Abstracts of Selected Recent NBER Working Papers

NBER Working Paper 11902
Phillip J. Cook, Bethany Peters
The Myth of the Drinker's Bonus

Drinkers earn more than non-drinkers, even after controling for human capital and local labor market conditions. Several mechanisms by which drinking could increase productivity have been proposed but are unconfirmed; the more obvious mechanisms predict the opposite, that drinking can impair productivity. In this paper we reproduce the positive association between drinking and earnings, using data for adults age 27-34 from the National Longitudinal Survey of Youth (1979). Since drinking is endogenous in this relationship, we then estimate a reduced-form equation, with alcohol prices (proxied by a new index of excise taxes) replacing the drinking variables. We find strong evidence that the prevalence of ful-time work increases with alcohol prices-suggesting that a reduction in drinking increases the labor supply. We also demonstrate some evidence of a positive association between alcohol prices and the earnings of full-time workers. We conclude that most likely the positive association between drinking and earnings is the result of the fact that ethanol is a normal commodity, the consumption of which increases with income, rather than an elixer that enhances productivity.

NBER Working Paper 11934
W. Kip Viscusi
Regulation of Health, Safety, and Environmental Risks

This paper provides a systematic review of the economic analysis of health, safety, and environmental regulations. Although the market failures that give rise to a rationale for intervention are well known, not all market failures imply that market risk levels are too great. Hazard warnings policies often can address informational failures. Some market failures may be exacerbated by government policies, particularly those embodying conservative risk assessment practices. Labor market estimates of the value of statistical life provide a useful reference point for the efficient risk tradeoffs for government regulation. Guided by restrictive legislative mandates, regulatory policies often strike a quite different balance with an inordinately high cost per life saved. The risk-risk analysis methodology enables analysts to assess the net safety implications of policy efforts. Inadequate regulatory enforcement and behavioral responses to regulation may limit their effectiveness, while rising societal wealth will continue to generate greater levels of health and safety.

NBER Working Paper 11956
Jayachandran N. Variyam, John Cawley
Nutrition Labels and Obesity

The Nutrition Labeling and Education Act (NLEA) imposed significant changes in the information about calories and nutrients that manufacturers of packaged foods must provide to consumers. This paper tests whether the release of this information impacted body weight and obesity among American adults. We estimate the effect of the new label using a difference-in-differences method. We compare the change before and after the implementation of NLEA in body weight among those who use labels when food shopping to that among those who do not use labels. In National Health Interview Survey data we find, among non-Hispanic white women, that the implementation of the new labels was associated with a decrease in body weight and the probability of obesity. Using NLEA regulatory impact analysis benchmarks, we estimate that the total monetary benefit of this decrease in body weight was $63 to $166 billion over a 20-year period, far in excess of the costs of the NLEA.

NBER Working Paper 11964
Jeffrey Brown, James Poterba
Household Ownership of Variable Annuities

Variable annuities have been one of the most rapidly growing financial products of the last two decades. Between 1996 and 2004, nominal sales of variable annuities in the U.S. more than doubled, from $51 billion to $130 billion. Variable annuities now account for approximately nearly two thirds of annuity sales. The investment returns associated with variable annuities resemble those from mutual funds, and variable annuity buyers can select among a range of asset allocation options. Variable annuities are considered insurance products under the tax law, so buyers are not taxed on their investment returns until they make withdrawals from their variable annuity accounts. This paper describes the tax treatment of variable annuities, presents summary information on their ownership patterns, and explores the importance of several distinct motives for household purchase of variable annuities. The discussion of tax treatment examines the impact of the 2001 and 2003 tax bills on the relative tax treatment of variable annuities and other financial products. Household data from the 1998 and 2001 Survey of Consumer Finances shows that variable annuity ownership is highly concentrated among high income and high net wealth sub-groups of the population. Variable annuity ownership is less concentrated, however, than ownership of several other types of financial assets. Evidence on the role of tax incentives in encouraging ownership of variable annuities is mixed. The probability of owning a variable annuity rises with the marginal tax rate throughout most of the income distribution, but it is lower for households in the top tax bracket than for those with slightly lower tax rates.

NBER Working Paper 11977
Anthony T. Lo Sasso, Bruce D. Meyer
The Health Care Safety Net and Crowd-Out of Private Health Insurance

There is an extensive literature on the extent to which public health insurance coverage through Medicaid induces less private health insurance coverage. However, little is known about the effect of other components of the health care safety net in crowding out private coverage. We examine the effect of Medicaid and uncompensated care provided by clinics and hospitals on insurance coverage. We construct a long panel of metropolitan area and state-level data on hospital uncompensated care and free and reduced price care offered by Federally Qualified Health Centers. We match this information to individual level data on coverage from the Current Population Survey for two distinct groups: children aged 14 and under and single, childless adults aged 18 to 64. Our results provide mixed evidence on the extent of crowd-out. Hospital uncompensated care does not appear to crowd-out health insurance coverage and health center uncompensated care appears to crowd-out private coverage for adults and, in some specifications, children.

