Why the government should do cost-effectiveness analysis in a health insurance market
|
|
- Nigel Phillips
- 8 years ago
- Views:
Transcription
1 Government Why the government should do cost-effectiveness analysis in a health insurance market TILEC, Tilburg University April 17, 2012
2 Government Outline 1 Motivation Government 5 6
3 Government Rising health care costs In all OECD countries health care spending grows faster than the economy This is at least partly due to the introduction of new technologies To the extent that these technologies add value, this is fine However, if money is spent on treatments that are not worth it, welfare could be raised by excluding these technologies This is what cost-effectiveness (CE) analysis tries to do is done by the government in countries where there is (also) a public system Well known institute is NICE in the UK
4 Government Rising health care costs (cont.) Private insurers can use as well to determine coverage (formulary in case of drugs) Is there a role for the government to do in an insurance market? Economies of scale ( is a public good) can be one reason We focus on market imperfections as a reason for by the government Further, the government should then impose that treatments with low value added cannot be covered by health insurance
5 Government Health insurance is the problem? Some people argue that rising health care costs are caused by health insurance Health insurance causes moral hazard and overconsumption However, this leads to a high level of spending; not to a high growth rate Others focus on the combination of health insurance and new technologies because new technologies are covered by health insurance, I will use them although the benefit does not outweigh the cost ex post this is correct: if it is covered by my health insurance, I will use the treatment even if the benefits are small but, ex ante, why do I buy coverage of treatments that are not worth it?
6 Government Health insurance is the problem? (cont.) e.g. me too drugs: mimic existing treatments but consumers value them a lot Hence they are sold for a high price Consumers have no clue about the value of treatments when buying insurance then the market can never work and government intervention is needed not likely: the private market in the US has no government intervention of this sort and has not done too badly (Cutler and McClellan (2001), Cutler, Rosen and Vijan (2006) and Cutler (2007)) Although consumers may not know the value of new treatments, their insurers do and they select for them (formulary)
7 Government Health insurance is the problem? (cont.) Main point of the paper: this does not work (well): consumer perception determines the value of a treatment suppose consumers incorrectly believe that treatment j is very valuable insurer I a knows it is not and excludes it from coverage however, I b does offer coverage of j consumers prefer I b over I a
8 Government Contribution of the paper When buying insurance, consumers do not know the value of each treatment individually Consumers partition set of treatments (say, into eye treatments using laser technology, cholesterol reducing drugs); they know the average value of treatments in the partition We model the bargaining between insurers and research labs and derive labs incentives to invest in R&D Government intervention by excluding low value treatments from coverage raises R&D and welfare (unless consumers are perfectly rational : partition into singletons) Market cannot replicate the government outcome
9 Government Related literature Recent literature on balancing static and dynamic efficiency for treatments that are insured: Garber, Jones and Romer (2006): health insurance subsidizes demand for treatments; therefore limits on patent duration and price caps may be called for to get dynamic efficiency Jena and Philipson (2008): CE threshold determines price that manufacturers charge the government; co-insurance rate determines price faced by consumers; both should be used to balance static and dynamic efficiency Lakdawalla and Sood (2009): public health insurance decouples consumer prices from manufacturer prices; this allows the government to balance static and dynamic efficiency
10 Government Related literature (cont.) literature on contracting with externalities: e.g. Hart and Tirole (1990), McAfee and Schwartz (1994), Segal (1999), Rey and Verge (2004)
11 Government How does work? is usually presented as a method to allocate scarce resources (budget in public system) in a way that yields the greatest health benefit is used to determine which treatments should be covered by health insurance Benefits of treatments can be measured using QALYs (Quality Adjusted Life Year) ranks treatments in terms of effectiveness (highest gain per unit of budget spent) Then starting from the highest treatments, treatments are covered until the budget is spent
12 Government How does work? (cont.) Alternatively, one specifies a price per QALY Treatments are covered where the cost per QALY is below the benchmark price per QALY; budget/spending is endogenous I will take a simplistic view of that makes it equivalent to cost-benefit analysis In the model production costs of treatments are normalized to 0; hence the value added of a treatment equals its utility/quality Government policy proposed is that the government sets a benchmark quality level Only treatments with quality above the benchmark are allowed to be covered by health insurance in the market
13 Government Framework Figure: Three sets of players and three markets
14 Government Utility T denotes the set of all (new) treatments Consumers [0, 1] have (the same) partition τ s of treatments with s S τ s = T When buying insurance, consumers know the average quality q τs of subset τ s From now on we focus on a typical element τ in this partition Probability that consumer needs treatment j τ is µ j (no co-morbidities) If consumer needs j, treatment increases utility by q j (we can ignore disutility associated with disease that requires j) Price/premium of health insurance: σ
