In Miami, health care providers spent about $14,423 per Medicare patient in 2010. But in Minneapolis, average spending on Medicare enrollees that year was $7,819, just over half as much. In fact, the U.S. is filled with regional disparities in medical spending. Why is this?

One explanation focuses on providers: In some regions, they may be more likely to use expensive tests or procedures. Another account focuses on patients: If the underlying health or the care preferences of regional populations varies enough, that may cause differences in spending. In recent years, public discussion of this issue has largely highlighted providers, with the implication that reducing apparently excessive treatments could trim overall health care costs.

But now a unique study co-authored by MIT economists provides a new answer to the medical cost mystery: By scrutinizing millions of Medicare patients who have moved from one place to another, the researchers have found that patients and providers account for virtually equal shares of the differences in regional spending.

“We find it is about 50/50, half due to patients and half due to places,” says Heidi Williams, the Class of 1957 Career Development Associate Professor in MIT’s Department of Economics, and a co-author of a new paper detailing the study’s findings.

That’s MIT News ably summarizing the new Finkelstein, Gentzkow, and Williams paper, Sources of Geographic Variation in Health Care: Evidence From Patient Migration (ungated).

If the half of the variation that is due to place is inefficient (which could mean too low or too high but probably means too high given that the medical care curve is flat) then this puts an upper limit on the gains from standardization but still a quite high limit.

By the way, Finkelstein and Gentzkow are both recent John Bates Clark Medal awardees and Williams is a MacArthur “genius award” winner. Perhaps I should have titled this post, assortative co-authoring.

Tuesday assorted links

by on November 22, 2016 at 3:08 am in Uncategorized | Permalink

Is it a kind of Flynn effect for the elderly?:

Dementia is actually on the wane. And when people do get dementia, they get it at older and older ages.

Previous studies found the same trend but involved much smaller and less diverse populations like the mostly white population of Framingham, Mass., and residents of a few areas in England and Wales.

The new study found that the dementia rate in Americans 65 and older fell by 24 percent over 12 years, to 8.8 percent in 2012 from 11.6 percent in 2000. That trend that is “statistically significant and impressive,” said Samuel Preston, a demographer at the University of Pennsylvania who was not associated with the study.

In 2000, people received a diagnosis of dementia at an average age of 80.7; in 2012, the average age was 82.

“The dementia rate is not immutable,” said Dr. Richard Hodes, director of the National Institute on Aging. “It can change.”

And that “is very good news,” said John Haaga, director of the institute’s division of behavioral and social research. It means, he said, that “roughly a million and a half people aged 65 and older who do not have dementia now would have had it if the rate in 2000 had been in place.”

That is from Gina Kolata from the NYT.  The piece has many other points of interest.

Renaissance Technologies

by on November 21, 2016 at 1:25 pm in Economics | Permalink

Renaissance is unique, even among hedge funds, for the genius—and eccentricities—of its people. Peter Brown, who co-heads the firm, usually sleeps on a Murphy bed in his office. His counterpart, Robert Mercer, rarely speaks; you’re more likely to catch him whistling Yankee Doodle Dandy in meetings than to hear his voice. Screaming battles seem to help a pair of identical twins, both of them Ph.D. string theorists, produce some of their best work.

Excellent piece that raises many questions such as, Is finance really the best use for two string theorists? And if you think the answer to that question is obvious you may need to learn more string theory.

One of Japan’s largest casualty insurers is going to start offering internet and social media backlash insurance.

Here is the link, including to the original Japanese.

Monday assorted links

by on November 21, 2016 at 11:27 am in Uncategorized | Permalink

1. Economic and financial themes in the films of Charlie Chaplin, podcast.

2. New evidence and modelling of immigrant assimilation, from James Marrone, who is on the job market from University of Chicago this year.  Unlike many such theories, he also provides data and theory on “un-assimilation.”  Marrone also has interesting work on the economics of cultural antiquities.

3. Is EM drive for real and what does it mean for Newton’s Third Law?  Quantum mechanics?

4. Abu Dhabi numbered car plate markets in everything.

5. Paul Krugman calls off the fake alien invasion.

6. Jiro the slave?  An interesting piece on the nature and meaning of work.

Teach math in the morning

by on November 21, 2016 at 10:17 am in Economics, Education | Permalink

Having a morning instead of afternoon math or English class increases a student’s GPA by 0.072 (0.006) and 0.032 (0.006), respectively. A morning math class increases state test scores by an amount equivalent to increasing teacher quality by one-fourth standard deviation or half of the gender gap. Rearranging school schedules can lead to increased academic performance.