NBER Working Paper 11979
James Choi, David Laibson, Brigitte Madrian
Reducing the Complexity Costs of 401(k) Participation Through Quick Enrollment(TM)

The complexity of the retirement savings decision may overwhelm employees, encouraging procrastination and reducing 401(k) enrollment rates. We study a low-cost manipulation designed to simplify the 401(k) enrollment process. Employees are given the option to make a Quick Enrollment(TM) election to enroll in their 401(k) plan at a pre-selected contribution rate and asset allocation. By decoupling the participation decision from the savings rate and asset allocation decisions, the Quick Enrollment(TM) mechanism simplifies the savings plan decision process. We find that at one company, Quick Enrollment(TM) tripled 401(k) participation rates among new employees three months after hire. When Quick Enrollment(TM) was offered to previously hired non-participating employees at two firms, participation increased by 10 to 20 percentage points among those employees affected.

NBER Working Paper 11980
Brigitte Madrian
The U.S. Health Care System and Labor Markets

This paper provides a broad and general overview of the relationship between the U.S. health care system and the labor market. The paper first describes some of the salient features of and facts about the system of health insurance coverage in the U.S., particularly the role of employers. It then summarizes the empirical evidence on how health insurance impacts labor market outcomes such as wages, labor supply (including retirement, female labor supply, part-time vs. full-time work, and formal vs. informal sector work), labor demand (including hours worked and the composition of employment across full-time, part-time and temporary workers), and job turnover. It then discusses the implications of having a fragmented system of health insurance delivery--in which employers play a central role--on the health care system and health care outcomes.

NBER Working Paper 11990
Donald S. Kenkel, Dean R. Lillard, Alan D. Mathios
The Roles of High School Completion and GED Receipt in Smoking and Obesity

We analyze data from the National Longitudinal Survey of Youth 1979 to explore the relationships between high school completion and the two leading preventable causes of death - smoking and obesity. We focus on three issues that have received a great deal of attention in research on the pecuniary returns to schooling. First, we investigate whether GED recipients differ from other high school graduates in their smoking and obesity behaviors. Second, we explore the extent to which the relationships between schooling and these health-related behaviors are sensitive to controlling for family background measures and cognitive ability. Third, we estimate instrumental variables (IV) models of the impact of schooling on smoking and obesity. Although our IV estimates are imprecise, both the OLS and IV results tend to suggest that the returns to high school completion include a reduction in smoking. We find little evidence that high school completion is associated with a lower probability of being overweight or obese for either men or women. The results also suggest that the health returns to GED receipt are much smaller than the returns to high school completion.

NBER Working Paper 11998
Phil Oreopoulos, Mark Stabile, Randy Walld, Leslie Roos
Short, Medium, and Long Term Consequences of Poor Infant Health: An Analysis using Siblings and Twins

We use administrative data on a sample of births between 1978 and 1985 to investigate the short, medium and long-term consequences of poor infant health. Our findings offer several advances to the existing literature on the effects of early infant health on subsequent health, education, and labor force attachment. First, we use a large sample of both siblings and twins, second we use a variety of measures of infant health, and finally we track children through their schooling years and into the labor force. Our findings suggest that poor infant health is a strong predictor of educational and labor force outcomes. In particular, infant health is found to predict both high school completion and social assistance (welfare) take-up and length.

NBER Working Paper 12016
Tomas J. Philipson, Anupam B. Jena
Jump to the Navigation Bar Surplus Appropriation from R&D and Health Care Technology Assessment Procedures

Given the rapid growth in health care spending that is often attributed to technological change, many private and public institutions are grappling with how to best assess and adopt new health care technologies. The leading technology adoption criteria proposed in theory and used in practice involve so called "cost-effectiveness" measures. However, little is known about the dynamic efficiency implications of such criteria, in particular how they influence the R&D investments that make technologies available in the first place. We argue that such criteria implicitly concern maximizing consumer surplus, which many times is consistent with maximizing static efficiency after an innovation has been developed. Dynamic efficiency, however, concerns aligning the social costs and benefits of R&D and is therefore determined by how much of the social surplus from the new technology is appropriated as producer surplus. We analyze the relationship between cost-effectiveness measures and the degree of surplus appropriation by innovators driving dynamic efficiency. We illustrate how to estimate the two for the new HIV/AIDS therapies that entered the market after the late 1980's and find that only 5% of the social surplus is appropriated by innovators. We show how this finding can be generalized to other existing cost-effectiveness estimates by deriving how those estimates identify innovator appropriation for a set of studies of over 200 drugs. We find that these studies implicitly support a low degree of appropriation as well. Despite the high annual cost of drugs to patients, very low shares of social surplus may go to innovators, which may imply that cost-effectiveness is too high in a dynamic efficiency sense.


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