15 Government Utility (cont.) If consumer is not insured for treatment j, it can buy j on uninsured market at price pj u When buying on uninsured market, physician helps the patient to determine q j Consumer faces budget constraint: pj u β U τ = E µ j q τ σ + max{0, q j pj u } (1) j τι j τ υ pj u β where q τ = j τ µ jq j j τ µ j (2)
16 Government Pricing games n 2 health insurers I a,..., I n Research labs L j, j τ Here we take q j as given Lab s production cost is normalized to zero Effectiveness (value added, efficiency) of treatment j is summarized by q j Contract specifies price per treatment j for insured of I i ( p ij ) and fixed part t ij that insurer pays L j Expected expenditure on j per insured for I i equals µ j p ij + t ij Contracts are options to buy for the insurer
17 Government Pricing games (cont.) L j cannot verify whether a consumer is uninsured, hence pj u p ij Offer game: Labs make simultaneously and indepedently take-it-or-leave-it private offers to insurers Bidding game: Insurers make simultaneously and indepedently take-it-or-leave-it private offers to labs If insurers cover the same treatments, they are homogeneous for consumers Insurers compete in prices (Bertrand) with interim unobservability and wary beliefs
18 Government Timing of the game 0 government sets minimimum standard q for treatments that can be insured 1 R&D labs invest to invent new treatments 2 consumers learn q τ for each subset τ in the partition of T 3 R&D labs contract privately with insurers 4 insurers decide on which treatments to cover τ ι and set σ 5 consumers decide whether to buy insurance and if so from which insurer 6 R&D labs set uninsured prices p u i 7 consumers fall ill and need treatment which is either covered by their insurance or not
19 Government Symmetric Perfect Bayesian equilibrium Consider the game from stage 3 onwards In a symmetric equilibrium of both the bidding and the offer game we have: if q τ > β: τ ι = τ π i = 0 σ = j τ µ j q τ (3) π k = µ k q τ p k = q τ t k = 0 p u k q τ (4) if q τ < β: τ ι = π i = 0 (5) π k = µ k p u k p u k = min{β, q k } (6)
20 Government Symmetric Perfect Bayesian equilibrium (cont.) If average quality in τ is high compared to consumer s budget β, all treatments in τ are covered by insurance for coverage of j, insurers raise the premium by µ j q τ : value as perceived by consumers insurers pay p j = q τ per treatment; not p j = q j (unless consumers are perfectly rational ) prices are linear labs appropriate all profits no one buys on the uninsured market as long as pj u q τ me too treatment has q j < q τ but gets paid p j = q τ : free rides on high quality treatments
21 Government Symmetric Perfect Bayesian equilibrium (cont.) there is no equilibrium with π j > µ j q τ if average quality is low compared to budget β, insurance unravels suppose that τ ι, then there is j τ ι with q j > q τι ; then it is more profitable for L j to sell on uninsured market (only) at p u j = min{β, q j } consumers understand that for each candidate set of insured treatments, highest quality treatments drop out can explain why things like soap, toothpaste, band-aid, though all important for health, are not covered by health insurance: people can afford these things without insurance
22 Government Government intervention and belief updating Suppose that the government sets q > 0 such that treatments with q j < q are not allowed to be covered by health insurance By our definition of q τ, we can write j τ q τ = ι µ j j τ j τ µ q τι + υ µ j j j τ µ q τυ (7) j Consumers learn that treatments τ υ are not allowed to be treated They can update their beliefs about q τι as follows: j τ q τι = µ j j τ q τ υ µ j E(q j q j < q) (8) j τ ι µ j j τ ι µ j
23 Government Government intervention and belief updating (cont.) Hence for a covered treatment j, it is now the case that d p j dq j = µ j j τ ι µ j (9) As q is increased, the set τ ι shrinks, free riding is reduced and d p j /dq j is increased This effect raises the labs incentives to invest in R&D
24 Government R&D investments max Normalize q [0, 1] Firms invest R&D effort e at cost c(e) with c(0) = c (0) = 0, c (e), c (e) > 0 and lim e 1 c(e), c (e) = +. (10) Given e, quality level q has distribution function G(q, e) with G e (q, e) < 0 for each q [0, 1 L j s optimization problem is given by e j π j (q j, q j, q)g(q 1, e 1 ) g(q τ, e τ )dq 1 dq τ c(e j ) (11)
25 Government R&D investments (cont.) First order condition for e j can be written as dπ j (q j, q j, q) g(q 1, e 1 ) ( G e (q j, e j )) g(q dq τ, e τ )dq 1 dq τ j (12) For given e j, the higher is dπ j /dq j = µ j dp j /dq j, the higher is L j s incentive to invest in R&D If free riding by me too treatments is reduced, incentive to invest in R&D is increased
26 Government Comparing q < β with q = β cases q < β q = β q k < q dp k dp dq k = 1 k dq k = 1 q k q dp, β and q τι < β k dp dq k = 1 k dq k = 1 q k q dp, β and q τι > β k dq k = µ k dp k j τ ι µ j dq k = 1 dp q k > β and q τι < β k dp dq k = 0 k dp q k > β and q τι > β k dp k dq k = µ k j τ ι µ j dq k = µ k j τι µ j dq k = µ k j τι µ j µ k j τ ι µ j
27 Government Comparing q < β with q = β (cont.) Government should forbid insurance companies to cover treatments that consumers can afford themselves (without insurance) This raises R&D and also total welfare (because of the free riding there is underinvestment in R&D)
28 Government Why can t the market achieve this? Consider the use of exclusionary clauses in the contracts between insurers and labs in stage 3 of the game Insurers only cover a subset of the treatments in τ (formulary) Insurers and labs can agree that only treatments with q j > q can be covered by insurance Specifically, L j with q j > q only sells to I i at p ij if I i does not cover treatments with q k < q Can this achieve the same increase in R&D as government intervention? How would this work?
