the implications of brexit for the electricity sector in great britain trade offs between market integration and policy influence this paper examines the trade off between the economic gains to great britain gb from being integrated into the eu electricity market on the one hand and a loss of influence over policy and rule making on the other the aim is not to predict how this trade off will be resolved in practice but rather to lay out what is at stake on both sides of the equation since the late 2000s the electricity market in gb has become increasingly integrated with continental european markets through market coupling and increasing interconnection capacity with further integration expected up to the mid 2020s estimates of the economic benefits of this integration range up to the order of several 100 m to 1bn a year representing the economic cost of a reversal of such integration on the other hand maintaining and expanding electricity market integration would require the acceptance of electricity policies and regulations made in european institutions in which uk actors would have little if any voice an intermediate multilateral approach offering the possibility of retaining market integration with less cost in terms of influence is proposed

testing for asymmetric information in insurance markets the first goal of this paper is to provide a simple and general test of the presence of asymmetric information in contractual relationships within a competitive context we also argue that insurance data are particularly well suited to such empirical investigations to illustrate this claim we use data on contracts and accidents to investigate the extent of asymmetric information in the french market for automobile insurance using various parametric and nonparametric methods we find no evidence for the presence of asymmetric information in this market

behavioral hazard in health insurance a fundamental implication of standard moral hazard models is overuse of low value medical care because copays are lower than costs in these models the demand curve alone can be used to make welfare statements a fact relied on by much empirical work there is ample evidence though that people misuse care for a different reason mistakes or behavioral hazard much high value care is underused even when patient costs are low and some useless care is bought even when patients face the full cost in the presence of behavioral hazard welfare calculations using only the demand curve can be off by orders of magnitude or even be the wrong sign we derive optimal copay formulas that incorporate both moral and behavioral hazard providing a theoretical foundation for value based insurance design and a way to interpret behavioral nudges once behavioral hazard is taken into account health insurance can do more than just provide financial protection it can also improve health care efficiency jel codes d03 i12 i13 i30 i38

the geography of market failure edge effect externalities and the location and production patterns of organic farming abstract perceptions of increasing land scarcity and negative impacts of chemical based agriculture have led to increasing concern regarding the sustainability of food systems incompatible production processes among farming systems may lead to spatial conflicts and production losses between neighboring farms and the magnitude of such losses may depend not only on the scale of each activity but also on patterns of land use such conflicts can be classified as edge effect externalities spatial externalities whose marginal impacts decrease as distance from the border generating the negative impact increases this paper tests the hypothesis that edge effect externalities have influenced the location and production patterns of certified organic farms using data from california central valley certified organic farmers using concepts from landscape ecology and spatial statistics we investigate difference in parcel geometry and surrounding land uses between organic and non organic parcels using a generalized method of moments gmm spatially autoregressive econometric model we demonstrate that both parcel geometry and surrounding land uses influence the probability of a given parcel being certified organic we conclude with suggestions for policies to encourage development of organic farming regions

choose to lose health plan choices from a menu with dominated option we examine the health plan choices that 23 894 employees at a u s firm made from a large menu of options that differed only in financial cost sharing and premium these decisions provide a clear test of the predictions of the standard economic model of insurance choice in the absence of choice frictions because plans were priced so that nearly every plan with a lower deductible was financially dominated by an otherwise identical plan with a high deductible we document that the majority of employees chose dominated plans which resulted in excess spending equivalent to 24 of chosen plan premiums low income employees were significantly more likely to choose dominated plans and most employees did not switch into more financially efficient plans in the subsequent year we show that the choice of dominated plans cannot be rationalized by standard risk preference or any expectations about health risk testing alternative explanations with a series of hypothetical choice experiments we find that the popularity of dominated plans was not primarily driven by the size and complexity of the plan menu nor informed preferences for avoiding high deductibles but by employees lack of understanding of health insurance our findings challenge the standard practice of inferring risk preferences from insurance choices and raise doubts about the welfare benefits of health reforms that expand consumer choice

how product standardization affects choice evidence from the massachusetts health insurance exchange this paper examines the effect of choice architecture on massachusetts health insurance exchange a policy change standardized cost sharing parameters of plans across insurers and altered information presentation post change consumers chose more generous plans and different brands but were not more price sensitive we use a discrete choice model that allows the policy to affect how attributes are valued to decompose the policy s effects into a valuation effect and a product availability effect the brand shifts are largely explained by the availability effect and the generosity shift by the valuation effect a hypothetical choice experiment replicates our results and explores alternative counterfactuals

suit the action to the word the word to the action hypothetical choices and real decisions in medicare part d in recent years consumer choice has become an important element of public policy one reason is that consumers differ in their tastes and needs which they can express most easily through their own choices elements that strengthen consumer choice feature prominently in the design of public insurance markets for instance in the united states in the recent introduction of prescription drug coverage for older individuals via medicare part d for policy makers who design such a market an important practical question in the design phase of such a new program is how to deduce enrollment and plan selection preferences prior to its introduction in this paper we investigate whether hypothetical choice experiments can serve as a tool in this process we combine data from hypothetical and real plan choices elicited around the time of the introduction of medicare part d we first analyze how well the hypothetical choice data predict willingness to pay and market shares at the aggregate level we then analyze predictions at the individual level in particular how insurance demand varies with observable characteristics we also explore whether the extent of adverse selection can be predicted using hypothetical choice data alone

