NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Abstracts of Selected Recent NBER Working Papers

NBER Working Paper 11557
Ernst R. Berndt, Alisa B. Busch, Richard G. Frank, Sharon Lise-Normand.
Real Output in Mental Health Care During the 1990s

Health accounts document changes over time in the level and composition of health spending. There has been a continued evolution in the ability to track such outlays. Less rapid has been the ability to interpret changes in spending. In this paper we apply quality adjusted price indexes for several major mental disorders to national mental health account estimates to assess changes in real "output". We show that using the new price indexes reveals large gains in real output relative to application of BLS indexes.

NBER Working Paper 11584
Inas Rashad, Michael Grossman, and Shin-Yi Chou
The Super Size of America: An Economic Estimation of Body Mass Index and Obesity in America

The increased prevalence of obesity in the United States stresses the pressing need for answers as to why this rapid rise has occurred. This paper employs micro-level data from the First, Second, and Third National Health and Nutrition Examination Surveys to determine the effects that various state-level variables have on body mass index and obesity. These variables, which include the per capita number of restaurants, the gasoline tax, the cigarette tax, and clean indoor air laws, display many of the expected effects on obesity and explain a substantial amount of its trend. These findings control for individual-level measures of household income, years of formal schooling completed, and marital status.

NBER Working Paper 11605
Amitabh Chandra and Andrew A. Samwick
Disability Risk and the Value of Disability Insurance

We estimate consumer' valuation of disability insurance using a stochastic lifecycle framework in which disability is modeled as permanent, involuntary retirement. We base our probabilities of worklimiting disability on 25 years of data from the Current Population Survey and examine the changes in the disability gradient for different demographic groups over their lifecycle. Our estimates show that a typical consumer would be willing to pay about 5 percent of expected consumption to eliminate the average disability risk faced by current workers. Only about 2 percentage points reflect the impact of disability on expected lifetime earnings; the larger part is attributable to the uncertainty associated with the threat of disablement. We estimate that no more than 20 percent of mean assets accumulated before voluntary retirement are attributable to disability risks measured for any demographic group in our data. Compared to other reductions in expected utility of comparable amounts, such as a reduction in the replacement rate at voluntary retirement or increases in annual income fluctuations, disability risk generates substantially less pre-retirement saving. Because the probability of disablement is small and the average size of the loss-conditional on becoming disabled-is large, disability risk is not effectively insured through precautionary saving.

NBER Working Paper 11677
M. Kate Bundorf, Bradley Herring, and Mark Pauly
Health Risk, Income, and the Purchase of Private Health Insurance

While many believe that an individual's health plays an important role in both their willingness and ability to obtain health insurance, relatively little agreement exists on how and why health status is likely to affect coverage rates, particularly for individuals purchasing coverage in the individual market. In this paper, we examine the relationship between health risk and the purchase of private health insurance and whether that relationship differs between people purchasing coverage in the individual and large group markets and between low and high income individuals. The data source for our analysis is the panel component of the 1996-2002 Medical Expenditure Panel Survey (MEPS). We find that health risk is positively associated with obtaining private health insurance coverage. The positive relationship between health risk and coverage is stronger for individuals obtaining coverage in the large group market than for individuals obtaining coverage in the individual market. In the large group market, rates of coverage increase more quickly with health risk for low than high income individuals. We conclude that high premiums for high risks are not a significant contributor to the large uninsured population in the U.S. Among low income individuals, high premiums may represent a barrier to low risks in the large group market.

NBER Working Paper 11707
Jason R. Barro, Robert S. Huckman, Daniel P. Kessler
The Effects of Cardiac Specialty Hospitals on the Cost and Quality of Medica Care

The recent rise of specialty hospitals-typically for-profit firms that are at least partially owned by physicians-has led to substantial debate about their effects on the cost and quality of care. Advocates of specialty hospitals claim they improve quality and lower cost; critics contend they concentrate on providing profitable procedures and attracting relatively healthy patients, leaving (predominantly nonprofit) general hospitals with a less-remunerative, sicker patient population. We find support for both sides of this debate. Markets experiencing entry by a cardiac specialty hospital have lower spending for cardiac care without significantly worse clinical outcomes. In markets with a specialty hospital, however, specialty hospitals tend to attract healthier patients and provide higher levels of intensive procedures than general hospitals.

