Measuring health care costs and benefits

The U.S. spends more than any other country on health care, over 14 percent of gdp.  A crude economist would take the "gdp" of the health sector as a measure of its economic value.  Of course this isn’t quite right, since spending money does not automatically increase health or customer satisfaction.  Advocates of European health care systems are keen to point this out.

In other words, "p x q" doesn’t measure the benefits of the U.S. system.  But critics are quick to insist that "p x q" measures the costs of the U.S. system.  That is a disconnect.  The real costs are what could have been produced with those same resources, or opportunity costs. 

Let’s say a patient pays $1000 to a doctor, but half of that sum is fraudulent pricing brought on by patient irrationality, non-transparency, fear of death, and fraud.  Sound familiar?  The real social cost is what the doctor could have produced, had he not been looking after that patient.  The real social cost is $500, not $1000.

How does this sound as a debating point: "America doesn’t have better health care outcomes than Europe, and in real terms we are spending about seven percent of gdp —  adjusting for relevant corrections– on health care"?  Not so fierce. 

Of course one might dispute the 1:2 ratio mentioned above.

But in general, the more American medical care is overpriced in current markets, the more current expenditures overmeasure social costs.

The more you think that government can bargain down prices without wrecking supply, the more you should think that current expenditures overmeasure social costs.

Recall that economists do not find efficiency loss in higher prices per se.  Higher prices are bad as a sign of restricted output.  But the American medical system has high prices and relatively high outputs, for reasons partially explained by Maggie Mahar.  So don’t measure cost by the high prices, look for output restrictions, either for health care or elsewhere.

Two caveats: We still must consider secondary economic costs; for instance it is harder to switch jobs for health insurance reasons.  Second, medical care is a sector where distribution and efficiency are not totally separate. 

But the general point remains: many of the arguments for greater government involvement imply that the true cost of the American medical system is less than the current numbers imply.

Rich, handsome men

The female students were asked to rate the men for their attractiveness as long-term partners.  Overall, the better looking men were rated as more attractive, as were those men with higher status.  Crucially, however, there was an interaction between facial attractiveness and status, such that good-looking men with high status were actually rated as less attractive than good-looking men of medium status.

Here is the full report.  Remember when Yogi Berra said (more or less): "No one goes there anymore, it is too crowded."

I am not sure that being rated less high is, for these wealthy, handsome men, a sexual or mating disadvantage.  I do not feel sorry for them.

Be afraid, be very afraid

On his travels to almost 100 countries, Barry Goldsmith, a creator of tours for General Tours, says he has worried about risks like terrorism, crime and infectious disease. But one trumps all the others.

“It’s traffic accidents,” Mr. Goldsmith said.

Road accidents are “the largest cause of nonnatural death among U.S. citizens overseas,” said Betsy L. Anderson, a senior consular official at the State Department.

Here is the full story.  Some of the lessons are simple: insist on a vehicle with seat belts, sit in the back whenever possible, try to avoid driving or being driven at night, and don’t take too many car trips.  Avoid the "Andean bus plunge."

What is failure?

Robin Hanson writes:

I’ll take credit for creating some ideas the world has found useful, but I have completely failed both the market test and the academic test.  That is, I can’t convince any business to let me join them to deliver my ideas at scale, and I can’t convince any top journal to publish my ideas.

Prediction markets are now known by all the people who read the top journals, so the final complaint may reflect an underrewarded Robin but not a failure of Robin.  I also doubt if businesses will ever bite the bullet and adopt prediction markets on a large scale.  The very reason we resort to a firm, rather than the market, is to build consensus and morale, not to forecast the truth.  Prediction markets would tend to break down firms, but of course they still can flourish in Arrow-Hahn-Debreu space.  Here is my previous post on why businesses don’t leap on the bandwagon.  The pointer is from Chris Masse.

What I’ve been reading

1. Ghosts of Spain: Travels Through Spain and its Secret Past, by Giles Tremlett.  An engaging survey of contemporary Spain.

2. Untapped: The Scramble for Africa’s Oil, by John Ghazvinian.  Why Africa is even more messed up than you think; this book has lots of good economics.

3. Roberto Bolaño, The Savage Detectives.  I’ve gone on about him before, but this newly translated work (the translation gets an A+) is one of the major Latin American novels of the twentieth century. 

4. It’s enough to think you are exercising.

5. Persistence running.

6. Thomas McNamee, Alice Waters and Chez Panisse.  A good history of the restaurant, plus it makes you wonder what percent of the female population is motivated primarily by ***ual desire.

Questions about Sen

1. How has Sen’s thought changed traditional development?  We have a better sense of how real income measures don’t estimate capabilities very effectively in some cases, plus we’ve learned how much democracy holds famines at bay.  Sen also drew attention to the problem of "the missing women" in the Third World, namely the possibly tendency of families to take better care of sons than daughterse or to selectively abort.

2. How has his thought affected on development frameworks and fields?See #1.


3. How is his thought evaluated?  Sen has won a Nobel Prize in economics.  His writings have influenced the practice of development economics in the field, plus he had a big impact on "social choice theory," most of all showing how efficiency may conflict with key values of liberty and autonomy ("the Paretian Liberal Paradox")


4. Is Sen’s thought practical and feasible in the development projects? If it is not practical or feasible, what would be the cause?  Sen’s measure of capabilities — a kind of positive liberty — can be hard to make operational, but in the field boosting health and literacy first — and real income second — does have more than a theoretical meaning.  Try visiting Kerala.