uninsured by choice a choice experiment on long term care insurance abstract we examine evidence from two unique discrete choice experiments dce on long term care insurance and values several of its relevant attributes more specifically the experiments examine choices made by a large sample made of 15 298 individuals in the united states with and without insurance we study the valuation of a number of insurance attributes namely the daily insurance benefit insurance coverage the compulsory and voluntary nature of the insurance policy design alongside the costs insurance premium and health requirements this paper elicits both respondents preferences and willingness to pay wtp for these care insurance s attributes using a random parameter logit model and assesses the heterogeneity of choice responses using demographic socioeconomic and attitudinal motivations to segment response to insurance choices we find that an increase in the insurance premium by an additional 100 would reduce insurance uptake by 1pp insurance policy uptake is higher when it provides benefits for the lifetime the monthly marginal wtp being 178 64 and voluntary the monthly marginal wtp increases by an extra 74 71 as opposed to universal and when it forgoes health checks the monthly marginal wtp increases by an extra 28us

assessing the impact of electricity interconnectors on the great britain s power supply in 2030 abstract the transition from the current co2 emitting power production to a renewable rich power system requires various types of energy storage options to capture the surplus renewable energy and or increasing the interconnection capacity to trade power and secure electricity supply during peak demand times in addition to export surplus power at low demand periods in this study the function of power interconnectors between great britain gb and the neighboring countries within 2030 is investigated two interconnection links with a total capacity of 17 7 gw were assumed i e a one way import only interconnector ic1 and a two way trade link between gb and france ic2 the ic2 link was assumed to transmit power from cheaper country to the more expensive one a linear programming lp merit order dispatch model was used to find the economic power production over 2030 the results indicate that the share of generating technologies in 2030 depends on the ic1 import price and the ic2 capacity the capacity factor of the ic2 link reduces as the ic2 capacity goes up at constant ic1 import price in addition at constant ic2 capacity the capacity factor of the ic2 link increases as the ic1 import price increases for each ic1 import price increasing the ic2 capacity reduces the percentage of times that ic2 is fully loaded and the load of ic1 is zero the ic1 import price affects the quantity of electricity trade between gb and france for example assuming an ic1 electricity import price of 20 mwh results in about 9 twh electricity export to france and 88 twh electricity import to gb which is over 7x of the total electricity traded in 2016 at a fixed ic1 electricity import price the power import via the ic2 link with capacity of 11 gw is ca 5 times higher than the case with ic2 capacity of 2 gw at any ic1 import price higher ic2 capacities reduce the number of occasions that the ic1 is loaded for the case that the ic1 import price is 20 mwh and ic2 capacity is 2 gw there will be 990 half hours that gb acts as an electricity corridor

the extent of resource use inefficiencies in cotton production in pakistan s punjab an application of data envelopment analysis abstract this paper attempts to identify sources of resource use inefficiency for cotton production in pakistan s punjab the use of a non parametric method data envelopment analysis dea is developed to study the relative technical and allocative efficiencies of individual farms which use similar inputs produce the same product and operate under comparable circumstances in the cotton wheat system of pakistan there are a considerable number of farms that are both technically and allocatively inefficient the use of dea shows that the technique provides a clear identification of both the extent and the sources of technical and allocative inefficiencies in cotton production however both the interpretation of the farm level results generated and the projection of these results to a higher level require care given the technical nature of the agricultural production processes

preference heterogeneity and insurance markets explaining a puzzle of insurance the textbook approach to insurance markets emphasizes the role of private information about risk in determining who purchases insurance in the classic adverse selection model of michael rothschild and joseph stiglitz 1976 individu als with higher expected claims buy more insur ance than those with lower expected claims who may be out of the market entirely this basic prediction of asymmetric information models of a positive correlation between insurance cov erage and accident occurrence has been shown to be robust to a variety of extensions to the stan

the questionable value of having a choice of levels of health insurance coverage in most health insurance markets in the united states consumers have substantial choice about their health insurance plan however additional choice is not an unmixed blessing as it creates challenges related to both consumer confusion and adverse selection there is mounting evidence that many people have difficulty understanding the value of insurance coverage like evaluating the relative benefits of lower premiums versus lower deductibles also in most us health insurance markets people cannot be charged different prices for insurance based on their individual level of health risk this creates the potential for well known problems of adverse selection because people will often base the level of health insurance coverage they choose partly on their health status in this essay we examine how the forces of consumer confusion and adverse selection interact with each other and with market institutions to affect how valuable it is to have multiple levels of health insurance coverage available in the market

how individuals choose health insurance an experimental analysis an individual choosing a health insurance policy faces a complex decision environment where a large set of alternatives differ on a variety of dimensions there is uncertainty and the choice is repeated at least once a year we study decisions and decision strategies in a laboratory experiment where we create a controlled environment that closely mirrors this setting we use an electronic information board that allows to carefully monitor the individual s decision strategy the number of alternatives switching costs and the speed at which health deteriorates are varied across treatments we find that most subjects search is based more on attributes than on policies moreover we find that an increase in the number of alternatives increases decision making time makes subjects consider a lower fraction of the available information makes it more likely that subjects will switch and decreases the quality of their decisions the introduction of positive costs of switching makes people switch less often but improves the quality of their decisions finally if health deteriorates only gradually individuals tend to stick to their current policy too long

heuristics and heterogeneity in health insurance exchanges evidence from the massachusetts connector although health insurance exchanges are likely to be a growing source of individual coverage little is known about consumer behavior on these exchanges while health insurance exchanges are intended to facilitate competition among insurers and make it easier for consumers to access insurance understanding how consumers choose insurance plans is necessary for the design of these markets we characterize demand on a health insurance exchange including the type of plans individuals choose and how they respond to price previous work has noted the potential limits to consumer decision making ability in similar environments abaluck and gruber 2011 in a structural model of health plan choice we consider the role of heterogeneity in preferences and whether consumers rely on simple rules of thumb we offer a first look at behavior on massachusetts s unsubsidized health insurance exchange the connector 1 which was created