That is from a new paper by Nolan G. Pope, who is on the job market this year from the University of Chicago.   Here is his overall profile.  His job market paper (pdf), with Nathan Petek, suggests that evaluating teachers by multi-dimensional metrics, and not just test scores, can bring big gains to educational quality.

That is the job market paper from William Diamond, who is on the market this year from Harvard University.  I think of this paper as trying to explain some of the financial market puzzles about divergent asset returns, and the financial crisis, in one unified framework.  That is a tall order, but I think he actually makes some progress on creating a coherent story about segmented asset markets, ultimately driven by agency problems.  Here is the abstract:

This paper develops a model of how the financial system is organized to most effectively create safe assets and analyzes its implications for asset prices, capital structure, and macroeconomic policy.  In the model, financial intermediaries choose to invest in the lowest risk assets available in order to issue safe securities while minimizing their reliance on equity financing.  Although households and intermediaries can trade the same assets, in equilibrium all debt securities are owned by intermediaries since they are low risk, while riskier equities are owned by households.  The resulting market segmentation explains the low risk anomaly in equity markets and the credit spread puzzle in debt markets and determines the optimal leverage of the non-financial sector.  An increase in the demand for safe assets causes an expansion of the financial sector and extension of riskier credit to the non-financial sector- a subprime boom. Quantitative easing increases the supply of safe assets, leading to a compression of risk premia in debt markets, a deleveraging of the non-financial sector, and an increase in output when monetary policy is constrained.  In a quantitative calibration, the segmentation of debt and equity markets is considerably more severe when intermediaries are poorly capitalized.

His degree is in Business Economics, a program that combines the economics Ph.d with some features of the Harvard MBA.

Here is a Washington Post look at a related issue.  I know bribing a president is illegal and it just…sounds so wrong…but what exactly does the equilibrium look like?

bribe

Here are a few points:

1. Presumably the wealthier countries would be willing to pay more for American security guarantees.

2. Countries whose wealth can be easily captured and controlled by hostile forces — oil exporters? — would be willing to pay more for protection.

3. Human rights would not matter so much for American security guarantees.

So far this is not sounding so different from the status quo.  Let’s continue:

4. A selfish president might capture income from hard-to-defend countries, not internalizing the higher costs for the U.S. taxpayer.  So American guarantees could extend too far and wide from an American perspective, although it is not obvious they will do so from a cosmopolitan perspective.

5. Presumably the president also could accept funds not to defend various nations.  So large, wealthy foreign aggressors could “buy out” the United States from defending say Georgia or Taiwan.  That sounds terrible, and perhaps it is from a cosmopolitan standpoint.  But is it contrary to the U.S. national interest?  Keep in mind if the United States becomes non-credible altogether, it would be less able to extract payments from Israel, South Korea, and other nations.  That means a bribed president may not “fold his hand” so quickly on all of these endangered small countries.  Alternatively, a bribed president may decide to let one of “the little ones” go just to prove a point to the others.

You’ll notice that #4 and #5 counteract each other.  I suspect this balance would be worse than the status quo, but that doesn’t follow a priori.

6. You could imagine an American president who allows foreign countries to fall into especially precarious situations to increase his budgetary intake from bribes.  The return to pre-emptive peace initiatives might be strongly negative.

7. An alternative perspective is that the American government already collects such bribes in the form of trade agreements, use of military bases, and so on.  The real problem is not bribery per se, but rather concentrating so many of the returns in the hands of the president.  Tariffs on American exports might go up, for instance, if the president is pocketing the bribes himself.

8. A worry is that bribes collected by a president would not lead to as much stability of policy as what might be generated by the decisions of “the foreign policy establishment.”  Perhaps commercial arrangements are intrinsically less stable than bureaucratically-generated policies.  A president’s utility function and game-theoretic behavior is probably harder to forecast than the wishes of the bureaucracy.  The resulting uncertainty would limit global trade and investment and also probably increase nuclear proliferation.  This strikes me as a major concern.

9. A related worry is that nations are so very large relative to the avaricious desires of the president.  After a small number of payments, the president might act fairly arbitrarily, as extra bribes wouldn’t matter much and the foreign policy establishment already has been cut out of the picture.  (Oddly it becomes less important if America has a truly greedy and rapacious president where the MU for money doesn’t much decline with presidential wealth.)

It is worth thinking through the dynamics on all this a little more clearly than what I am seeing so far.

Sunday assorted links

by on November 20, 2016 at 12:48 pm in Uncategorized | Permalink

YIMBY PARTY

by on November 20, 2016 at 7:23 am in Economics, Political Science | Permalink

The YIMBY (yes in my back yard) movement is a small but growing movement of people who are tired of ever increasing housing prices and entrenched rent-seekers who abrogate property rights and prevent development. Here is the YIMBY Party in San Francisco:

We strongly support building new housing. We have a severe housing shortage. Increasing supply will lower prices for all and expand the number of people who can live in the Bay Area.

