the design of insurance coverage for medical products under imperfect competition this paper studies the design of health insurance with ex post moral hazard when there is imperfect competition in the market for the medical product various scenarios such as monopoly pricing or horizontal differentiation are considered insurers or their regulator can commit to a reimbursement policy which specifies two types of copayments an ad valoremcoinsurance rate and a specific per unit copayment by combining both copayment rates in an adequate way the insurer can effectively control the producer price which is then set so that the producer s revenue just covers fixed costs consequently a suitable regulation of the copayment instruments leads to the same reimbursement rule as under perfect competition for medical products additional rationing of coverage because of imperfect competition is notnecessary the optimal policy involves the smallest possible copayment combined with the largest possible coinsurance rate such that the participation constraint of health providers is binding

moral hazard adverse selection and health expenditures a semiparametric analysis theoretical models predict asymmetric information in health insurance markets may generate inefficient outcomes due to adverse selection and moral hazard however previous empirical research has found it difficult to disentangle adverse selection from moral hazard in health care consumption we propose a two step semiparametric estimation strategy to identify and estimate a canonical model of asymmetric information in health care markets with this method we can estimate a structural model of demand for health care we illustrate this method using a claims level data set with confidential information from a large self insured employer we find significant evidence of moral hazard and adverse selection

optimal nonparametric estimation of first price auctions this paper proposes a general approach and a computationally convenient estimation procedure for the structural analysis of auctioni data considering first price sealed bid auction models within the independent private value paradigm we show that the underlying distribution of bidders private values is identified from observed bids and the number of actual bidders without any parametric assumptions using the theoiy of minimax we establish the best rate of uniform convergence at which the latent density of private values can be estimated nonparametrically from available data we then propose a two step kernel based estimator that converges at the optimal rate

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

an economic theory of self control the concept of self control is incorporated in a theory of individual intertemporal choice by modeling the individual as an organization the individual at a point in time is assumed to be both a farsighted planner and a myopic doer the resulting conflict is seen to be fundamentally similar to the agency conflict between the owners and managers of a firm both individuals and firms use the same techniques to mitigate the problems which the conflicts create this paper stresses the implications of this agency model and discusses as applications the effect of pensions on saving saving and the timing of income flows and individual discount rates

incentives and transactions costs within the firm estimating an agency model using payroll records we estimate an agency model using the payroll records of a copper mine that paid a production bonus to teams of workers we estimate the cost of incomplete information due to insurance and incentives considerations and the inefficiency caused by the simple form of the incentive contract itself at the estimated parameters the cost of worker risk aversion insurance is of similar magnitude to moral hazard incentives overall incomplete information accounted for one half of the bonus system s inefficiency relative to potential full information profits the other half is attributed to the bonus system s inefficient generation of incentives and insurance relative to the optimal incentive contract

when prices hardly matter incomplete insurance contracts and markets for repair goods abstract this paper looks at markets characterized by the fact that the demand side is insured in these markets a consumer purchases a good to compensate consequences of unfavorable events such as an accident or an illness insurance policies in most lines of insurance base indemnity on the insured s actual expenses i e the insured would be partially or completely reimbursed when purchasing certain goods in this setting we discuss the interaction between insurance and repair markets by focusing on one hand upon the development of prices and the structure of markets with insured consumers and on the other hand the resulting backlash on optimal insurance contracting we show that even in the absence of ex post moral hazard the extension of insurance coverage will lead to an increase in prices as well as to a socially undesirable increase in the number of repair service suppliers if repair markets are imperfect

adverse selection and moral hazard in insurance can dynamic data help to distinguish a standard problem of applied contracts theory is to empirically distinguish between adverse selection and moral hazard we show that dynamic insurance data allow to distinguish moral hazard from dynamic selection on unobservables in the presence of moral hazard experience rating implies negative occurrence dependence individual claim intensities decrease with the number of past claims we discuss econometric tests for the various types of data that are typically available finally we argue that dynamic data also allow to test for adverse selection even if it is based on asymmetric learning jel d82 g22 c41 c14

