NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Abstracts of Selected Recent NBER Working Papers

WP 13599
W. Kip Viscusi and Joni Hersch
The Mortality Cost to Smokers

This article estimates the mortality cost of smoking based on the first labor market estimates of the value of statistical life by smoking status. Using these values in conjunction with the increase in the mortality risk over the life cycle due to smoking, the value of statistical life by age and gender, and information on the number of packs smoked over the life cycle, produces an es-timate of the private mortality cost of smoking of $222 per pack for men and $94 per pack for women in 2006 dollars, based on a 3 percent discount rate. At discount rates of 15 percent or more, the cost decreases to under $25 per pack.

WP 13600
John Cawley and Feng Liu
Maternal Employment and Childhood Obesity: A Search for Mechanisms in Time Use Data

Recent research has found that maternal employment is associated with an increased risk of childhood obesity. This paper explores mechanisms for that correlation. We estimate models of instrumental variables using a unique dataset, the American Time Use Survey, that measure the effect of maternal employment on the mother's allocation of time to activities related to child diet and physical activity. We find that employed women spend significantly less time cooking, eating with their children, and playing with their children, and are more likely to purchase prepared foods. We find suggestive evidence that these decreases in time are only partly offset by husbands and partners. These findings offer plausible mechanisms for the association of mater-nal employment with childhood obesity.

WP 13610
Emily Oster
Routes of Infection: Exports and HIV Incidence in Sub-Saharan Africa

I generate new data on HIV incidence and prevalence in Africa based on inference from mortality rates. I use these data to re-late economic activity (specifically, exports) to new HIV infections in Africa and argue there is a significant and large positive relationship between the two: a doubling of exports leads to as much as a quadrupling in new HIV infections. This relationship is consistent with a model of the epidemic in which truckers and other migrants have higher rates of risky behavior, and their numbers increase in periods with greater exports. I present evidence suggesting that the relationship between exports and HIV is causal and works, at least in part, through increased transit. The result has important policy implications, suggesting (for ex-ample) that there is significant value in prevention focused on these transit oriented groups. I apply this result to study the case of Uganda, and argue that a decline in exports in the early 1990s in that country appears to explain between 30% and 60% of the decline in HIV infections. This suggests that the success of the Ugandan anti-HIV education campaign, which encouraged changes in sexual behavior, has been overstated.

WP 13627
Florian Heiss, Daniel McFadden, and Joachim Winter
Mind the Gap! Consumer Perceptions and Choices of Medicare Part D Prescription Drug Plans

Medicare Part D provides prescription drug coverage through Medicare approved plans offered by private insurance compa-nies and HMOs. In this paper, we study the role of current prescription drug use and health risks, related expectations, and sub-jective factors in the demand for prescription drug insurance. To characterize rational behavior in the complex Part D environ-ment, we develop an intertemporal optimization model of enrollment decisions. We generally find that seniors' choices respond to the incentives provided by their own health status and the market environment as predicted by the optimization model. The proportion of individuals who do not attain the optimal choice is small, but the margin for error is also small since enrollment is transparently optimal for most eligible seniors. Further, there is also evidence that seniors over-react to some salient features of the choice situation, do not take full account of the future benefit and cost consequences of their decisions, or the expected net benefits and risk properties of alternative plans.

WP 13656
James Choi, David Laibson, and Brigitte Madrian
The Flypaper Effect in Individual Investor Asset Allocation

We document a flypaper effect in asset allocation: securities received in kind "stick where they hit." We study a firm that twice changed the rules governing the securities in which its 401(k) matching contributions were initially invested. Both of these rule changes were economically neutral: employees were always free to immediately reallocate their match account balances. However, we find that most employees neither reallocate their match balances, nor offset employer-initiated changes in the match allocation by adjusting the allocation of their own contributions. Consequently, these rule changes caused dramatic shifts in participants' 401(k) portfolio risk. After examining several alternative explanations for this flypaper effect, we conclude that it is largely due to a combination of passivity and mental accounting.

