilibria involve limited distribution i e exclusion of a retailer we show that there is always an equilibrium in which full distribution is obtained provided that full distribution is the industry profit maximizing outcome the key feature leading to this differing result is that we do not restrict each retailer to offering the manufacturer a single tariff

buyer power and intrabrand coordination we analyze the competitive effects of vertical contracts in a contracting situation where rival retailers offer contracts to a manufacturer in contrast to bernheim and whinston 1998 who study the situation in which competing manufacturers offer contracts to a common retailer we find that two part tariffs even if contingent on exclusivity or not do not suffice to implement the monopolyoutcome richer arrangements including e g conditional fixed fees and upfront payments are thus required to internalize all contracting externalities the welfare implications are ambiguous on the one hand richer contracts ensure that no efficient retailer is excluded on the other hand they allow firms to maintain monopoly prices despite intrabrand competition simulations suggest that the latter effect may be more significant

consumption smoothing migration and marriage evidence from rural india a significant proportion of migration in low income countries particularly in rural areas is composed of moves by women for the purpose of marriage we seek to explain these mobility patterns by examining marital arrangements among indian households in particular we hypothesize that the marriage of daughters to locationally distant dispersed yet kinship related households is a manifestation of implicit interhousehold contractual arrangements aimed at mitigating income risks and facilitating consumption smoothing in an environment characterized by information costs and spatially covariant risks analysis of longitudinal south indian village data lends support to the hypothesis marriage cum migration contributes significantly to a reduction in the variability of household food consumption farm households afflicted with more variable profits tend to engage in longer distance marriage cum migration the hypothesized and observed marriage cum migration patterns are in dissonance with standard models of marriage or migration that are concerned primarily with search costs and static income gains

organizing the health insurance market this paper presents a new approach to organizing universal health insurance first the government divides the entire population into many large groups then the government creates a federal health insurance system healthfed modeled on the federal reserve system to fill the role now played by the benefits office of a large firm the healthfed would create a short menu of alternatives solicit bids for insuring the entire group and price alternatives there would be redistribution between groups and pricing of alterna tives to reflect optimal social insurance principles there would be no connection between health insurance and employment it may seem odd that this presidential address is my first publication in health economics at the time when i might have been working on an alternative address i was chair of an expert panel for the advisory council on social security looking at issues in both retirement income and medical care 2 in the process of this work i have come up with a new approach to organizing universal health insurance that is the subject of this paper before starting on health insurance i will say a few words about a wider context offering what i will say as an example in that setting 3 a great deal of attention has been focused on the exciting issue of reorganizing economies dropping central planning commonly economists from those countries em brace capitalism or more specifically laissez faire competition with an enthusi asm which exceeds that ofwestern economists although not necessarily western businessmen yet laissez faire capitalism has received little serious support in the west for a very long time we all know the fundamental welfare theorem which shows many ways that capitalism can be imperfect we have also seen a growth in discussion and analysis of the many ways governments can mess up resource allocation the real question is the design of arrangements that try to integrate the things that each type of institution does better this is hard for two reasons one is that it is in the realm of second best with many constraints the more the constraints the harder the analysis the second is that we do not have good positive theories of government behavior good examples yes good theories no thus the analysis is more intuitive less theory driven than in our picture of private markets but also in our private market analyses we have been greatly complicating our picture recognizing all sorts of information imperfec tions that affect the way that private markets work so i will present to you a proposal for universal health insurance meant to combine something that

market access by smallholder farmers in malawi implications for technology adoption agricultural productivity and crop income abstract in malawi maize is the major crop and food staple given limited off farm employment opportunities much needed increases in household income for improving food security must come from gains in agricultural productivity through better technology and more profitable crops in the past hybrid maize and more recently tobacco were promoted by policy for increasing smallholder income an analysis of determinants of adoption of these two crops and related income effects is presented apart from factor endowment and exposure to agroecological risks differences in the household s access to financial and commodity markets significantly influence its cropping shares and farm income