managerial ability a review of its basis and potential improvement using psychological concepts abstract achieving an appropriate resource allocation structure usually revolves around the farm manager his or her ability is crucial to success yet most farmers learn by experience and or through various courses that concentrate on technical production economic and related aspects putting more effort into understanding the components of managerial ability and how a managers ability to perform well in each component might be improved is well overdue as psychology is the study of people and their actions it is the obvious discipline to turn to for assistance this paper contains a review of the psychology of decision making from a farm management perspective outlines what psychology offers for changing a person s attributes and considers the structure of a research programme aimed at developing methods for improving individual s managerial ability

market transparency adverse selection and moral hazard we study the eects of improvements in market transparency on ebay on seller exit and continuing sellers behavior an improvement in market transparency by reducing strategic bias in buyer ratings led to a significant increase in buyer valuation especially of sellers rated poorly prior to the change but not to an increase in seller exit when sellers had the choice between exiting a reduction in adverse selection and improved behavior a reduction in moral hazard they preferred the latter because of lower cost increasing market transparency improves on market outcomes

a microeconometric model of the demand for health care and health insurance in australia this paper develops a model for interdependent demand for health insurance and health care under uncertainty to throw light on the issue of insurance induced distortions in the demand for health care services the model is used to empirically analyse the determinants of the choice of health insurance type and seven types of health care services using micro level data from the 1977 78 australian health survey econometric implementation of the model involves simultaneously issues of discreteness of choice selectivity and stochastic dependence between health insurance and utilization health status appears to be more important in determining health care service use than health insurance choice while income appears to be more important in determining health insurance choice than in determining health care service use for a broad range of health care services both moral hazard and self selection are found to be important determinants of utilization of health care services

education experience and allocative efficiency a dual approach a generalization of the dual non frontier profit function approach to evaluating allocative efficiency is developed that allows for training human capital variables to influence the efficiency level directly an application to pennsylvania dairy indicates that education and experience are substitutes and play a significant role in the level of efficiency while these operators are not allocating their variable inputs in an absolutely efficient manner relative efficiency can be achieved for four of six possible input combinations for prescribed levels of education and experience furthermore the estimates of the efficiency measures suggest that these operators are maximizing production rather than short run profits

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

intertemporal substitution in health care demand evidence from the rand health insurance experiment abstract nonlinear cost sharing in health insurance encourages intertemporal substitution because patients can reduce their out of pocket costs by concentrating spending in years when they hit the deductible we develop a test for intertemporal substitution and apply it to data from the rand health insurance experiment where people were randomly assigned either to a free care plan or to a cost sharing plan which had coinsurance up to a maximum dollar expenditure mde hitting the mde leading to an effective price of zero has a bigger effect on health care demand than does being in free care because people who hit the mde face low current prices but high future prices and so stock up on health care as a result short lasting price changes induce nearly twice as big a response as do long lasting changes these findings help reconcile disparate estimates of the price elasticity of demand for health care in the existing literature failing to account for intertemporal substitution can lead researchers to overstate cost savings from high deductible health plans by 20 or more

a mutual insurance diffusion stochastic control problem abstract this paper determines the optimal loading factor policy of a mutual insurance firm insurance is viewed as a collective process of n persons paying fixed or variable contingent premiums and seeking protection against claims risk reduction for each person is then exercised through a distribution of risk by aggregating individual risks and by accumulating cash net of operating expenses to meet possible contingent claims by assuming an approximate claims diffusion process stochastic control problems for selecting the optimum loading factor policies are stated and resolved analytically in particular the implicit cost of bankruptcy is computed and an optimum variable feedback loading policy is established

the moral hazard effects of consumer responses to targeted cost sharing this paper examines the effects of the reference pricing program implemented by the california public employees retirement system calpers in 2012 the program uses targeted cost sharing to incentivize patient price shopping we find that the program leads to a 10 3 increase in the use of low price providers and reduces the average cost per procedure by 12 5 we further estimate that the program reduces medical spending by 218 8 per procedure which we estimate is approximately 53 7 of the excessive spending that is due to patient choice of higher price providers caused by insurance coverage at the expense of a 94 3 or 12 5 reduction in consumer surplus the cost savings from the reference pricing program is about two to three times as large as the reduction from implementing a high deductible health plan while the accompanying consumer surplus reduction is much smaller under reference pricing

