Month: June 2009

How much good could health care monopsony do?

Greg Mankiw has an interesting column on the public plan option; you've already seen related points on his blog and on MR.

Today I'm interested in a slightly different question, namely the potential benefits of monopsony.  Imagine a benevolent single buyer of health care services.  Forget about whether or not it could be a government; let's just focus on the logic of the model.  I can think of a few scenarios:

1. The buyer bargains down price and suppliers in turn lower quantity.

2. The buyer bargains down price and the monopolizing suppliers respond by expanding quantity.  The monopsonist moves us to a more competitive solution.  Note that under this option the direct institution of more competition could have the same effects.

If #2 is true, you might expect supply restrictions to be an important issue.  That is, the people who favor monopsony should also favor greater competitiveness on the supply side.  Yet this does not seem like a current priority.  I hardly ever see talk of deregulating medical licensing, allowing paramedics and nurses to perform more basic medical functions, or abolishing other entry restrictions.  I do recall that an earlier version of Obama's plan, struck down by Congress, would have created a nationwide insurance market.  There was no big fight, either in the administration or in the blogosphere.

Those who favor monopsony might have another model in mind.  In this model there are many medical suppliers but each supplier still has a fair degree of ex post monopoly power.  Search costs, non-transparency, lock-in, and consumer irrationality can generate this kind of result.  And in these models allowing for more entry needn't much help the basic problem.

Under #2, which other policies will help set this market right?  What are the possible policy substitutes for monopsony?

And in #2, what happens if a monopsonist third party payer bargains prices down?  What are the offsetting quality responses?  Are monopsonists good at bargaining for higher levels of quality?  Or might the all-in-one, bureaucratic nature of the monopsonistic enterprise mean that the monopsonist is very good at bargaining over price (measurable) and very bad at bargaining over quality (harder to measure and verify and we already know there is irrationality, non-transparency, lock-in, etc).

If we put monopsony in place, can a version of the Card-Krueger monopsony model apply to medicine, namely a welfare-improving minimum wage for doctors, albeit at a very high level?  That would mean we don't want the monopsony to economize on how much we spend on health care. 

For all the recent writings on health care, these questions remain underexplored.  Comments are open, but today I'm not interested in the usual bickering about public vs. private sector.  I'd like to hear about the logic of monopsony.

When No Means Yes

… Having voted against the administration's climate change bill on the record means that at least some of these House Democrats will be able to vote for what emerges from a House-Senate conference later in the year. Therefore, the chances of a climate bill being enacted this year is now much greater than it was 24 hours ago.

That's the ever-perceptive Stan Collender on the politics of the climate change bill.

The Powerpoints of Emily Glassberg Sands

Find them here and they are excellent.  One thing we learn is that women playwrights are more likely to write stories about other women.  Women playwrights are also more likely to write plays with fewer major characters (slide 19).  Outside evaluators are most likely to perceive the story's characters are less likable, if they believe a given script was written by a woman (slide 31).  They also judge the economic prospects of a script to be poorer (slide 32).  It is female artistic directors who have the harshest judgments of scripts submitted under female names (slide 34).  Women writing plays about other women have the toughest time (slide 36).  On Broadway, female-written shows are 18 percent more profitable than male-written shows yet they do not have longer running times (slides 44 and 45).

The original paper is here.  She'll be on The Colbert Show on July 2.

Hat tip goes to the indispensable Literary Saloon blog.

Assorted links

1. China theory of the day: The Chinese save so much to compete for mates.  Should I believe it?

2. Paying interest on reserves, and why it should be easy to disarm future inflationary pressures.  Do I believe it?  (Brad DeLong comments.)