switching costs price sensitivity and health plan choice we investigate the extent to which sensitivity to health plan premiums differs across individuals according to characteristics related to the cost of switching plans our results indicate substantial variation in price sensitivity related to expected health care costs younger healthier employees are between two and four times more sensitive to price than employees who are older and who have been recently hospitalized or diagnosed with cancer we also find evidence of status quo bias estimated premium elasticities are significantly higher for new hires than for incumbent employees simulations combining our results with actuarial data illustrate the cost implications of risk related differences in price elasticity

rational inattention competitive supply and psychometrics we introduce a simple method of recovering attention costs from choice data our method rests on a precise analogy with production theory costs of attention determine consumer demand and consumer welfare just as a competitive firm s technology determines its supply curve and profits we implement our recovery method experimentally outline applications and link our work to the broader literature on inattention and mistaken decisions

comparing the profitability of organic and conventional production in family farming empirical evidence from brazil abstract several studies have compared the profitability of organic and conventional producers but present very conflicting results although in the majority of these papers selection bias due to observables is accounted for the possibility of selection based on unobservables has been largely overlooked in this paper we compare these two types of producers using a large and unique data of about 4 2 million family farmers in brazil standard propensity score matching techniques are used together with the procedure recently developed by oster forthcoming to address concerns about omitted variables our results confirm the working hypothesis that organic producer s profits are lower than conventional ones

pricing and welfare in health plan choice premiums in health insurance markets frequently do not reflect individual differences in costs either because consumers have private information or because prices are not risk rated this creates inefficiencies when consumers self select into plans we develop a simple econometric model to study this problem and estimate it using data on small employers we find a welfare loss of 2 11 percent of coverage costs compared to what is feasible with risk rating only about one quarter of this is due to inefficiently chosen uniform contribution levels we also investigate the reclassification risk created by risk rating individual incremental premiums finding only a modest welfare cost

did community rating induce an adverse selection death spiral evidence from new york pennsylvania and connecticut using data from the 1987 to 1996 march current population surveys we find no evidence for the dire predictions of some that the imposition of pure community rating leads to a market wide reduction in insurance coverage by setting off an adverse selection death spiral specifically the percentage of individuals in small groups covered by health insurance did not fall in new york which enacted community rating legislation in 1993 relative to either pennsylvania which enacted no insurance reform or connecticut which enacted moderate insurance reforms without imposing community rating consistent with the predictions of the simple rothschild and stiglitz 1976 framework however we find that the new yorkreforms appear to have had a significant impact on the structure of the new yorkinsurance mark et specifically new yorkexperienced a dramatic shift away from indemnity insurance toward hmos while this shift tookplace during a period of nationwide increases in the percentage with managed care the increase in hmo penetration in new york s small group and individual markets was significantly greater than in pennsylvania or connecticut

dominated choices and medicare advantage enrollment research in behavioral economics suggests that certain circumstances such as large numbers of complex options or revisiting prior choices can lead to decision errors this paper explores the enrollment decisions of medicare beneficiaries in the medicare advantage ma program during the time period we study 2007 2010 private fee for service pffs plans offered enhanced benefits beyond those of traditional medicare tm without any restrictions on physician networks making tm a dominated choice relative to pffs yet more than three quarters of medicare beneficiaries remained in tm during our study period we analyze the role of status quo bias in explaining this pattern of enrollment our results suggest that status quo bias plays an important role the rate of ma enrollment was significantly higher among new medicare beneficiaries than among incumbents these results illustrate the importance of the choice environment that is in place when enrollees first enter the medicare program

comparison friction experimental evidence from medicare drug plans consumers need information to compare alternatives for markets to function efficiently recognizing this public policies often pair competition with easy access to comparative information the implicit assumption is that comparison friction the wedge between the availability of comparative information and consumers use of it is inconsequential because information is readily available and consumers will access this information and make effective choices we examine the extent of comparison friction in the market for medicare part d prescription drug plans in the united states in a randomized field experiment an intervention group received a letter with personalized cost information that information was readily available for free and widely advertised however this additional step providing the information rather than having consumers actively access it had an impact plan switching was 28 percent in the intervention group versus 17 percent in the comparison group and the intervention caused an average decline in predicted consumer cost of about 100 per year among letter recipients roughly 5 percent of the cost in the comparison group our results suggest that comparison friction can be large even when the cost of acquiring information is small and may be relevant for a wide range of public policies that incorporate consumer choice

reference dependent risk attitudes we use koszegi and rabin s 2006 model of reference dependent utility and an extension of it that applies to decisions with delayed consequences to study preferences over monetary risk because our theory equates the reference point with recent probabilistic beliefs about outcomes it predicts specific ways in which the environment influences attitudes toward modest scale risk it replicates classical prospect theory including the prediction of distaste for insuring losses when exposure to risk is a surprise but implies first order risk aversion when a risk and the possibility of insuring it are anticipated a prior expectation to take on risk decreases aversion to both the anticipated and additional risk for large scale risk the model allows for standard consumption utility to dominate reference dependent gain loss utility generating nearly identical risk aversion across situations

equilibria in health exchanges adverse selection versus reclassification risk this paper studies equilibrium and welfare in a class of regulated health insurance markets known as exchanges we use detailed health plan choice and utilization data to model individual level i projected health risk and ii risk preferences we combine the estimated distributions of risk and risk preferences with a model of competitive insurance markets to predict allocations and prices