estimating the tradeoff between risk protection and moral hazard with a nonlinear budget set model of health insurance insurance induces a tradeoff between the welfare gains from risk protection and the welfare losses from moral hazard empirical work traditionally estimates each side of the tradeoff separately potentially yielding mutually inconsistent results i develop a nonlinear budget set model of health insurance that allows for both simultaneously nonlinearities in the budget set arise from deductibles coinsurance rates and stoplosses that alter moral hazard as well as risk protection i illustrate the properties of my model by estimating it using data on employer sponsored health insurance from a large firm

medical savings accounts microsimulation results from a model with adverse selection this paper examines medical savings accounts combined with high deductible catastrophic health plans msa chps exploring the possible consequences of making tax preferred msa chps available to the entire employment related health insurance market the paper uses microsimulation methods to examine the equilibrium effects of msa chps on health care and non health care expenditures tax revenues insurance premiums and exposure to risk if msa chps are offered alongside comprehensive plans biased msa chp enrollment can lead to premium spirals that drive out comprehensive coverage our estimates also raise concerns about equity insofar as those who stand to lose the most tend to be poorer and in families with infant children

how to define and study farmers management capacity theory and use in agricultural economics textbooks and articles on farm management stress the importance of the management capacity of the farmer with respect to his farm results however explicit definitions together with an elaboration of this concept are hard to find in this article aspects of management capacity are grouped into 1 personal aspects consisting of farmer s drives and motivations farmer s abilities and capabilities and his biographical facts such as age and education and 2 aspects of the decision making process consisting of practices and procedures with respect to planning implementation and control of decisions at the farm empirical studies on the role of management capacity in relation to farm results are reviewed frontier production functions are widely used in recent literature to estimate technical and economic efficiency of farms however in explaining differences in efficiency most studies do not go further than adding a biographical variable e g level of education this study concludes that a next step would be to include aspects of the decision making process longitudinal on farm observations which give possibilities for studying the dynamic aspects of the decision making are suggested to further analyze the concept of management capacity

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

insurance induced moral hazard a dynamic model of within year medical care decision making under uncertainty health insurance may lead individuals to overconsume medical care many studies explore this moral hazard using models that aggregate medical care decisions up to the annual level using employer employee matched data from the medical expenditure panel survey meps i estimate moral hazard using a dynamic model of within year medical care consumption that allows for endogenous health transitions variation in medical care prices and individual uncertainty within a health insurance year i then estimate moral hazard under a second set of conditions that are consistent with the assumptions of most annual decision making models the within year decision making model produces a moral hazard estimate that is 19 2 larger than the alternative model i highlight the importance of controlling for within year dynamics in a model of medical care consumption using a counterfactual policy simulation that implements the individual mandate provision of the 2010 patient protection and aordable care act i nd that full implementation of the policy decreases the percentage of uninsured individuals in the population being analyzed from 11 8 to 6 0 furthermore when all uninsured individuals are forced into coverage their predicted annual medical care expenditure increases by 45 5

insurance premium allocation and loss prevention in a large firm a principal agent analysis abstract faced with increased insurance costs large firms are turning to a more systematic allocation of premium costs to subsidiaries an approach which capitalizes on economies of scale in a corporate wide management of aggregated risks risk pooled across divisions as well as subsidiaries such practice however raises a number of problems i what part of the aggregate risk should the firm self insure ii how should premium costs be allocated between subsidiaries iii how much effort should subsidiaries invest in loss prevention programs and how should they manage claims i e co insure themselves iv how can the parent firm induce managers of subsidiaries to control subsidiaries risk thereby reducing future premium payments and moral hazard or what premium incentive scheme can the firm devise to penalize or compensate subsidiaries investing less than an optimal effort in loss prevention to deal with these problems a conceptual framework based on a principal agents analysis and the definition of a liability account for each subsidiary is developed which is used to reduce the problems of moral hazard due to a less than perfect or indirect monitoring system specifically assumption regarding the premium allocation incentive scheme are made and explicit solutions are obtained for the control of subsidiaries loss prevention effort allocation