29 Government Why can t the market achieve this? (cont.) Assume that q j {q l, q h } with q l < β < q h and µ j = µ for each j τ Consumers know q τ and hence can deduce the number ν of high quality treatments Consumers have the following beliefs: if ν or less treatments are covered in the market, then only q h treatments are covered in equilibrium This can indeed be an equilibrium in the bidding game However, an insurer has the outside option of selling q l treatments that consumers value at q τ q l -labs are willing to sell at p = q l + ε
30 Government Why can t the market achieve this? (cont.) Hence insurers can make a profit by deviating and covering l-treatments To prevent such a deviation, h-labs need to leave insurers a rent and hence π h < µq h while π l µq l If the government sets q = β, we find π h = µq h, π l = µq l Lab solves max e {eµq h + (1 e)µq l c(e)} Welfare maximizing planner solves the same problem
31 Government Extensions Concave utility function β distributed on [β, β] Co-morbidity: µ i + µ j
32 Government Conclusion with the following features: if consumers are perfectly rational, no need for government intervention if consumers only know average quality per subset of treatments, government can raise R&D and welfare by setting a minimum standard q for treatments that are allowed to be covered by insurance market is not as effective in enforcing the exclusion of low quality ( me too ) treatments When buying insurance, consumers do not know the value of each treatment exactly Hence they think that some treatments have great value, while actually they do not
33 Government Conclusion (cont.) This cannot be solved by insurers using formularies, as insurance contracts need to be sold to consumers A government run institute like NICE in the UK is also valuable in a private health insurance system Government then forbids the coverage of low quality treatments by health insurance
Does the Market Choose Optimal Health Insurance Coverage Boone, Jan
Tilburg University Does the Market Choose Optimal Health Insurance Coverage Boone, Jan Publication date: 2013 Link to publication Citation for published version (APA): Boone, J. (2013). Does the Market
More informationFee-for-service, capitation and health provider choice with private contracts
Fee-for-service, capitation and health provider choice with private contracts Jan Boone May 11, 2015 Abstract Contracts between health insurers and providers are private. By modelling this explicitly,
More informationOptimal coverage in basic and supplementary health insurance
Optimal coverage in basic and supplementary health insurance TILEC, Tilburg University July 1, 2013 Outline 1 Motivation 2 3 4 5 Many countries offer a combination of basic and supplementary insurance
More information2. Information Economics
2. Information Economics In General Equilibrium Theory all agents had full information regarding any variable of interest (prices, commodities, state of nature, cost function, preferences, etc.) In many
More informationDemand and supply of health insurance. Folland et al Chapter 8
Demand and supply of health Folland et al Chapter 8 Chris Auld Economics 317 February 9, 2011 What is insurance? From an individual s perspective, insurance transfers wealth from good states of the world
More informationSecond Hour Exam Public Finance - 180.365 Fall, 2007. Answers
Second Hour Exam Public Finance - 180.365 Fall, 2007 Answers HourExam2-Fall07, November 20, 2007 1 Multiple Choice (4 pts each) Correct answer indicated by 1. The portion of income received by the middle
More informationPart 2: Screening and Signaling in Games with Incomplete Information.