multiple dimensions of private information evidence from the long term care insurance market we demonstrate the existence of multiple dimensions of private information in the long term care insurance market two types of people purchase insurance individuals with private information that they are high risk and individuals with private information that they have strong taste for insurance ex post the former are higher risk than insurance companies expect while the latter are lower risk in aggregate those with more insurance are not higher risk our results demonstrate that insurance markets may suffer from asymmetric information even absent a positive correlation between insurance coverage and risk occurrence the results also suggest a general test for asymmetric information

advantageous selection in insurance markets this article reverses the standard conclusion that asymmetric information plus competition results in insufficient insurance provision risk tolerant individuals take few precautions and are disinclined to insure but they are drawn into a pooling equilibrium by the low premiums created by the presence of safer more risk averse types taxing insurance drives out the reckless clients allowing a strict pareto gain this result depends on administrative costs in processing claims and issuing policies as does the novel finding of a pure strategy partial pooling subgame perfect nash equilibrium in the insurance market copyright 2001 by the rand corporation

frictions or mental gaps what s behind the information we don t use and when do we care consumers suffer significant losses from not acting on available information these losses stem from frictions such as search costs switching costs and rational inattention as well as what we call mental gaps resulting from wrong priors worldviews or relevant features of a problem not being top of mind most research studying such losses does not empirically distinguish between these mechanisms instead we show that most highly cited papers in this area presume one mechanism underlies consumer choices and assume away other potential explanations or collapse many mechanisms together we discuss the empirical difficulties that arise in distinguishing between different mechanisms and some promising approaches for making progress in doing so we also assess when it is more or less important for researchers to distinguish between these mechanisms approaches that seek to identify true value from demand without specifying mechanisms behind this wedge are most useful when researchers are interested in evaluating allocation policies that strongly steer consumers towards better options with regulation traditional policy instruments and defaults on the other hand understanding the precise mechanisms underlying consumer losses is essential to predicting the impact of mechanism policies aimed primarily at reducing specific frictions or mental gaps without otherwise steering consumers we make the case that papers engaging with these questions empirically should be clear about whether their analyses distinguish between mechanisms behind poorly informed choices and what that implies for the questions they can answer we present examples from several empirical contexts to highlight these distinctions

welfare and competition effects of electricity interconnection between ireland and great britain this study analyzes the effects of additional interconnection on welfare and competition in the irish electricity market i simulate the wholesale electricity markets of the island of ireland and great britain for 2005 i find that in order for the two markets to be integrated in 2005 additional interconnection would have to be large the amount of interconnection decreases for high costs of carbon since this causes the markets to become more similar this suggests that in the absence of strategic behavior of firms most of the gains from trade derive not from differences in size between countries but from technology differences and are strongly influenced by fuel and carbon costs social welfare increases with interconnection although at a decreasing rate as the amount of interconnection increases there are also positive effects on competition in ireland the less competitive of the two markets finally it is unlikely that private investors will pay for the optimal amount of interconnection since their returns are significantly smaller than the total social benefit of interconnection

organic farmers or conventional farmers where s the money abstract there is growing evidence that organic farming is a rapidly expanding economic sector in the u s however an unanswered question is whether organic farmers are better off than conventional farmers when it comes to farm household income using large farm level data and a matching estimator this study explores the relationship between organic certification and farm household income with its various components contrary to expectations certified organic farmers do not earn significantly higher household income than conventional farmers though certified organic crop producers earn higher revenue they incur higher production expenses as well in particular certified organic producers spend significantly more on labor insurance and marketing charges than conventional farmers the results suggest that the lack of economic incentives can be an important barrier to conversion to organic farming

adoption of agricultural innovations as a two stage partial observability process in this paper we reconsider the appropriateness of certain statistical analyses in innovation adoption studies and suggest that partial observability models may sometimes be more useful the proposed models allow for a flexible specification of the process of adoption from one stage to two stages facilitate the modelling of non adopters and remedy the violation of the assumption of full information an application to the adoption of organic cultivation in greece demonstrates the relative merits of the proposed analysis

new estimates of climate demand evidence from location choice abstract we develop and apply to census data a new method for estimating climate demand the method is useful for ranking quality of life based upon a willingness to pay criterion our two major findings are that the willingness to pay quality of life index is correlated with the hedonic approach s ranking but that the migration approach generates much larger estimates of willingness to pay for a more moderate climate this finding is relevant for evaluating the economic impact of global warming

mispriced equity regulated rates for auto insurance in massachusetts from the santa monica freeway to the new jersey turnpike drivers are unhappy about the cost of automobile insurance and are asking government to do something about it california voters approved proposition 103 in 1988 it requires that all rates be approved by the state insurance commissioner attempts to reduce rates by 20 percent and dramatically limits the criteria that can be used to rate drivers for premium purposes new jersey enacted an insurance reform law that seeks to charge insurers for a deficit burdened state underwriting pool and prohibits the use of age sex and marital status in rating drivers for premiums other states enacting or considering significant rate rollbacks or reform since 1988 include arizona florida michigan nevada and pennsylvania this article describes the current consequences of similar policies adopted in massachusetts more than a decade ago the experience suggests that recent moves by other states in the same direction will ultimately prove quite expensive as the proportion of high cost drivers increases and as insurers lose the incentive to write policies and control costs the trend away from insurance premiums based on expected cost also reduces incentive effects for drivers since insurance premiums provide a link between tort judgments and consumer decisions

sinking swimming or learning to swim in medicare part d under medicare part d senior citizens choose prescription drug insurance offered by numerous private insurers we examine nonpoor enrollees actions in 2006 and 2007 using panel data our sample reduced overspending by 298 on average with gains by 81 percent of them the greatest improvements were by those who overspent most in 2006 and by those who switched plans decisions to switch depended on individuals overspending in 2006 and on individualspecific effects of changes in their current plans the oldest consumers and those initiating medications for alzheimer s disease improved by more than average suggesting that real world institutions help overcome cognitive limitations