is competition the answer abstract proposals for more price competition in medical services delivery have arisen on both sides of the atlantic perhaps the most visible pro competition spokesman in the united states is alain enthoven 1978 1980 but other names are also prominently associated with the concept mcclure 1978 havighurst 1980 president s commission 1980 greenberg 1981 recently legislation to promote competition has been introduced in the united states congress periodically individuals in other parts of the world also unfurl the banner of competition lees 1961 stahl in press the remarks that follow are limited to the american context for brevity some of them would have to be altered in other institutional contexts

union contracts and the life cycle permanent income hypothesis this paper isolates households in the psid whose heads can be matched to particular long term union contracts with high confidence the author uses use published information on these contracts to construct a household specific measure of expected wage growth he finds that predictable wage movements are significantly correlated with consumption changes contrary to neoclassical consumption theory the author finds that consumption responds more strongly to predictable income declines than to predictable income increases this asymmetry is inconsistent with liquidity constraints and myopia but is qualitatively consistent with models in which preferences exhibit loss aversion copyright 1995 by american economic association

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

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

a median voter model of health insurance with ex post moral hazard abstract one of the main features of health insurance is moral hazard as defined by pauly pauly m v 1968 the economics of moral hazard comment american economic review 58 531 537 people face incentives for excess utilization of medical care since they do not pay the full marginal cost for provision to mitigate the moral hazard problem a coinsurance can be included in the insurance contract but health insurance is often publicly provided having a uniform coinsurance rate determined in a political process is quite different from having different rates varying in accordance with one s preferences as is possible with private insurance we construct a political economy model in order to characterize the political equilibrium and answer questions like under what conditions is there a conflict in society on what coinsurance rate should be set and which groups of individuals will vote for a higher and lower than equilibrium coinsurance rate respectively we also extend our basic model and allow people to supplement the coverage provided by the government with private insurance then we answer two questions who will buy the additional coverage and how do the coinsurance rates people are now faced with compare with the rates chosen with pure private provision

estimating demand elasticities using nonlinear pricing abstract nonlinear pricing is prevalent in industries such as health care public utilities and telecommunications however this pricing scheme introduces bias into estimating elasticities for welfare analysis or policy changes i develop a local elasticity estimation method that uses nonlinear price schedules to isolate consumers expenditure choices from selection and simultaneity biases this method improves over previous approaches by using commonly available observational data and requiring only a single general monotonicity assumption using claims level data on health insurance with two nonlinearities i am able to measure two separate elasticities and find that elasticity declines from 0 26 to 0 09 by the second nonlinearity these estimates are then used to calculate moral hazard deadweight loss this method enables estimation of many policies with nonlinear pricing which previous tools could not address

endogenous information adverse selection and prevention implications for genetic testing policy we examine public policy toward the use of genetic information by insurers individuals engage in unobservable primary prevention and have access to different prevention technologies thus insurance markets are affected by moral hazard and adverse selection individuals can choose to take a genetic test to acquire information about their prevention technology information has positive decision making value that is individuals may adjust their behavior based on the result of the test however testing also exposes individuals to uncertainty over the available insurance contract so called classification risk which lowers the value of information in our analysis we distinguish between four different policy regimes determine the value of information under each regime and associated equilibrium outcomes on the insurance market we show that the policy regimes can be pareto ranked with a duty to disclose being the preferred regime and an information ban the least preferred one