3. Markets in everything: pirate hunting cruises; should I believe it?

4. Stores are cutting back on variety; I believe it.

5. Farrah Fawcett and Ayn Rand.

Trolley problems and experimental ethics

A second experiment developed this idea and showed further that an
action is most morally condemnable when personal force and intention
co-occur. Students judged as most morally unacceptable a situation in
which Joe deliberately pushed a victim off a bridge so that he could
reach a switch to save five others. By contrast, if the victim was
knocked off the bridge accidentally so Joe could reach the switch, or
if Joe killed him by diverting a trolley with a switch, then the
students' moral judgements were not so harsh.

"Put simply,
something special happens when intention and personal force co-occur,"
the researchers said. This prompts many further questions, such as what
counts as personal force. "Must it be continuous (as in pushing), or
may it be ballistic (as in throwing)?" the researchers asked. "Is
pulling the same as pushing?"

Here is more.

Interview with Kevin Murphy

Via Mark Thoma, here is an interview with the ever-impressive Kevin Murphy.  One excerpt, on the topic of medical R&D:

What really does matter is the cost of treatment. If treatment costs
are $10 trillion, the project has a negative net present value even if
the research is free. With $2 trillion in treatment costs, the net gain
from success is $3 trillion, so that we would get a good return even if
the probability of success was one in 30. So when you think about
research, it’s not the dollars you spend that matter–what matters is
the cost of implementing the treatment that might be discovered. The
downside to research is not failure, but unaffordable success.

I think the following message comes out of that exercise: Cost
containment and health progress are complementary. That is, if we can
control costs, that makes research a much more attractive option.
That’s the most important lesson I learned from doing this work.

When you go to Washington and talk to people at NIH, what are they
excited about? They’re excited about that $5 trillion number. They’re
excited that, boy, we could do something that could generate tremendous
value for people. We can cure disease and lengthen lives, both of which
make people much better off. The work that Bob and I did quantifies
that number; it says it’s huge, $5 trillion for that 10 percent
reduction in cancer.

You walk across the street and talk to the guys who have to pay for
it, and they’re terrified that people are going to come up with more
new medical treatments that they’re somehow going to have to finance.

Is there any man who thinks more like an economist than does Kevin Murphy?  Maybe one:

Region: Does Gary Becker ever stop working?

Murphy: No. He never stops working. He’s a machine. He outworks everybody half his age.

Pre-order Gretchen Rubin’s new book

She writes:

Blatant self-promotion alert: If you’re thinking about buying
my book, please consider pre-ordering it. A book gets a big boost from
pre-orders, because that early support shows that people really are
enthusiastic. It’s early,..I’ve ordered my copy! And that made me very happy.

The new link to Gretchen's book is here.  Seth Roberts would say that her subtitle leaves out the notion of watching faces early in the morning.

What is transhumanism?

Kyle Munkittrick writes to me and sets out what it would mean for transhumanism to arrive or succeed:

…Transhumanism is definitely more of a philosophy than
an objective, though it is a political philosophy like feminism or
libertarianism. There are specific goals, like extending life span,
creating true A.I., and animal uplift, and then broad ethical goals,
like ending suffering.

If I had to come up with specific criteria, however, I'd suggest the following three:

Medical modifications that permanently alter or replace a function of
the human body become prolific. LAZIK eye surgery, internal
defibrillators, and prosthetic limbs are all examples. The key
difference is that these modifications would either result in a return
to initial quality (as in LAZIK) or enhance/augment the original
condition. Landmark moment: When a runner with prosthetic cheetah
blades competes in the traditional Olympics and wins a medal.

2. Our social understanding of aging loses the "virtue of
necessity" aspect and society begins to treat aging as a disease.
Concepts like "aging well" and "golden years" would be as
counter-intuitive as describing someone with cancer or MS as "diseasing
well." I have no idea what the consequences would be socially, but you
can bet things like "mid-life crises" and "adult learning" would take
on entirely new meanings or become meaningless. When we have a
generation of people expected to live to 150, that'll be a good sign
this is on the way to happening.

3. The recognition of an individual with citizenship and/or
personhood and the criteria for that recognition would change
dramatically from the status quo. Rights discourse would shift from who
we include (i.e. should homosexual have marriage rights?) to a system
flexible enough to easily bring in sentient non-humans. A good litmus
test for flexibility is: how would we incorporate an intelligent alien
race into our rights/ethics system?