take up and targeting experimental evidence from snap this paper develops a framework for evaluating the welfare impact of various interventions designed to increase take up of social safety net programs in the presence of potential behavioral biases we calibrate the key parameters using a randomized field experiment in which 30 000 elderly individuals not enrolled in but likely eligible for the supplemental nutrition assistance program snap are either provided with information that they are likely eligible provided with this information and also offered assistance in applying or are in a status quo control group only 6 percent of the control group enrolls in snap over the next 9 months compared to 11 percent of the information only group and 18 percent of the information plus assistance group the individuals who apply or enroll in response to either intervention receive lower benefits and are less sick than the average enrollee in the control group the results are consistent with the existence of optimization frictions that are greater for needier individuals suggesting that the poor targeting properties of the interventions reduce their welfare gains

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

how much to save decision costs and retirement plan participation abstract deciding how much to save for retirement can be complicated drawing on a field experiment conducted with the department of defense we study whether such complexity depresses participation in an employer sponsored retirement saving plan we find that simplifying one dimension of the enrollment decision by highlighting a potential rate at which non participants might contribute increases participation in the plan similar communications that did not include a highlighted rate yield smaller effects the results highlight how reducing complexity on the intensive margin of a decision how much to contribute can affect extensive margin behavior whether to contribute at all in a setting of policy interest

observing unobservables identifying information asymmetries with a consumer credit field experiment information asymmetries are important in theory but difficult to identify in practice we estimate the presence and importance of hidden information and hidden action problems in a consumer credit market using a new field experiment methodology we randomized 58 000 direct mail offers to former clients of a major south african lender along three dimensions i an initial offer interest rate featured on a direct mail solicitation ii a contract interest rate that was revealed only after a borrower agreed to the initial offer rate and ii a dynamic repayment incentive that was also a surprise and extended preferential pricing on future loans to borrowers who remained in good standing these three randomizations combined with complete knowledge of the lender s information set permit identification of specific types of private information problems our setup distinguishes hidden information effects from selection on the offer rate via unobservable risk and anticipated effort from hidden action effects via moral hazard in effort induced by actual contract terms we find strong evidence of moral hazard and weaker evidence of hidden information problems a rough estimate suggests that perhaps 13 to 21 of default is due to moral hazard asymmetric information thus may help explain the prevalence of credit constraints even in a market that specializes in financing high risk borrowers

farmers objectives as determinants of organic farming adoption the case of catalonian vineyard production this article assesses the decision to adopt organic farming practices we use duration analysis da to determine why farmers adopt organic farming practices and what influences the timing of adoption we extend previous studies by including farmers objectives risk preferences and agricultural policies as covariates in the da model the analytical hierarchy process is used as a multicriteria decision making methodology to measure farmers objectives the empirical analysis uses farm level data from a sample of vineyard farms in the spanish region of catalonia farmers objectives are found to influence the conversion decision moreover farmers who are not risk averse are more likely to adopt organic farming results point to the policy changes that have been most relevant in motivating adoption of organic practices

shrouded attributes consumer myopia and information suppression in competitive markets bayesian consumers infer that hidden add on prices e g the cost of ink for a printer are likely to be high prices if consumers are bayesian firms will not shroud information in equilibrium however shrouding may occur in an economy with some myopic or unaware consumers such shrouding creates an inefficiency which firms may have an incentive to eliminate by educating their competitors customers however if add ons have close substitutes a curse of debiasing arises and firms will not be able to profitably debias consumers by unshrouding add ons in equilibrium two kinds of exploitation coexist optimizing firms exploit myopic consumers through marketing schemes that shroud high priced add ons in turn sophisticated consumers exploit these marketing schemes it is not possible to profitably drive away the business of sophisticates it is also not possible to profitably lure either myopes or sophisticates to nonexploitative firms we show that informational shrouding flourishes even in highly competitive markets even in markets with costless advertising and even when the shrouding generates allocational inefficiencies

simulation of a health insurance market with adverse selection a health insurance market is examined in which individuals with a history of high utilization of health care services tend to select fee for service ffs insurance when offered a choice between ffs and health maintenance organizations hmos in addition hmos are assumed to practice community rating of employee groups based on these observations and health plan enrollment and premium data from minneapolis st paul a deterministic simulation model is constructed to predict equilibrium market shares and premiums for hmo and ffs insurers within a firm despite the fact that favorable selection enhances their ability to compete with ffs insurers the model predicts that hmos maximize profits at less than 100 market share and at a lower share than they could conceivably capture that is hmos would not find it to their advantage to drive ffs insurers from the market even if they could in all cases however the profit maximizing hmo premium is greater than the experience rated premium and thus the ave

health insurance for humans information frictions plan choice and consumer welfare traditional models of insurance choice are predicated on fully informed and rational consumers protecting themselves from exposure to financial risk in practice choosing an insurance plan is a complicated decision often made without full information in this paper we combine new administrative data on health plan choices and claims with unique survey data on consumer information to identify risk preferences information frictions and hassle costs our additional friction measures are important predictors of choices and meaningfully impact risk preference estimates we study the implications of counterfactual insurance allocations to illustrate the importance of distinguishing between these micro foundations for welfare analysis