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

piece rates fixed wages and incentive effects statistical evidence from payroll records we develop and estimate an agency model of worker behavior under piece rates and fixed wages the model implies optimal decision rules for the firm s choice of a compensation system as a function of working conditions our model also implies an upper and lower bound to the incentive effect the productivity gain realized by paying workers piece rates rather than fixed wages that can be estimated using regression methods using daily productivity data collected from the payroll records of a british columbia tree planting firm we estimate these bounds to be an 8 8 and a 60 4 percent increase in productivity structural estimation which accounts for the firm s optimal choice of a compensation system suggests that incentives caused a 22 6 percent increase in productivity however only part of this increase represents valuable output because workers respond to incentives in part by reducing quality

price elasticity of expenditure across health care services policymakers in countries around the world are faced with rising health care costs and are debating ways to reform health care to reduce expenditures estimates of price elasticity of expenditure are a key component for predicting expenditures under alternative policies using unique individual level data compiled from administrative records from the chilean private health insurance market i estimate the price elasticity of expenditures across a variety of health care services i find elasticities that range between zero for the most acute service appendectomy and 2 08 for the most elective psychologist visit moreover the results show that at least one third of the elasticity is explained by the number of visits the rest is explained by the intensity of each visit finally i find that high income individuals are five times more price sensitive than low income individuals and that older individuals are less price sensitive than young individuals

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

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

measuring managerial efficiency the case of commercial greenhouse growers abstract recently the managerial decision making process has been given new attention both in theoretical studies as well as in empirical research explaining differences in farm results however while critical to explaining efficiency managerial ability has been difficult to measure and therefore often ignored this study attempts to measure managerial ability it divides the decision making process into four steps goal formulation planning monitoring and evaluation the quality of each step is measured in a panel of 26 specialised flower producers the impact of decision making on the firms efficiencies is measured by means of a stochastic frontier production function a one step procedure is used in which technical and decision making parameters are jointly estimated the results show positive associations between firm efficiency and the quality of decision making especially monitoring and firm evaluation indicating that this procedure has been potentially successful and is a move towards successfully measuring a critical input

individual welfare when consumers can shop for health insurance i introduction the affordable care act aca of 2010 allows millions of americans to buy health insurance policies on competitive insurance exchanges as application denial is illegal consumers will be able to change health insurance policies when there are changes in the economic environment or health status the phenomenon of endogenous consumer contract choice is poised to play an important role in the study of health insurance demand and medical care utilization among the broad population not just for the elderly who can choose among alternative medicare plans this article illustrates the importance of endogenous consumer health insurance contract choice by analyzing the individual welfare effect of a reduction in the price of medical care a potential consequence of the aca we show that the insurance contract choice response is critical to determining the outcome ii prior literature the analysis of the individual moral hazard welfare effect of a medical care price decline was a topic of discussion in the literature during the last three decades of the previous century while there was disagreement on the perspective to take a conventional wisdom emerged as health insurance discounts the price of medical care the consumer faces a lower i e net price this causes moral hazard induced excess consumption and welfare loss for a given coinsurance rate a price decline further lowers the net price increases excess demand and exacerbates the welfare loss the conventional wisdom was challenged by gaynor haas wilson and vogt 2000 they focused on the competitive insurance company and allowed it to increase the coinsurance rate so as to offset the medical care price decline which leaves the net price demand and moral hazard induced welfare loss unchanged in the situation when the consumer decides to become uninsured they show that individual welfare loss can be reduced these form the basis for their proposition 1 the rest of their paper deals with societal welfare the current article relates to this proposition 1 the issue of individual moral hazard welfare loss as distinct from the issue of societal welfare the modeling approach has much in common with gaynor haas wilson and vogt 2000 our model is the dual we therefore shift the focus from the insurer to the consumer who explicitly exercises endogenous insurance contract choice we eschew their assumption of a unit elastic insurance demand and allow for other possible insurance demand responses not just the unit elastic one we show that if insurance demand is medical care price elastic then it is indeed possible to have a reduction in moral hazard welfare loss in our treatment however this outcome does not require the consumer to become uninsured furthermore and most important we show that the opposite can easily be true if insurance demand is inelastic i e the insured retains some portion of the reduction in out of pocket expense risk then moral hazard welfare loss increases after the price reduction although the increase is less than would occur in the absence of the contract choice effect our results build on our previous work in dusansky and k05 2006 we studied the role of health insurance choice in medical care demand taking a partial equilibrium approach the response of a competitive insurance industry was precluded in dusansky and koc 2010 we explored the interaction between the endogenous demands for health insurance and medical care demand using a more general principal agent model in which the competitive insurer s response to a medical care price change is explicitly allowed to alter the consumer s insurance choice set the current article extends that analysis to examine the effect of a medical care price change on individual consumer moral hazard welfare loss iii the model we employ a principal agent model in which the consumer faces health status uncertainty and is able to exercise endogenous insurance policy choice