Lecture 9 Part 2: Screening and Signaling in Games with Incomplete Information. 1 Lecture Outline Screening and signaling incentives arise in games where uncertainty is exogenous and some players are better
More informationMoral Hazard. Itay Goldstein. Wharton School, University of Pennsylvania
Moral Hazard Itay Goldstein Wharton School, University of Pennsylvania 1 Principal-Agent Problem Basic problem in corporate finance: separation of ownership and control: o The owners of the firm are typically
More informationHow To Understand The Relationship Between Health Insurance And Moral Hazard
Optimal health insurance contract : can moral hazard incresase indemnity? David Alary SDFi, University Paris Dauphine Franck Bien LEGOS, University Paris Dauphine Abstract In this note, we generalize the
More informationUnraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets
Unraveling versus Unraveling: A Memo on Competitive Equilibriums and Trade in Insurance Markets Nathaniel Hendren January, 2014 Abstract Both Akerlof (1970) and Rothschild and Stiglitz (1976) show that
More informationPrice Dispersion. Ed Hopkins Economics University of Edinburgh Edinburgh EH8 9JY, UK. November, 2006. Abstract
Price Dispersion Ed Hopkins Economics University of Edinburgh Edinburgh EH8 9JY, UK November, 2006 Abstract A brief survey of the economics of price dispersion, written for the New Palgrave Dictionary
More informationDemand for Health Insurance
Demand for Health Insurance Demand for Health Insurance is principally derived from the uncertainty or randomness with which illnesses befall individuals. Consequently, the derived demand for health insurance
More informationMidterm exam, Health economics, Spring 2007 Answer key
Midterm exam, Health economics, Spring 2007 Answer key Instructions: All points on true/false and multiple choice questions will be given for the explanation. Note that you can choose which questions to
More informationEconomics of Insurance
Economics of Insurance In this last lecture, we cover most topics of Economics of Information within a single application. Through this, you will see how the differential informational assumptions allow
More informationChapter 18. Asymmetric Information. The buyer needs a hundred eyes, the seller not one. George Herbert (1651)
Chapter 18 Asymmetric Information The buyer needs a hundred eyes, the seller not one. George Herbert (1651) Chapter 18 Outline 18.1 Problems Due to Asymmetric Information 18.2 Responses to Adverse Selection
More informationProblem Set 9 Solutions
Problem Set 9 s 1. A monopoly insurance company provides accident insurance to two types of customers: low risk customers, for whom the probability of an accident is 0.25, and high risk customers, for
More informationECONOMICS 2 HEALTHCARE MANAGERS THIRD EDITION ROBERT H. LEE AUPHA. Health Administration Press, Chicago, Illinois
ECONOMICS 2 HEALTHCARE MANAGERS THIRD EDITION ROBERT H. LEE AUPHA Health Administration Press, Chicago, Illinois Association of University Programs in Health Administration, Arlington, Virginia DETAILED
More informationA public good is often defined to be a good that is both nonrivalrous and nonexcludable in consumption.
Theory of Public Goods A public good is often defined to be a good that is both nonrivalrous and nonexcludable in consumption. The nonrivalrous property holds when use of a unit of the good by one consumer
More informationSocial Insurance with Private Insurance Markets. 2 Social Insurance with Endogenous Private Insurance
Florian Scheuer 4/22/2014 Social Insurance with Private Insurance Markets 1 Overview in many insurance applications, public and private insurance co-exist even when private insurance markets may not be
More informationAdverse selection and moral hazard in health insurance.
Adverse selection and moral hazard in health insurance. Franck Bien David Alary University Paris Dauphine November 10, 2006 Abstract In this paper, we want to characterize the optimal health insurance
More informationOptimal demand management policies with probability weighting
Optimal demand management policies with probability weighting Ana B. Ania February 2006 Preliminary draft. Please, do not circulate. Abstract We review the optimality of partial insurance contracts in
More information9.1 Cournot and Bertrand Models with Homogeneous Products
1 Chapter 9 Quantity vs. Price Competition in Static Oligopoly Models We have seen how price and output are determined in perfectly competitive and monopoly markets. Most markets are oligopolistic, however,
More informationClass Notes, Econ 8801 Lump Sum Taxes are Awesome
Class Notes, Econ 8801 Lump Sum Taxes are Awesome Larry E. Jones 1 Exchange Economies with Taxes and Spending 1.1 Basics 1) Assume that there are n goods which can be consumed in any non-negative amounts;
More informationGame Theory: Supermodular Games 1
Game Theory: Supermodular Games 1 Christoph Schottmüller 1 License: CC Attribution ShareAlike 4.0 1 / 22 Outline 1 Introduction 2 Model 3 Revision questions and exercises 2 / 22 Motivation I several solution
More informationLabor Economics, 14.661. Lecture 3: Education, Selection, and Signaling
Labor Economics, 14.661. Lecture 3: Education, Selection, and Signaling Daron Acemoglu MIT November 3, 2011. Daron Acemoglu (MIT) Education, Selection, and Signaling November 3, 2011. 1 / 31 Introduction
More informationCredible Discovery, Settlement, and Negative Expected Value Suits
Credible iscovery, Settlement, and Negative Expected Value Suits Warren F. Schwartz Abraham L. Wickelgren Abstract: This paper introduces the option to conduct discovery into a model of settlement bargaining
More informationINCOMPLETE CONTRACTS AND COMPLEXITY COSTS
LUCA ANDERLINI and LEONARDO FELLI INCOMPLETE CONTRACTS AND COMPLEXITY COSTS ABSTRACT. This paper investigates, in a simple risk-sharing framework, the extent to which the incompleteness of contracts could
More informationResearch Summary Saltuk Ozerturk