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

paying attention or paying too much in medicare part d we study whether people became less likely to switch medicare prescription drug plans pdps due to more options and more time in part d panel data for a random 20 percent sample of enrollees from 2006 2010 show that 50 percent were not in their original pdps by 2010 individuals switched pdps in response to higher costs of their status quo plans saving them money contrary to choice overload larger choice sets increased switching unless the additional plans were relatively expensive neither switching overall nor responsiveness to costs declined over time and above minimum spending in 2010 remained below the 2006 and 2007 levels

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

estimating welfare in insurance markets using variation in prices we provide a graphical illustration of how standard consumer and producer theory can be used to quantify the welfare loss associated with inefficient pricing in insurance markets with selection we then show how this welfare loss can be estimated empirically using identifying variation in the price of insurance such variation together with quantity data allows us to estimate the demand for insurance the same variation together with cost data allows us to estimate how insurers costs vary as market participants endogenously respond to price the slope of this estimated cost curve provides a direct test for both the existence and the nature of selection and the combination of demand and cost curves can be used to estimate welfare we illustrate our approach by applying it to data on employerprovided health insurance from one specific company we detect adverse selection but estimate that the quantitative welfare implications associated with inefficient pricing in our particular application are small in both absolute and relative terms

contextual inference in markets on the informational content of product lines context can influence decisions this malleability of choice is usually invoked as evidence that people do not maximize stable preference orderings in a market equilibrium however context conveys payoff relevant information to consumers consequently these consumers rationally violate naive formulations of standard choice theoretic principles i identify informational asymmetries under which apparently anomalous behaviors namely the compromise effect and choice overload arise as market equilibria firms respond to consumers contextual inference in case of the compromise effect a firm may introduce premium loss leaders expensive goods of overly high quality that increase the demand for other goods

technical efficiency of alternative farming systems the case of greek organic and conventional olive growing farms abstract olive growing is a major farming activity in greek agriculture this paper analyzes empirically the technical efficiency of organic and conventional olive growing farms using a stochastic production frontier methodology and a translog functional specification findings indicate that the organic olive growing farms examined exhibit a higher degree of technical efficiency relative to their production frontier than do conventional olive growing farms reasons may include lower profit margins and restrictions on inputs permitted thus forcing organic farmers to be more cautious with input use however both input and output oriented technical efficiency scores are still relatively low for both types of olive farming thus there is considerable scope for cost reducing and farm income improvement in both farming modes this could prove crucial for the long run viability and the future course of the sector

liquidity constraints and imperfect information in subprime lending ditions for precisely the population that is most likely to have a difficult time obtaining credit those with low incomes and poor credit histories these consumers who typically cannot qualify for regular bank loans comprise the so called subprime market because the company we study originates subprime loans its loan applications and transaction records provide an unusual win dow into the consumption and borrowing behavior of households that are rationed in primary credit markets moreover we track loan repayments allowing us to analyze the difficulties in lending to the subprime population we begin by documenting the importance of short term liquidity constraints for individuals in our sample we present two pieces of evidence both are based on purchasing behavior and indicate a high sensitivity to cash on hand first we document a dramatic degree of demand seasonality associated with tax rebates overall demand is almost 50 percent higher during tax rebate season than during other parts of the year this seasonal effect varies with household

conversion subsidies for organic production results from sweden and lessons for the united states organic conversion subsidies used in europe are less likely to be politically acceptable in the united states where organic agriculture development is market driven persistent barriers to conversion in the united states include limited availability of and access to production and market information training in management systems and cost of conversion related investments by determining whether these factors affect the requirement of a subsidy to convert we can suggest whether u s policy makers need to provide subsidies to encourage conversion and identify policy variables consistent with market based approaches that could stimulate conversion a utility difference model is used with swedish data to analyze factors that determine whether a subsidy is required to motivate organic conversion the results show that farmers requiring subsidies manage larger less diversified farms and are more concerned with organic inspection quality and adequacy of technical advice access to more market outlets and information sources substitutes for payment level in the farmer s utility function indicating that services rather than subsidies may be used to encourage organic agriculture to the extent that conditions are similar in the u s organic sector market based programs such as cost sharing for conversion and market access improvement should stimulate growth of this industry 2000 elsevier science b v all rights reserved

the red and the black mental accounting of savings and debt in the standard economic account of consumer behavior the cost of a purchase takes the form of a reduction in future utility when expenditures that otherwise could have been made are forgone the reality of consumer hedonics is different when people make purchases they often experience an immediate pain of paying which can undermine the pleasure derived from consumption the ticking of the taxi meter for example reduces one s pleasure from the ride we propose a double entry mental accounting theory that describes the nature of these reciprocal interactions between the pleasure of consumption and the pain of paying and draws out their implications for consumer behavior and hedonics a central assumption of the model which we call prospective accounting is that consumption that has already been paid for can be enjoyed as if it were free and that the pain associated with payments made prior to consumption but not after is buffered by thoughts of the benefits that the payments will finance another important concept is coupling which refers to the degree to which consumption calls to mind thoughts of payment and vice versa some financing methods such as credit cards tend to weaken coupling whereas others such as cash payment produce tight coupling our model makes a variety of predictions that are at variance with economic formulations contrary to the standard prediction that people will finance purchases to minimize the present value of payments our model predicts strong debt aversion that they should prefer to prepay for consumption or to get paid for work after it is performed such pay before sequences confer hedonic benefits because consumption can be enjoyed without thinking about the need to pay for it in the future likewise when paying beforehand the pain of paying is mitigated by thoughts of future consumption benefits contrary to the economic prediction that consumers should prefer to pay at the margin for what they consume our model predicts that consumers will find it less painful to pay for and hence will prefer flat rate pricing schemes such as unlimited internet access at a fixed monthly price even if it involves paying more for the same usage other predictions concern spending patterns with cash charge or credit cards and preferences for the earmarking of purchases we test these predictions in a series of surveys and in a conjoint like analysis that pitted our double entry mental accounting model against a standard discounting formulation and another benchmark that did not incorporate hedonic interactions between consumption and payments our model provides a better fit of the data for 60 of the subjects the discounting formulation provides a better fit for only 29 of the subjects even when allowing for positive and negative discount rates the pain of paying we argue plays an important role in consumer self regulation but is hedonically costly from a hedonic perspective the ideal situation is one in which payments are tightly coupled to consumption so that paying evokes thoughts about the benefits being financed but consumption is decoupled from payments so that consumption does not evoke thoughts about payment from an efficiency perspective however it is important for consumers to be aware of what they are paying for consumption this creates a tension between hedonic efficiency and what we call decision efficiency various institutional arrangements such as financing of public parks through taxes or usage fees play into this tradeoff a producer developing a pricing structure for their product or service should be aware of these two conflicting objectives and should try to devise a structure that reconciles them