medicaid insurance in old age the old age provisions of the medicaid program were designed to insure retirees against medical expenses we estimate a structural model of savings and medical spending and use it to compute the distribution of lifetime medicaid transfers and medicaid valuations across currently single retirees compensating variation calculations indicate that current retirees value medicaid insurance at more than its actuarial cost but that most would value an expansion of the current medicaid program at less than its cost these findings suggest that for current single retirees the medicaid program may be of the approximately right size

semiparametric estimation of first price auctions with risk averse bidders in view of the non identification of the first price auction model with risk averse bidders this paper proposes some parametric identifying restrictions and a semiparametric estimator for the risk aversion parameter s and the latent distribution of private values specifically we exploit heterogeneity across auctioned objects to establish semiparametric identification under a conditional quantile restriction of the bidders private value distribution and a parameterization of the bidders utility function we develop a multistep semiparametric method and we show that our semiparametric estimator of the utility function parameter s converges at the optimal rate which is slower than the parametric one but independent of the dimension of the exogenous variables thereby avoiding the curse of dimensionality we then consider various extensions including a binding reserve price affiliation among private values and asymmetric bidders the method is illustrated on u s forest service timber sales and bidders risk neutrality is rejected

a dynamic model of the firm with uncertain earnings and adjustment costs abstract in this paper a stochastic dynamic model of the firm developed by bensoussan and lesourne is extended to allow for adjustment costs the optimal solution is derived for different scenarios dependent on the shapes of the expected earnings function and the adjustment cost function and on the different parameters of the model it turns out that besides pure investment dividend and saving policies mixed policies can also be optimal for the firm the latter do not occur in the solution of the bensoussan and lesourne model and therefore the solutions derived in this paper come closer to reality

optimal health insurance for multiple goods and time periods we examine the efficiency based arguments for second best optimal health insurance with multiple treatment goods and multiple time periods correlated shocks across health care goods and over time interact with complementarity and substitutability to affect optimal cost sharing health care goods that are substitutes or have positively correlated demand shocks should have lower optimal patient cost sharing positive serial correlations of demand shocks and uncompensated losses that are positively correlated with covered health services also reduce optimal cost sharing our results rationalize covering pharmaceuticals and outpatient spending more fully than is implied by static one good or one period models

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

estimating housing demand with an application to explaining racial segregation in cities we present a three stage nonparametric estimation procedure to recover willingness to pay for housing attributes in the first stage we estimate a nonparametric hedonic home price function in the second stage we recover each consumer s taste parameters for product characteristics using first order conditions for utility maximization finally in the third stage we estimate the distribution of household tastes as a function of household demographics as an application of our methods we compare alternative explanations for why blacks choose to live in center cities while whites suburbanize

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

contract pricing in consumer credit markets we analyze subprime consumer lending and the role played by down payment requirements in screening high risk borrowers and limiting defaults to do this we develop an empirical model of the demand for financed purchases that incorporates both adverse selection and repayment incentives we estimate the model using detailed transaction level data on subprime auto loans we show how different elements of loan contracts affect the quality of the borrower pool and subsequent loan performance we also evaluate the returns to credit scoring that allows sellers to customize financing terms to individual applicants our approach shows how standard econometric tools for analyzing demand and supply under imperfect competition extend to settings in which firms care about the identity of their customers and their postpurchase behavior