NBER Working Paper 11723
David C. Grabowski, Jonathan Gruber
Moral Hazard in Nursing Home Care

Nursing home expenditures are a rapidly growing share of national health care spending with the government functioning as the dominant payer of services. Public insurance for nursing home care is tightly targeted on income and assets, which imposes a major tax on savings; moreover, low state reimbursement for Medicaid patients has been shown to lower treatment quality, and bed supply constraints may deny access to needy individuals. However, expanding eligibility, increasing Medicaid reimbursement, or allowing more nursing home bed slots has the potential to induce more nursing home use, increasing the social costs of long term care. A problem in evaluating this tradeoff is that we know remarkably little about the effects of government policy on nursing home utilization. We attempt to address this shortcoming using multiple waves of the National Long-Term Care Survey, matched to changing state Medicaid rules for nursing home care. We find consistent evidence of no effect of Medicaid policies on nursing home utilization, suggesting that demand for nursing home care is relatively inelastic. From a policy perspective, this finding indicates that changes in overall Medicaid generosity will not have large effects on utilization.

NBER Working Paper 11724
Tomas J. Philipson, Ernst R. Berndt, Adrian H. B. Gottschalk, Matthew W. Strobeck
Assessing the Safety and Efficacy of the FDA: The Case of the Prescription Drug User Act Fees

The US Food and drug Administration (FDA) is estimated to regulate markets accounting for about 20% of consumer spending in the US. This paper proposes a general methodology to evaluate FDA policies, in general, and the central speed-safety tradeoff it faces, in particular. We apply this methodology to estimate the welfare effects of a major piece of legislation affecting this tradeoff, the Prescription Drug User Fee Acts (PDUFA). We find that PDUFA raised the private surplus of producers, and thus innovative returns, by about $11 to $13 billion. Dependent on the market power assumed of producers while having patent protection, we find that PDUFA raised consumer welfare between $5 to$19 billion; thus the combined social surplus was raised between $18 to $31 billions. Converting these economic gains into equivalent health benefits, we find that the more rapid access of drugs on the market enabled by PDUFA saved the equivalent of 180 to 310 thousand life-years. Additionally, we estimate an upper bound on the adverse effects of PDUFA based on drugs submitted during PDUFA I/II and subsequently withdrawn for safety reasons, and find that an extreme upper bound of about 56 thousand life-years were lost. We discuss how our general methodology could be used to perform a quantitative and evidence-based evaluation of the desirability of other FDA policies in the future, particularly those affecting the speed-safety tradeoff.

NBER Working Paper 11726
Olivia S. Mitchell, Stephen Utkus, Tongxuan Yang
Turning Workers into Savers? Incentives, Liquidity, and Choice in 401(k) Plan Design

We develop a comprehensive model of 401(k) pension design that reflects the complex tax, savings, liquidity and investment incentives of such plans. Using a new dataset on some 500 plans covering nearly 740,000 workers, we show that employer matching contributions have only a modest impact on eliciting additional retirement saving. In the typical 401(k) plan, only 10 percent of non-highly-compensated workers are induced to save more by match incentives; and 30 percent fail to join their plan at all, despite the fact that the company-proffered match would grant them a real return premium of 1-5% above market rates if they contributed. Such indifference to retirement saving incentives cannot be attributed to liquidity or investment constraints. These results underscore the need for alternative approaches beyond matching contributions, if retirement saving is to become broader-based.

NBER Working Paper 11796
Sandra E. Black, Paul J. Deveraux, Kjell Salvanes
From the Cradle to the Labor Market? The Effect of Birth Weight on Adult Outcomes

Lower birth weight babies have worse outcomes, both short-run in terms of one-year mortality rates and longer run in terms of educational attainment and earnings. However, recent research has called into question whether birth weight itself is important or whether it simply reflects other hard-to-measure characteristics. By applying within twin techniques using a unique dataset from Norway, we examine both short-run and long-run outcomes for the same cohorts. We find that birth weight does matter; very small short-run fixed effect estimates can be misleading because longer-run effects on outcomes such as height, IQ, earnings, and education are significant and similar in magnitude to OLS estimates. Our estimates suggest that eliminating birth weight differences between socio-economic groups would have sizeable effects on the later outcomes of children from poorer families.

NBER Working Paper 11810
Tomas J. Philipson, Anupam B. Jena
Who Benefits from New Medical Technologies? Estimates of Consumer and Producer Surplus for HIV/AIDS Drugs

The social value of an innovation is comprised of the value to consumers and the value to innovators. We estimate that for the HIV/AIDS therapies that entered the market from the late 1980's onwards, innovators appropriated only 5% of the social surplus arising from these new technologies. Despite the high annual costs of these drugs to patients, the low share of social surplus going to innovators raises concerns about advocating cost-effectiveness criteria that would further reduce this share, and hence further reduce incentives for innovation.