designed to fail effects of the default option and information complexity on student loan repayment abstract within five years of leaving school 25 of student loan borrowers default on required minimum payments these defaults are costly they add to interest and penalties on loans and lower credit scores which limits access to future credit and can adversely affect job prospects we ask why so few student loan borrowers enroll in income driven repayment idr plans which insure against default caused by low earnings to do so we run an incentivized laboratory experiment using a facsimile of the government s student loan exit counseling website we test the roles information complexity uncertainty about earnings and the default option play we find that switching the default option from the standard plan with fixed minimum payments to an idr with income contingent minimum payments and providing good information about earnings can dramatically decrease choice of the risky standard plan

overconfidence insurance and paternalism it is well known that when agents are fully rational compulsory public insurance may make all agents better off in the rothschild and stiglitz 1976 model of insurance markets we find that when sufficiently many agents underestimate their personal risks compulsory insurance makes low risk agents worse off hence behavioral biases may weaken some of the well established rationales for government intervention based on asymmetric information

the effects of rate regulation on demand for supplemental health insurance many developed countries have a market for private health insurance that supplements publicly funded universal coverage government regulation of the supplemental market including the extent to which insurers are permitted to adjust premiums based on individual characteristics such as age sex and health status varies across countries oecd 2004 proponents of rate regulation argue that the resulting crosssubsidization from low to high risks is necessary to maintain the affordability of coverage for high risks economic theory however raises the concern that the inability to adjust premiums to reflect individual risk could create adverse selection by driving low risks from the market michael rothschild and joseph stiglitz 1976 little empirical evidence exists to determine the optimal role of rate regulation in private supplemental insurance markets existing studies of the consequences of rating restrictions focus on markets for primary health insurance and find that these laws have had surprisingly little effect on overall rates of coverage simon 2004 in this paper we study the effects of rate regulation in supplemental health insurance markets by examining the market for individually purchased coverage that supplements medicare among the elderly in the united states while the publicly financed medicare program provides nearly universal coverage of a standard set of benefits for those 65 and over beneficiaries are exposed to significant financial risk due to the cost sharing associated with covered services and a lack of coverage for some important services the vast majority of medicare beneficiaries obtain supplemental coverage through a complex system of publicly and privately funded sources state medicaid programs provide publicly financed supplemental coverage for low income and disabled beneficiaries and employers provide highly subsidized retiree supplemental health insurance for other beneficiaries but the remainder rely on highly regulated private insurance markets medicare s part c managed care plans are a voluntary private replacement for traditional medicare while medigap coverage is a private policy bought by about 30 percent of medicare beneficiaries that provides only supplemental benefits franklin j eppig and george s chulis 1997 our study examines the effects of regulations limiting the information on individual characteristics insurers can use in setting premiums for medigap coverage

are risk preferences stable across contexts evidence from insurance data using a unique dataset we test whether households deductible choices in auto and home insurance reflect stable risk preferences our test relies on a structural model that assumes households are objective expected utility maximizers and claims are generated by household coverage specific poisson processes we find that the hypothesis of stable risk preferences is rejected by the data our analysis suggests that many households exhibit greater risk aversion in their home deductible choices than their auto deductible choices our results are robust to several alternative modeling assumptions jel d11 d83

an empirical examination of information barriers to trade in insurance this paper uses direct evidence to evaluate whether asymmetric information is a barrier to trade in the largest market for private insurance in the world life insurance we report several findings that seem difficult to reconcile with the conventional theory of insurance under asymmetric information we conjecture that sellers may know their costs of production better than consumers in this market as in those for most other products

optimal mandates and the welfare cost of asymmetric information evidence from the u k annuity market much of the extensive empirical literature on insurance markets has focused on whether adverse selection can be detected once detected however there has been little attempt to quantify its welfare cost or to assess whether and what potential government interventions may reduce these costs to do so we develop a model of annuity contract choice and estimate it using data from the u k annuity market the model allows for private information about mortality risk as well as heterogeneity in preferences over different contract options we focus on the choice of length of guarantee among individuals who are required to buy annuities the results suggest that asymmetric information along the guarantee margin reduces welfare relative to a first best symmetric information benchmark by about 127 million per year or about 2 percent of annuitized wealth we also find that by requiring that individuals choose the longest guarantee period allowed mandates could achieve the first best allocation however we estimate that other mandated guarantee lengths would have detrimental effects on welfare since determining the optimal mandate is empirically difficult our findings suggest that achieving welfare gains through mandatory social insurance may be harder in practice than simple theory may suggest