paying for health insurance the trade off between competition and adverse selection we use data on health plan choices by employees of harvard university to compare the benefits of insurance competition with the costs of adverse selection moving to a voucher type system induced significant adverse selection with a welfare loss of 2 to 4 percent of baseline spending but increased competition reduced harvard s premiums by 5 to 8 percent the premium reductions came from insurer profits so while harvard was better off the net effect for society was only the adverse selection loss adverse selection can be minimized by adjusting voucher amounts for individual risk we discuss how such a system would work governments are increasingly turning to market forces as a way to limit the cost of social insurance traditionally social insurance programs were operated as nonmarket goods governments mandated participation in a central program collected revenues to finance the program and ran the insurance system there was no role for competition among suppliers in providing the basic benefit as the costs of social insurance have increased however the centralized model of social insurance is coming under increasing strain in the united states for example recent proposals have called for replacing the medicare program with a health care voucher for the elderly aaron and reischauer 1995 cutler 1996 the voucher would guarantee people a basic insurance plan but the plans would be privately run competition among plans would generate plan premiums and enrollments similarly longstanding proposals for social security reform have called for replacing the current system with a system of individual accounts where people would make saving investment and annuitization decisions on their own advisory council on social security 1996 feldstein 1996 the trend is not just domestic in the united kingdom the national health service has moved to encourage more competition in recent years with the establishment of hospital trusts that bid for patients and partially fixed payments to physicians

an alternative framework for evaluating welfare losses in the health care market a recurring theme in the health economics literature is that excess health insurance reduces society s welfare this proposition is considered to be a truism by most health economists feldman and morrisey 1990 report that two thirds of american and canadian health economists surveyed agree with the statement that the level and type of health insurance held by most u s families generate substantial welfare loss due to over consumption of medical services consequently most research in the area has attempted to identify the exact dollar value of this welfare loss in this note i will try to show that the traditional method of calculating welfare losses from excess health insurance is severely flawed because it is based on assumptions about consumer behavior that are not supported by the available empirical evidence furthermore the methodology masks other potentially greater societal welfare losses that are likely to exist in the health care sector and blinds us from seeking the most effective public policy remedies this note suggests an alternative framework for considering welfare losses based on researchers evaluations of medical necessity

health care insurance and the contract choice effect i introduction it is well known that consumers anticipate some aspects of their medical care consumption examples include obstetrical services dental procedures vision care outpatient mental health services and minor elective surgery so that medical care demand anticipation influences the choice of health insurance coverage in turn the characteristics of the chosen plan set the degree of cost sharing and therefore the net price that the consumer faces which is given by the percentage of cost sharing times the gross price of medical care this net price influences the consumer s actual demand for the broad range of medical services 1 in this way insurance choice is influenced by particular anticipated utilization and actual general utilization is influenced by the selected insurance plan health insurance choice and medical service demand are interdependent although this interdependence has been noted in the literature few researchers have attempted to model it 2 and none have explicated its implications for consumer demand behavior and the ensuing econometric analysis of medical care demand we do so in this article using an intertemporal model that highlights the role of expectations in the insurance choice medical care demand interaction under uncertainty we show that the medical care demand response to a change in its gross price consists of two separate components the standard neoclassical demand effect and an insurance contract choice effect when the gross price of medical care changes the net price to the consumer is altered for a fixed degree of cost sharing however a change in the gross price can prompt a change in the intended choice of health plan causing a change in the degree of cost sharing for example if the gross price of medical care rises our consumer may choose to pay a higher premium for an insurance policy that is more generous one that has a lower cost sharing percentage in this case the net price which first increased exogenously would now decrease endogenously the health insurance contract choice effect can play an important role in determining the consumer s observable demand response to a change in the gross price of medical care the standard medical care demand curve could be less responsive because of it and econometric studies of the price elasticity of medical care that ignore it which is typically the case in the literature would produce estimates that are erroneous furthermore although somewhat remote the contract choice effect opens the door to a perverse outcome a medical care demand curve that is upward sloping this could occur when the contract choice effect is very strong ii the model we consider an individual consumer who faces a single period two stage planning problem in the first stage the consumer makes an ex ante choice of insurance plan at the time this choice is made he knows his income for the period all prices including the gross price of medical care and his current health status however he is uncertain about his future health status in the second stage during which health status uncertainty is resolved the consumer makes ex post decisions about purchases of medical care and other goods in the first stage the consumer chooses from a variety of health insurance policies with varying characteristics the simplest has a deductible of some amount e g 250 per person 750 per family a percentage cost share e g consumer pays 20 the insurance provider 80 of each episode and a cap on total dollar outlay beyond which the insurer pays 100 of remaining expenses other policies place more emphasis on co payments e g consumer pays 20 to a physician for an office visit the insurance provider pays the balance of the negotiated cost and some policies combine all of these elements co pays for office visits 20 80 cost shares for hospital stays different mixes of percentage cost shares depending on services that are out of network in network but not preferred provider and so on