Research Summary Saltuk Ozerturk A. Research on Information Acquisition in Markets and Agency Issues Between Investors and Financial Intermediaries An important dimension of the workings of financial markets
More informationOligopoly: Cournot/Bertrand/Stackelberg
Outline Alternative Market Models Wirtschaftswissenschaften Humboldt Universität zu Berlin March 5, 2006 Outline 1 Introduction Introduction Alternative Market Models 2 Game, Reaction Functions, Solution
More informationHealth Economics. University of Linz & Demand and supply of health insurance. Gerald J. Pruckner. Lecture Notes, Summer Term 2010
Health Economics Demand and supply of health insurance University of Linz & Gerald J. Pruckner Lecture Notes, Summer Term 2010 Gerald J. Pruckner Health insurance 1 / 25 Introduction Insurance plays a
More informationEconomics 101A (Lecture 26) Stefano DellaVigna
Economics 101A (Lecture 26) Stefano DellaVigna April 30, 2015 Outline 1. The Takeover Game 2. Hidden Type (Adverse Selection) 3. Empirical Economics: Intro 4. Empirical Economics: Home Insurance 5. Empirical
More informationProduct Differentiation In homogeneous goods markets, price competition leads to perfectly competitive outcome, even with two firms Price competition
Product Differentiation In homogeneous goods markets, price competition leads to perfectly competitive outcome, even with two firms Price competition with differentiated products Models where differentiation
More informationHow to Sell a (Bankrupt) Company
How to Sell a (Bankrupt) Company Francesca Cornelli (London Business School and CEPR) Leonardo Felli (London School of Economics) March 2000 Abstract. The restructuring of a bankrupt company often entails
More informationTwo dimensions of pure risk
What is Insurance? Insurance is protection against risks. We face many risks in our lives: Car accident Theft Disability Heart attack Etc. Consumers buy insurance to pay for the costs associated with some
More informationECON 459 Game Theory. Lecture Notes Auctions. Luca Anderlini Spring 2015
ECON 459 Game Theory Lecture Notes Auctions Luca Anderlini Spring 2015 These notes have been used before. If you can still spot any errors or have any suggestions for improvement, please let me know. 1
More information21. Unverifiable Investment, Hold Up, Options and Ownership
21. Unverifiable Investment, Hold Up, Options and Ownership This chapter applies the tools of games with joint decisions and negotiation equilibrium to study the hold up problem in economics. We first
More informationHealth Economics. University of Linz & Information, health insurance and compulsory coverage. Gerald J. Pruckner. Lecture Notes, Summer Term 2010
Health Economics Information, health insurance and compulsory coverage University of Linz & Gerald J. Pruckner Lecture Notes, Summer Term 2010 Gerald J. Pruckner Information 1 / 19 Asymmetric information
More informationOptimal health insurance contract: Is a deductible useful?
Economics Letters 87 (2005) 313 317 www.elsevier.com/locate/econbase Optimal health insurance contract: Is a deductible useful? David Bardey a, T, Romain Lesur b a GREMAQ UMR CNRS 5604-Manufacture des
More informationLecture 7: Policy Design: Health Insurance & Adverse Selection
Health Insurance Spending & Health Adverse Selection Lecture 7: Policy Design: Health Insurance & Adverse Selection Johannes Spinnewijn London School of Economics Lecture Notes for Ec426 1 / 25 Health
More informationWorking Paper Does retailer power lead to exclusion?
econstor www.econstor.eu Der Open-Access-Publikationsserver der ZBW Leibniz-Informationszentrum Wirtschaft The Open Access Publication Server of the ZBW Leibniz Information Centre for Economics Rey, Patrick;
More informationPromote Cooperation. Job Market Paper
Divide and Conquer? Decentralized Firm Structure May Promote Cooperation Job Market Paper Michal Goldberg December 12, 2013 Abstract I consider a model in which an entrepreneur s objective is to maximize
More informationQuality differentiation and entry choice between online and offline markets
Quality differentiation and entry choice between online and offline markets Yijuan Chen Australian National University Xiangting u Renmin University of China Sanxi Li Renmin University of China ANU Working
More informationNovember 4, 2010. Honorable Paul Ryan Ranking Member Committee on the Budget U.S. House of Representatives Washington, DC 20515.
CONGRESSIONAL BUDGET OFFICE U.S. Congress Washington, DC 20515 Douglas W. Elmendorf, Director November 4, 2010 Honorable Paul Ryan Ranking Member Committee on the Budget U.S. House of Representatives Washington,
More informationImperfect monitoring in communication networks
Journal of Economic Theory (00) www.elsevier.com/locate/jet Imperfect monitoring in communication networks Michael McBride University of California, Irvine, Social Science Plaza, Irvine, CA -00, USA Received
More informationFrequent flyer programs and dynamic contracting with limited commitment
Frequent flyer programs and dynamic contracting with limited commitment Emil Temnyalov March 14, 2015 Abstract I present a novel contract theoretic explanation of the profitability and management of loyalty
More informationUniversidad de Montevideo Macroeconomia II. The Ramsey-Cass-Koopmans Model
Universidad de Montevideo Macroeconomia II Danilo R. Trupkin Class Notes (very preliminar) The Ramsey-Cass-Koopmans Model 1 Introduction One shortcoming of the Solow model is that the saving rate is exogenous
More informationChapter 7. Sealed-bid Auctions
Chapter 7 Sealed-bid Auctions An auction is a procedure used for selling and buying items by offering them up for bid. Auctions are often used to sell objects that have a variable price (for example oil)
More informationTHE ROLE. Testimony United. of the. University. practicing. primary care. of care.
THE ROLE OF VALUE BASED INSURANCE DESIGN IN HEALTH CARE DELIVERY INNOVATION Testimony United States Senate Committee on Health, Education, Labor and Pensions A. Mark Fendrick, MD Professor of Internal
More information.4 120 +.1 80 +.5 100 = 48 + 8 + 50 = 106.