Those are the three landmarks I'd look for when trying to answer
that question…I'm a big fan of MR, so it prides me
to see transhumanism as a topic you've enough interest in to mention.

Advocates, is that a good account?

I'm not a Luddite (at all) but I've never been taken by transhumanism as a systematic philosophy.  I'm more worried that we will fail at "humanism," namely the simple requirement that we treat other people decently.  It's worth asking whether the promotion of transhumanism makes us more or less likely to meet basic canons of decency and consideration.  I would be more likely to favor a transhumanism that made us painfully aware of our personal vulnerability in a way that would expand our circle of benevolence.  I worry that transhumanism can be used to cloak that vulnerability, assert its contingency, and instill a false sense of personal control or denial.

Was Michael Jackson a transhumanist (cut to 3:54)?

Regulation and Distrust

In an interesting paper, Aghion, Algan, Cahuc and Shleifer show that regulation is greater in societies where people do not trust one another.  The graph below, for example, shows that societies with a greater level of distrust have stronger minimum wage laws.  Note that the result is not that distrust in markets is associated with stronger minimum wages but that distrust in general is associated with greater regulation of all kinds.  Distrust in government, for example, is positively correlated with regulation of business.  Or to put it the other way, trust in government (as well as other institutions) is associated with less regulation.

minwagedistrustrespectdistrustAghion et al. argue that the causality flows both ways on the regulation-distrust nexus. Distrust makes people turn to government but in a society with a lot of distrust government is often corrupt and this makes people distrust even more.  Crucially, when people distrust others they invest not in the highest return projects but in human and physical capital that is complementary to distrust–for example, they invest in human capital that helps them bond with their group/tribe/family rather than in human capital that helps them to bond with “outsiders” and they invest in physical capital that is more difficult to expropriate rather than in easier to expropriate capital, even though in both cases the latter investments may be the all-else-equal higher return investments.  Such distrust traps are quite similar to Bryan Caplan’s idea traps.

Thus, societies with a lot of distrust generate regulation and corruption and citizens who don’t have the skills or preferences to break out of the distrust equilibrium.  Consider, for example, that in societies with a lot of distrust parents are less likely to consider it important to teach their children about tolerance and respect for others.



He's one of the few musicians I've been listening to since I was six years old.  I've long thought I Want You Back is one of the best songs, period.  She's Out of My Life has for a long time been a personal favorite, as is GirlfriendBillie Jean survives being overplayed on muzak.  Off the Wall is an underrated album, as is History.  His personal legacy is perhaps a dubious one, but he was one of the great dancers and entertainers of his century and it is a shock to read of his passing.  The J. Randy Taraborelli biography, despite stopping in the early 90s, is very good.

Today was not a good day for the 1980s (Fawcett, McMahon).

Markets in everything

Jeffrey Holton

seriously, yes, I will ghost-write status messages for $1 per message.
And yes, I'll make them interesting. I'll even give you a set of 12 for
$10. Let me know if you're interested, and you have a working PayPal
account. I can't promise they'll be TRUE, but they will be INTERESTING!
:)7 hours ago

I thank John Bailey for the pointer.

Collateral in everything

This is not in fact much of a lowering of credit standards:

A financial company in Latvia is offering residents loans secured by nothing but their immortal soul.

Riga-based firm, named Kontora, does not require credit history record or proof of employment. It grants loans of 50 to 500 Latvian lats ($100 to $1,000) to any adult after he or she signs the a very short agreement.

According to the agreement, the only security required of the borrower is their immortal soul, which they are asked to confirm as their previously unmortgaged property.

The loan is subject to one percent per day in interest until full repayment.

The period of full repayment is 90 days, and in case the borrower fails to return the money, the creditor gets full possession of his soul.

The full story is here.  I thank cf for the pointer.