NBER Working Paper 11819
Katherine Ho
The Welfare Effects of Restricted Hospital Choice in the US Medical Care Market

Managed care health insurers in the US restrict their enrollees' choice of hospitals to within specific networks. This paper considers the implications of these restrictions. A three-step econometric model is used to predict consumer preferences over health plans conditional on the hospitals they offer. The results indicate that consumers place a positive and significant weight on their expected utility from the hospital network when choosing plans. A welfare analysis, assuming fixed prices, implies that restricting consumers' choice of hospitals leads to a loss to society of approximately $1 billion per year across the 43 US markets considered. This figure may be outweighed by the price reductions generated by the restriction.

NBER Working Paper 11850
Axel Boersch-Supan, Alexander Ludwig, Joachim Winter
Aging, Pension Reform, and Capital Flows: A Multi-Country Simulations Model

Population aging and pension reform will have profound effects on international capital markets. First, demographic change alters the time path of aggregate savings within each country. Second this process may be amplified when a pension reform shifts old-age provision towards more pre-funding. Third, while the patterns of population aging are similar in most counries, timing and initial conditions differ substantially. Hence, to the extent that capital is internationally mobile, population aging will induce capital flows between countries. All three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from fast-aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility.

NBER Working Paper 11871
Harsha Thirumurthy, Joshua Graff-Zivin, Markus Goldstein
The Economic Impact of AIDS Treatment: Labor Supply in Western Kenya

Using longitudinal survey data collected in collaboration with a treatment program, this paper is the first to estimate the economic impacts of antiretroviral treatment in Africa. The responses in two important outcomes are studied: (1) labor supply of adult AIDS patients receiving treatment; and (2) labor supply of children and adults living in the patients' households. We find that within six months after the initiation of treatment, there is a 20 percent in ng in the labor force and a 35 percent increase in weekly hours worked. Since patient health would continue to decline without treatment, these labor supply responses are underestimates of the impact of treatment on the treated. The upper bound of the treatment impact, which is based on plausible assumptions about the counterfactual, is considerably larger and also implies that the wage benefit from treatment is roughly equal to the costs of treatment provision. The responses in the labor supply of patients' household members are heterogeneous. Young boys and women work considerably less after initiation of treatment, while girls and men do not change their labor supply. The effects on child labor are particularly important since they suggest potential schooling impacts from treatment.

NBER Working Paper 11875
John A. Verson and W. Keener Hughen
The Future of Drug Development: The Economics of Pharmacogenomics

This paper models how the evolving field of pharmacogenomics (PG), which is the science of using genomic markers to predict drug response, may impact drug development times, attrition rates, costs, and the future returns to research and development (R&D). While there still remains an abundance of uncertainty around how PG will impact the future landscape of pharmaceutical and biological R&D, we identify several likely outcomes. We conclude PG has the potential to significantly reduce both expected drug development costs (via higher probabilities of technical success, shorter clinical development times, and smaller clinical trials) and returns. The impact PG has on expected returns is partially mitigated by higher equilibrium prices, expedited product launches, and longer effective patent lives. Our conclusions are, of course, accompanied by numerous caveats.

NBER Working Paper 11877
Peter Diamond
Pensions for an Aging Population

After presenting the Gruber-Wise analysis showing a strong effect on retirement of implicit taxes from pension rules, it is shown that there is no effect of these implicit taxes on unemployment. This supports the argument for avoiding high implicit taxes on continued work. Also discussed are methods for adjusting benefits and taxes for increases in life expectancy, with particular attention to increasing "the retirement age." Calculations are presented showing the decreases in benefits for an increase in the normal retirement age in the US and the years of service for a full benefit in France.

NBER Working Paper 11920
John Beshears, James J. Choi, David Laibson, Brigitte Madrian
Early Decisions: A Regulatory Framework

We propose a regulatory framework that helps consumers who have difficulty sticking to their own long-run plans. Early Decision regulations help long-run preferences prevail by allowing consumers to partially commit to their long-run goals, making it harder for a momentary impulse to reverse past decisions. In the cigarette market, examples of Early Decision regulations include restricting the locations or times at which cigarettes are sold, delaying the receipt of cigarettes following purchase, and allowing a consumer to choose in advance the legal restrictions on her own cigarette purchases. A formal model of Early Decision regulations demonstrates that Early Decisions are optimal when consumer preferences are heterogeneous. Intuitively, each consumer knows his own preferences, so self-rationing which is what Early Decisions enable-is better than a one-size-fits-all regulation like a sin tax. Of course, Early Decision regulations incur social costs and therefore require empirical evaluation to determine their net social value.

 

 
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