Chapter 16. Risk and Uncertainty Part A 2009, Kwan Choi Expected Value X i = outcome i, p i = probability of X i EV = pix For instance, suppose a person has an idle fund, $100, for one month, and is considering
More informationSecond degree price discrimination
Bergals School of Economics Fall 1997/8 Tel Aviv University Second degree price discrimination Yossi Spiegel 1. Introduction Second degree price discrimination refers to cases where a firm does not have
More informationPerfect Bayesian Equilibrium
Perfect Bayesian Equilibrium When players move sequentially and have private information, some of the Bayesian Nash equilibria may involve strategies that are not sequentially rational. The problem is
More informationNBER WORKING PAPER SERIES INSURANCE AND INCENTIVES FOR MEDICAL INNOVATION. Alan M. Garber Charles I. Jones Paul M. Romer
NBER WORKING PAPER SERIES INSURANCE AND INCENTIVES FOR MEDICAL INNOVATION Alan M. Garber Charles I. Jones Paul M. Romer Working Paper 12080 http://www.nber.org/papers/w12080 NATIONAL BUREAU OF ECONOMIC
More informationPUBLIC HEALTH OPTOMETRY ECONOMICS. Kevin D. Frick, PhD
Chapter Overview PUBLIC HEALTH OPTOMETRY ECONOMICS Kevin D. Frick, PhD This chapter on public health optometry economics describes the positive and normative uses of economic science. The terms positive
More informationSharing Online Advertising Revenue with Consumers
Sharing Online Advertising Revenue with Consumers Yiling Chen 2,, Arpita Ghosh 1, Preston McAfee 1, and David Pennock 1 1 Yahoo! Research. Email: arpita, mcafee, pennockd@yahoo-inc.com 2 Harvard University.
More informationThe Reasonable Person Negligence Standard and Liability Insurance. Vickie Bajtelsmit * Colorado State University
\ins\liab\dlirpr.v3a 06-06-07 The Reasonable Person Negligence Standard and Liability Insurance Vickie Bajtelsmit * Colorado State University Paul Thistle University of Nevada Las Vegas Thistle s research
More information1 Uncertainty and Preferences
In this chapter, we present the theory of consumer preferences on risky outcomes. The theory is then applied to study the demand for insurance. Consider the following story. John wants to mail a package
More informationMoral Hazard, Market Power, and Second Best Health Insurance
Moral Hazard, Market Power, and Second Best Health Insurance by Berthold U. Wigger* Department of Economics University of Erlangen-Nuremberg D-90403 Nürnberg berthold.wigger@wiso.uni-erlangen.de and Markus
More informationRationales for Social Insurance
Florian Scheuer 4/1/2014 Rationales for Social Insurance 1 Overview 4 weeks on... why have social insurance? failures in insurance markets and how to detect them optimal social insurance design (focus:
More informationPrice competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
ECON9 (Spring 0) & 350 (Tutorial ) Chapter Monopolistic Competition and Oligopoly (Part ) Price competition with homogenous products: The Bertrand duopoly model [Simultaneous move price setting duopoly]
More informationCan Income Redistribution Be Privatized? Erzo F.P. Luttmer *
Can Income Redistribution Be Privatized? Erzo F.P. Luttmer * Abstract Income redistribution can be viewed as a process that screens individuals based on their innate ability and then transfers income conditional
More informationReputation in repeated settlement bargaining
Reputation in repeated settlement bargaining Jihong Lee Birkbeck College, London and Yonsei University Qingmin Liu Cowles Foundation and University of Pennsylvania PRELIMINARY and INCOMPLETE commets welcome!
More informationIntellectual Property Right Protection in the Software Market
Intellectual Property Right Protection in the Software Market Yasuhiro Arai Aomori Public College 153-4, Yamazaki, Goushizawa, Aomori-city, Aomori 030-0196, Japan March 01 Abstract We discuss the software
More informationEconS 503 - Advanced Microeconomics II Handout on Cheap Talk
EconS 53 - Advanced Microeconomics II Handout on Cheap Talk. Cheap talk with Stockbrokers (From Tadelis, Ch. 8, Exercise 8.) A stockbroker can give his client one of three recommendations regarding a certain
More informationWarranty Designs and Brand Reputation Analysis in a Duopoly
Warranty Designs and Brand Reputation Analysis in a Duopoly Kunpeng Li * Sam Houston State University, Huntsville, TX, U.S.A. Qin Geng Kutztown University of Pennsylvania, Kutztown, PA, U.S.A. Bin Shao
More informationCHAPTER 6. Investment Decision Rules. Chapter Synopsis
CHAPTER 6 Investment Decision Rules Chapter Synopsis 6.1 and Stand-Alone Projects The net present value () of a project is the difference between the present value of its benefits and the present value
More informationThe Economics of Demand-Side Financing
The Economics of Demand-Side Financing Commissioned by The Dutch Ministry of Economic Affairs SEOR-ECRI www.ecri.nl Prof.dr. M.C.W. Janssen drs. E. Maasland dr. E. Mendys-Kamphorst March 18, 2004 Abstract.