design choices in privatized social security systems learning from the swedish experience in the 2000 u s presidential campaign george w bush advocated a partial privatization of the social security system according to his plan a portion of the payroll tax would be designated for individual savings accounts at the same time as this issue was being debated in the united states sweden was in the process of launching a system that is very similar to president bush s proposal although bush s plan did not get much attention in the early years of his administration the proposal may resurface either in the united states or in other countries if so important lessons can be learned from the swedish experience in particular the swedish plan adopted an interesting mix of design choices that can now be evaluated based on three years of post implementation experience although there is a large literature in economics on the design of social security systems most of that literature is concerned with macroeconomic considerations such as funding in contrast there has been much less attention devoted to the details of how plans might be designed in part because these details do not seem important from a standard economic perspective in this paper we reverse this usual pattern and focus our attention on the design aspects of the swedish plan we find that although most of the design choices are those that might be approved by most economists in some cases these choices produced undesirable consequences

differential uncertainties and risk attitudes between conventional and organic producers the case of spanish arable crop farmers the growing importance of economic factors in farmers decision to go organic has raised interest in characterizing the economic behavior of organic versus conventional farms published analyses so far have not considered differential uncertainties and farmers risk preferences between conventional and organic practices when comparing these techniques our article attempts to assess this issue we use a model of farmer decision under risk to analyze the differential values between spanish cop organic and conventional farms and to assess the incentives for adoption of organic practices results show that organic and conventional farms do have different abilities to control production risk as well as different risk preferences organic price premiums and subsidies are found to be powerful instruments to motivate adoption of organic techniques

choice inconsistencies among the elderly evidence from plan choice in the medicare part d program we evaluate the choices of elders across their insurance options under the medicare part d prescription drug plan using a unique data set of prescription drug claims matched to information on the characteristics of choice sets we document that elders place much more weight on plan premiums than on expected out of pocket costs value plan financial characteristics beyond any impacts on their own financial expenses or risk and place almost no value on variance reducing aspects of plans partial equilibrium welfare analysis implies that welfare would have been 27 higher if patients had all chosen rationally

to certify or not to certify separating the organic production and certification decisions this article separates the decision to be certified organic into the decision to use organic practices and the subsequent decision to certify those practices using data from a survey of us fruit and vegetable producers we document that many producers are using organic practices but choosing not to certify philosophical beliefs and perceived risk of losses due to disease weeds and insects have the largest impact on the decision to use organic practices producers who use organic practices and direct market are less likely to certify moreover we find that the certification process discourages certification

adverse selection and inertia in health insurance markets when nudging hurts this paper investigates consumer inertia in health insurance markets where adverse selection is a potential concern we leverage a major change to insurance provision that occurred at a large firm to identify substantial inertia and develop and estimate a choice model that also quantifies risk preferences and ex ante health risk we use these estimates to study the impact of policies that nudge consumers toward better decisions by reducing inertia when aggregated these improved individual level choices substantially exacerbate adverse selection in our setting leading to an overall reduction in welfare that doubles the existing welfare loss from adverse selection jel d82 g22 i13 a number of potential impediments stand in the way of efficient health insur ance markets the most noted of these is adverse selection first studied by akerlof 1970 and rothschild and stiglitz 1976 in insurance markets prices reflect the expected risk costs of the insured pool whether the reason is price regulation or private information when insurers cannot price all risk characteristics riskier consumers choose more comprehensive health plans this causes the equilibrium prices of these plans to rise and healthier enrollees to select less comprehensive coverage than they would otherwise prefer

estimating risk preferences from deductible choice we develop a structural econometric model to estimate risk preferences from data on deductible choices in auto insurance contracts we account for adverse selection by modeling unobserved heterogeneity in both risk claim rate and risk aversion we find large and skewed heterogeneity in risk attitudes in addition women are more risk averse than men risk aversion exhibits a u shape with respect to age and proxies for income and wealth are positively associated with absolute risk aversion finally unobserved heterogeneity in risk aversion is greater than that of risk and as we illustrate has important implications for insurance pricing

does size matter simulating electricity market coupling between colombia and ecuador since the beginning of the liberalization era the integration of electricity markets has been promoted in many regions arguing that this will bring benefits in terms of security of supply and efficiency however little progress has been made in the last decades in most regions with some successful exceptions such as the nordpool and more research is needed to determine under which circumstances those benefits are achievable we develop a system dynamics model to analyze the potential benefits and risks of market coupling and to improve the understanding of its implications on policy design this model allows us to simulate the long term behavior of two interconnected countries under different interconnection scenarios and different policies regarding capacity payments the analysis is focused on colombia and ecuador which have been trading electricity for more than 10 years and offer an interesting case study given their complementarity in terms of hydropower supply however the results of the simulations show that this complementarity is not necessarily exploited while the relative size of the countries determines the magnitude of the potential benefits of integration the interconnector capacity plays a key role in achieving those benefits additionally both factors significantly affect the outcome of policies such as the implementation of capacity payments we conclude that capacity policies and integration policies need to be coordinated

choice price competition and complexity in markets for health insurance abstract the united states and other nations rely on consumer choice and price competition between competing health plans to allocate resources in the health sector while a great deal of research has examined the efficiency consequences of adverse selection in health insurance markets less attention has been devoted to other aspects of consumer choice the nation of switzerland offers a unique opportunity to study price competition in health insurance markets switzerland regulates health insurance markets with the aim of minimizing adverse selection and encouraging strong price competition we examine consumer responses to price differences in local markets and the degree of price variation in local markets using both survey data and observations on local markets we obtain evidence suggesting that as the number of choices offered to individuals grows their willingness to switch plans given a set of price dispersion differences declines which allows large price differences for relatively homogeneous products to persist we consider explanations for this phenomenon from economics and psychology