YIMBY Party joins New York YIMBY and other YIMBY Town people from across North America and elsewhere.

By the way, McKinsey has a good report on housing in California. Key points:

California ranks 49th among the 50 US states for housing units per capita. Benchmarked against other states on a housing units per capita basis, California is short about two million units.

The report does a detailed analysis of housing patterns and finds that a large fraction of the deficit could be met by increased density around transit stations:

California could add more than five million new housing units in “housing hot spots”—which is more than enough to close the state’s housing gap. [Including]…1.2 million to three million housing units within a half mile of major transit hubs.

They also have good suggestions on streamlining the permitting process.

It does seem it is skill-based technical change, which rewards high-talent urban clusters, and in the broader equilibrium, also lowers geographic mobility.  That is the theme of the job market paper of Elisa Giannone from the University of Chicago, here is the abstract:

Skilled-Biased Technical Change and Regional Convergence,” (Job Market Paper)

Poorer US cities were catching up with richer ones at an annual rate of roughly 1.4% between 1940 and 1980. However, wage convergence across US cities went from 1.4% a year between 1940 and 1980 to 0% a year between 1980 and 2010. This paper quantifies the contributions of skill-biased technical change (SBTC) and agglomeration economies to the end of cross-cities wage convergence within the US between 1980 and 2010. I develop and estimate a dynamic spatial equilibrium model that looks at the causes of the decline in spatial wage convergence. The model choice is motivated by novel empirical regularities regarding the evolution of the skill premium and migration patterns over time and across space. The model successfully matches the quantitative features of the decline in US regional wage convergence, as well as other stylized facts on US economic growth. Moreover, the model also reproduces the convergence and the divergence in the skill ratio across US cities and other features on quantities, such as the secular decline in within US migration after 1980. Finally, the counterfactual analysis suggests that SBTC explains the approximately the 80% of the decline of regional convergence between 1980 and 2010 among high skill workers.

Here are her other papers.

*Nudge Theory in Action*

by on November 20, 2016 at 12:47 am in Books, Economics, Education, Philosophy | Permalink

That is a new and excellent volume edited by Sherzod Abdukadirov, with contributions by Mario Rizzo, Adam Thierer, Jodi Beggs, and others.  I wrote a short introduction, here is an excerpt from that:

Private sector nudge is highly problematic, and I would say it is often worst in those areas we tend to feel best about: health care, education, and charity.  In those cases, our guard is most likely to be let down, even if we are highly educated.  Or should I say because we are educated?

What about public sector nudge?  Well, the good news is that a lot of what government does is simply send money around through transfer programs.  In this regard, its potential for manipulating us is fairly limited.  Furthermore, government is extremely bureaucratic and usually it does not have top tier marketing talent.  Most of the time I just don’t find my government very persuasive.  Is there really anything the DMV can talk me into that I wouldn’t otherwise want to do?

But can I then relax?  Can I stop worrying about public sector nudge?

I am not so sure.

The biggest costs in human history come from wars, and very often the public sector — especially the executive branches in various countries — nudges us into wars.  I don’t hear enough discussion of this topic in the nudge literature.

Government also has nudged us into believing that more government regulation is the answer to many of our problems…

Finally, I worry about how private sector and public sector nudge interact.  Nudges from the television news, and its coverage of crime stories, convince many Americans that rates of crime are rising when in fact they are falling.  That’s a private sector nudge to be sure, and the private sector is doing the marketing, with great skill I might add.  But how does it interact with the public sector?  Well, prosecutors send more people to jail and for longer periods of time.

You can order the book here.

Saturday assorted links

by on November 19, 2016 at 1:57 pm in Uncategorized | Permalink

The little virtues

by on November 19, 2016 at 1:05 pm in Books | Permalink

As far as the education of children is concerned I think they should be taught not the little virtues but the great ones.  Not thrift but generosity and an indifference to money; not caution but courage and a contempt of danger; nor shrewdness but frankness and a love of truth; not tact but love for one’s neighbour and self-denial; not a desire for success but a desire to be and to know.

Usually we do just the opposite; we rush to teach them a respect for the little virtues, on which we build our whole system of education.  In doing this we are choosing the easiest way, because the little virtues do not involve any actual dangers, indeed they provide shelter from Fortune’s blows.

That is from Nathalie Ginzburg, from her book The Little Virtues.  Here is a copy of the essay (pdf).  Discovering Ginzburg over the last few weeks has been a revelation for me; she is surely one of the more underrated writers.  Here is Bookslut on Ginzburg.