More informationWork incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard
Work incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard Cécile Aubert Abstract Two agents sequentially contracts with different principals under moral
More informationCurrent Accounts in Open Economies Obstfeld and Rogoff, Chapter 2
Current Accounts in Open Economies Obstfeld and Rogoff, Chapter 2 1 Consumption with many periods 1.1 Finite horizon of T Optimization problem maximize U t = u (c t ) + β (c t+1 ) + β 2 u (c t+2 ) +...
More informationCournot s model of oligopoly
Cournot s model of oligopoly Single good produced by n firms Cost to firm i of producing q i units: C i (q i ), where C i is nonnegative and increasing If firms total output is Q then market price is P(Q),
More informationEquilibrium in Competitive Insurance Markets: An Essay on the Economic of Imperfect Information
Equilibrium in Competitive Insurance Markets: An Essay on the Economic of Imperfect Information By: Michael Rothschild and Joseph Stiglitz Presented by Benjamin S. Barber IV, Xiaoshu Bei, Zhi Chen, Shaiobi
More informationHow To Find Out If A Person Is More Or Less Confident
Web Appendix for Overconfidence, Insurance and Paternalism. Alvaro Sandroni Francesco Squintani Abstract This paper is not self-contained. It is the mathematical appendix of the paper "Overconfidence,
More informationLecture Notes. 1 What is Asymmetric Information and why it matters for Economics?
Lecture Notes The most important development in economics in the last forty years has been the study of incentives to achieve potential mutual gain when the parties have different degrees of knowledge.
More informationNon-Exclusive Competition in the Market for Lemons
Non-Exclusive Competition in the Market for Lemons Andrea Attar Thomas Mariotti François Salanié October 2007 Abstract In order to check the impact of the exclusivity regime on equilibrium allocations,
More informationNBER WORKING PAPER SERIES ENDOGENOUS COST-EFFECTIVENESS ANALYSIS IN HEALTH CARE TECHNOLOGY ADOPTION. Anupam Jena Tomas Philipson
NBER WORKING PAPER SERIES ENDOGENOUS COST-EFFECTIVENESS ANALYSIS IN HEALTH CARE TECHNOLOGY ADOPTION Anupam Jena Tomas Philipson Working Paper 15032 http://www.nber.org/papers/w15032 NATIONAL BUREAU OF
More informationThe design of insurance coverage for medical products under imperfect competition 1
The design of insurance coverage for medical products under imperfect competition 1 David Bardey 2, Helmuth Cremer 3 and Jean-Marie Lozachmeur 4 January 2015 1 We thank Philippe Choné for his very helpful
More informationPaul Belleflamme, CORE & LSM, UCL
International Workshop on Supply Chain Models for Shared Resource Management Managing inter- and intra-group externalities on two-sided platforms Paul Belleflamme, CORE & LSM, UCL 22/01/2010 FUSL, Brussels
More informationQuantity Choice in Unit Price Contract Procurements
Quantity Choice in Unit Price Contract Procurements Svante Mandell and Fredrik Brunes Working Paper 2012:02 Section for Building and Real Estate Economics Department of Real Estate and Construction Management
More informationNatural and Industrial Disasters: Land Use and Insurance
Natural and Industrial Disasters: Land Use and Insurance Céline Grislain-Letrémy 1 Bertrand Villeneuve 2 Paris, 25 October 2013 1 CREST and University Paris-Dauphine 2 University Paris-Dauphine and CREST
More informationOn the Existence of Nash Equilibrium in General Imperfectly Competitive Insurance Markets with Asymmetric Information
analysing existence in general insurance environments that go beyond the canonical insurance paradigm. More recently, theoretical and empirical work has attempted to identify selection in insurance markets
More informationNBER WORKING PAPER SERIES OPTIMAL PROVISION OF LOANS AND INSURANCE AGAINST UNEMPLOYMENT FROM A LIFETIME PERSPECTIVE. Joseph Stiglitz Jungyoll Yun
NBER WORKING PAPER SERIES OPTIMAL PROVISION OF LOANS AND INSURANCE AGAINST UNEMPLOYMENT FROM A LIFETIME PERSPECTIVE Joseph Stiglitz Jungyoll Yun Working Paper 19064 http://www.nber.org/papers/w19064 NATIONAL
More informationBayesian Nash Equilibrium
. Bayesian Nash Equilibrium . In the final two weeks: Goals Understand what a game of incomplete information (Bayesian game) is Understand how to model static Bayesian games Be able to apply Bayes Nash
More informationRemedies vs. Extreme Options in Merger Control
BECCLE 2015 Competition Policy Conference 1/18 Motivation Remedies: ˆ important device used by Antitrust Authorities (AA) to countervail mergers anticompetitive effects ˆ structural remedies (divestitures
More informationSharing Online Advertising Revenue with Consumers
Sharing Online Advertising Revenue with Consumers Yiling Chen 2,, Arpita Ghosh 1, Preston McAfee 1, and David Pennock 1 1 Yahoo! Research. Email: arpita, mcafee, pennockd@yahoo-inc.com 2 Harvard University.