identification of standard auction models this paper presents new identification results for models of first price second price ascending english and descending dutch auctions we consider a general specification of the latent demand and information structure nesting both private values and common values models and allowing correlated types as well as ex ante asymmetry we address identification of a series of nested models and derive testable restrictions enabling discrimination between models on the basis of observed data the simplest model symmetric independent private values is nonparametrically identified even if only the transaction price from each auction is observed for richer models identification and testable restrictions may be obtained when additional information of one or more of the following types is available i the identity of the winning bidder or other bidders ii one or more bids in addition to the transaction price iii exogenous variation in the number of bidders iv bidder specific covariates while many private values pv models are nonparametrically identified and testable with commonly available data identification of common values cv models requires stringent assumptions nonetheless the pv model can be tested against the cv alternative even when neither model is identified

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

insuring consumption against illness one of the most sizable and least predictable shocks to economic opportunities in developing countries is major illness we investigate the extent to which families are able to insure consumption against major illness using a unique panel data set from indonesia that combines excellent measures of health status with consumption information we find that there are significant economic costs associated with major illness and that there is very imperfect insurance of consumption over illness episodes these estimates suggest that public disability insurance or subsidies for medical care may improve welfare by providing consumption insurance

estimating a dynamic model of household choices in the presence of income taxation the purpose of the article is to study the incentive and distributional consequences of income taxation the article analyzes tax changes in a dynamic setting the framework is estimated under a set of different identifying assumptions using parametric nonparametric and semiparametric techniques the empirical results focus on tax reforms in germany in the 1980s the article shows that these reforms did not significantly lower effective tax rates the findings also suggest that estimated elasticities for male labor supply are small ranging between 0 02 and 0 2

insuring well being buyer s remorse and peace of mind effects from insurance this paper estimates the causal effects of index insurance coverage on subjective well being among livestock herders in southern ethiopia the randomization of incentives to purchase index based livestock insurance and three rounds of panel data are exploited to separately identify ex ante welfare gains from insurance that reduces risk exposure and ex post buyer s remorse effects that may arise after the resolution of uncertainty insurance coverage currently in force generates subjective well being gains that are significantly higher than the buyer s remorse effect of an insurance that lapsed without paying out given the temporal correlation in insurance purchase propensity failure to control for potential buyer s remorse effects can bias downward estimates of welfare gains from current insurance coverage

on the wage growth of immigrants israel 1990 2000 this paper develops a descriptive methodology for the analysis of wage growth of immigrants that is based on human capital theory the sources of the wage growth are 1 the rise of the return to imported human capital 2 the impact of accumulated experience in the host country and 3 the mobility up the occupational ladder in the host country the model implies a nonlinear wage function that includes interactions between imported skills and local wage growth using data on native israelis and immigrants from the former soviet union of israel we estimate wage equations jointly for the two groups we find that upon arrival immigrants receive non return for imported skills in the ten years following arrival wages of highly skilled immigrants grow at 8 percent a year rising prices of skills occupational transitions accumulated experience in israel and an economy wide rise in wages account for 3 4 1 1 1 5 and 1 5 percent each in the long run the return for schooling converges to 0 027 substantially below the 0 069 return for natives we do not reject the hypothesis that the return for experience converges to that of natives and that immigrants receive a higher return for their unmeasured skills we find that there is some downgrading in the occupational distribution of immigrants relative to that of natives moreover the average wages of immigrants approach but do not converge to the wages of comparable natives the main reason for this is the low return to their imported skills jel j24 j31 j60