WP 13664
Awash Teklehaimanot, Gordon McCord, Jeffrey Sachs
Scaling Up Malaria Control in Africa: An Economic and Epidemiological Assessment

This paper estimates the number of people at risk of contracting malaria in Africa using GIS methods and the disease's epi-demiologic characteristics. It then estimates yearly costs of covering the population at risk with the package of interventions (dif-fering by level of malaria endemicity and differing for rural and urban populations) for malaria as recommended by the UN Mil-lennium Project. These projected costs are calculated assuming a ramp-up of coverage to full coverage by 2008, and then pro-jected out through 2015 to give a year-by-year cost of meeting the Millennium Development Goal for reducing the burden of malaria by 75% We conclude that the cost of comprehensive malaria control for Africa is US$3.0 billion per year on average, or around US$4.02 per African at risk.

WP 13693
Todd Sinai and Nicholas Souleles
Net Worth and Housing Equity in Retirement

This paper documents the trends in the life-cycle profiles of net worth and housing equity between 1983 and 2004. The net worth of older households significantly increased during the housing boom of recent years. However, net worth grew by more than housing equity, in part because other assets also appreciated at the same time. Moreover, the younger elderly offset rising house prices by increasing their housing debt, and used some of the proceeds to invest in other assets. We also consider how much of their housing equity older households can actually tap, using reverse mortgages. This fraction is lower at younger ages, such that young retirees can consume less than half of their housing equity. These results imply that "consumable" net worth is smaller than standard calculations of net worth.

WP 13730
John Romley and Dana Goldman
How Costly is Hospital Quality? A Revealed-Preference Approach

One of the most important and vexing issues in health care concerns the cost to improve quality. Unfortunately, quality is diffi-cult to measure and potentially confounded with productivity. Rather than relying on clinical or process measures, we infer qual-ity at hospitals in greater Los Angeles from the revealed preference of pneumonia patients. We then decompose the joint con-tribution of quality and unobserved productivity to hospital costs, relying on heterogeneous tastes among patients for plausibly exogenous quality variation. We find that more productive hospitals provide higher quality, demonstrating that the cost of quality improvement is substantially understated by methods that do not take into account productivity differences. After accounting for these differences, we find that a quality improvement from the 25th percentile to the 75th percentile would increase costs at the average hospital by nearly fifty percent. Improvements in traditional metrics of hospital quality such as risk-adjusted mortality are more modest, indicating that other factors such as amenities are an important driver of both hospital costs and patient choices.

WP 13746
David Cutler, Amy Finkelstein, and Kathleen McGarry
Preference Heterogeneity and Insurance Markets: Explaining a Puzzle of Insurance

Standard theories of insurance, dating from Rothschild and Stiglitz (1976), stress the role of adverse selection in explaining the decision to purchase insurance. In these models, higher risk people buy full or near-full insurance, while lower risk people buy less complete coverage, if they buy at all. While this prediction appears to hold in some real world insurance markets, in many others, it is the lower risk individuals who have more insurance coverage. If the standard model is extended to allow individuals to vary in their risk tolerance as well as their risk type, this could explain why the relationship between insurance coverage and risk occurrence can be of any sign, even if the standard asymmetric information effects also exist. We present empirical evi-dence in five difference insurance markets in the United States that is consistent with this potential role for risk tolerance. Spe-cifically, we show that individuals who engage in risky behavior or who do not engage in risk reducing behavior are systematically less likely to hold life insurance, acute private health insurance, annuities, long-term care insurance, and Medigap. More-over, we show that the sign of this preference effect differs across markets, tending to induce lower risk individuals to purchase insurance in some of these markets, but higher risk individuals to purchase insurance in others. These findings suggest that preference heterogeneity may be important in explaining the differential patterns of insurance coverage in various insurance markets.

 

 
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