More informationThe Plaintiff s Attorney in the Liability Insurance Claims Settlement Process: A Game Theoretic Approach
The Plaintiff s Attorney in the Liability Insurance Claims Settlement Process: A Game Theoretic Approach Lisa L. Posey * Abstract: The decision of a claimant to obtain legal counsel, the timing of this
More informationRenegotiation-Blocking Through Financial Claims
Renegotiation-Blocking Through Financial Claims February 14, 2015 Abstract Renegotiation of contractual agreements may lead to distortion of ex-ante incentives and inefficiencies. We examine the conditions
More informationTiered and Value-based Health Care Networks
Tiered and Value-based Health Care Networks Ching-to Albert Ma Henry Y. Mak Department of Economics Department of Economics Boston Univeristy Indiana University Purdue University Indianapolis 270 Bay State
More informationWhy Plaintiffs Attorneys Use Contingent and Defense Attorneys Fixed Fee Contracts
Why Plaintiffs Attorneys Use Contingent and Defense Attorneys Fixed Fee Contracts Winand Emons 1 Claude Fluet 2 1 Department of Economics University of Bern, CEPR, CIRPEE 2 Université du Québec à Montréal,
More informationComputational Finance Options
1 Options 1 1 Options Computational Finance Options An option gives the holder of the option the right, but not the obligation to do something. Conversely, if you sell an option, you may be obliged to
More informationA dynamic auction for multi-object procurement under a hard budget constraint
A dynamic auction for multi-object procurement under a hard budget constraint Ludwig Ensthaler Humboldt University at Berlin DIW Berlin Thomas Giebe Humboldt University at Berlin March 3, 2010 Abstract
More informationPrices versus Exams as Strategic Instruments for Competing Universities
Prices versus Exams as Strategic Instruments for Competing Universities Elena Del Rey and Laura Romero October 004 Abstract In this paper we investigate the optimal choice of prices and/or exams by universities
More informationAn Introduction to Sponsored Search Advertising
An Introduction to Sponsored Search Advertising Susan Athey Market Design Prepared in collaboration with Jonathan Levin (Stanford) Sponsored Search Auctions Google revenue in 2008: $21,795,550,000. Hal
More informationOligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry s output.
Topic 8 Chapter 13 Oligopoly and Monopolistic Competition Econ 203 Topic 8 page 1 Oligopoly: How do firms behave when there are only a few competitors? These firms produce all or most of their industry
More informationECON4335 The economics of banking Lecture 12, 20/4-2010: Bank regulation Crisis handling, Lender-Borrower Relationship
ECON4335 The economics of banking Lecture 12, 20/4-2010: Bank regulation Crisis handling, Lender-Borrower Relationship Bent Vale, Norges Bank Views and conclusions are those of the lecturer and can not
More informationAdverse Selection and the Market for Health Insurance in the U.S. James Marton
Preliminary and Incomplete Please do not Quote Adverse Selection and the Market for Health Insurance in the U.S. James Marton Washington University, Department of Economics Date: 4/24/01 Abstract Several
More informationIndustry profit in an oligopoly (sum of all firms profits) < monopoly profit.
Collusion. Industry profit in an oligopoly (sum of all firms profits) < monopoly profit. Price lower and industry output higher than in a monopoly. Firms lose because of non-cooperative behavior : Each
More informationEfficient Investment Strategies - Intermediation Equilibrium
Intermediation in Innovation 1 Heidrun C. Hoppe University of Bonn 2 Emre Ozdenoren University of Michigan 3 January 12, 2005 1 The work in this paper was conducted in part while Heidrun Hoppe was visiting
More informationCostandQualityIncentivesinHealthCare: Altruistic Providers
CostandQualityIncentivesinHealthCare: Altruistic Providers Ching-to Albert Ma Department of Economics Boston University 27 Bay State Road Boston Massachusetts 2215 ma@bu.edu December, 1997 JEL Classification
More informationCredit Policy in Business Cycle Analysis
Financial Intermediation and Credit Policy in Business Cycle Analysis Gertler and Kiyotaki Discussion by Lawrence Christiano Very Ambitious Paper Create an environment that mimics the circumstances in
More informationLIABILITY, INSURANCE AND THE INCENTIVE TO OBTAIN INFORMATION ABOUT RISK. Vickie Bajtelsmit * Colorado State University
\ins\liab\liabinfo.v9 08-23-12 LIABILITY, INSURANCE AND THE INCENTIVE TO OBTAIN INFORMATION ABOUT RISK Vickie Bajtelsmit * Colorado State University Paul Thistle University of Nevada Las Vegas August 2012
More informationOnline Appendix Feedback Effects, Asymmetric Trading, and the Limits to Arbitrage
Online Appendix Feedback Effects, Asymmetric Trading, and the Limits to Arbitrage Alex Edmans LBS, NBER, CEPR, and ECGI Itay Goldstein Wharton Wei Jiang Columbia May 8, 05 A Proofs of Propositions and
More information