5. If there any shortcoming of Sen’s thought or his theory, what would it be?  Sen does not place enough stress on the ability of large-scale commercial institutions or capitalism to elevate people from poverty.  He still has some of the socialist biases of the Bengali intelligentsia.


6. Will be it possible for Sen’s thought ( in particular, capability approach) to be accepted and adopted as the main concept in international development in the future?  It is already part of the mainstream.  But there is no "the main concept" in such a diverse field.

7. Is there any concept or thought which replaces Sen’s thought? Or is there any concept or thought which was affected by Sen’s thought and which has made Sen’s thought more effective?  Sen’s work, according to some, has been strengthened by incoporating the philosophical perspectives of Martha Nussbaum.  In my view Sen’s thought starts too much with his philosophical opponents (crude economism) and not enough with the poverty problem itself.  I’d like to see more analysis of trust and institutions, other than democracy and certain kinds of aid.  See also #5.  Emily Oster’s work is an important revision to Sen’s claims about the missing women.

I could say more, but I am at a Marriott in Indianapolis.  Here is Wikipedia on Sen.

Resale price maintenance

The Supreme Court will soon consider whether resale price maintenance (RPM) should be per se illegal.  Since we don’t understand price stickiness well, it is no surprise we also don’t understand RPM very well either.  My seat of the pants guess is that > 50% of RPM represents a desire to collude and raise prices. 

Market-oriented economists often exaggerate the "ancillary services" hypothesis developed by Lester Telser, namely that RPM keeps services flowing ("informative stereo salesman" is the paradigmatic example).  Supposedly, without RPM everyone would get sales help at the expensive store but buy at the discount store; in the equilibrium all stores would be discount stores and poor consumers would wander through the world without sales help.  In reality RPM has often been used for lots of the small, stupid items you see for sale in drugstores. 

I also attach greater credence to the Ben Klein hypothesis that RPM represents a kind of "efficiency wage" to discipline retailers and force them — through threat of product cut-off — to present the item in a desirable fashion.  (In Telser’s hypothesis the services flow automatically after RPM is instituted, through a desire to capture customers and extra profits, but why should the extra services supplied then be the ones subject to the free-rider problem, rather than some other side benefits?)

Even when cartellization is the motive, I do not worry that Colgate will manage to monopolize the market for toothpaste.  There just aren’t many retail products which don’t face lots of competition from alternative manufacturers.  I also don’t think that so many business decisions should become primarily legal decisions; our government has enough real crimes to look after.  So RPM should be close to per se legal (certainly not per se illegal), with some possible exceptions for resource-based monopolies, not that I can think of any offhand in the retail context.  Arguably government should not enforce RPM agreements, though product pulling is in any case the major means of implementation.

Here is Greg Mankiw on resale price maintenance.  Here is an Econoblog on resale price maintenance.  Here is Wikipedia.  Here is Aplia.  Here is some Supreme Court discussion.

Does self-citation pay?

in a word, yes:

Self-citations – those where authors cite their own works – account for a significant portion of all citations.  These self-references may result from the cumulative nature of individual research, the need for personal gratification, or the value of self-citation as a rhetorical and tactical tool in the struggle for visibility and scientific authority.  In this article we examine the incentives that underlie self-citation by studying how authors’ references to their own works affect the citations they receive from others. We report the results of a macro study of more than half a million citations to articles by Norwegian scientists that appeared in the Science Citation Index.  We show that the more one cites oneself the more one is cited by other scholars.  Controlling for numerous sources of variation in cumulative citations from others, our models suggest that each additional self-citation increases the number of citations from others by about one after one year, and by about three after five years.  Moreover, there is no significant penalty for the most frequent self-citers–the effect of self-citation remains positive even for very high rates of self-citation.  These results carry important policy implications for the use of citations to evaluate performance and distribute resources in science and they represent new information on the role and impact of self-citations in scientific communication.

Well, that explains some observations.  Here is the paper, indirectly the pointer is from Aleks.

Predictions about 2000 from 1900

Here is the list, via Kottke, and here.  My favorites:

Prediction #22: Store Purchases by Tube. Pneumatic tubes, instead of store wagons, will deliver packages and bundles. These tubes will collect, deliver and transport mail over certain distances, perhaps for hundreds of miles. They will at first connect with the private houses of the wealthy; then with all homes. Great business establishments will extend them to stations, similar to our branch post-offices of today, whence fast automobile vehicles will distribute purchases from house to house.

Prediction #23: Ready-cooked meals will be bought from establishments similar to our bakeries of today. They will purchase materials in tremendous wholesale quantities and sell the cooked foods at a price much lower than the cost of individual cooking. Food will be served hot or cold to private houses in pneumatic tubes or automobile wagons.

And strawberries will be as large as apples.

Markets in everything, family auction edition

David Altshuler recently bid at auction for a vintage necktie.

The event wasn’t set up by an auction house or to
benefit a charity. Instead, he was bidding against his two siblings in
a private, Web-based auction that they held to divvy up their late
father’s personal property.

Distributing a family’s tangible belongings — often
mundane knickknacks with far more sentimental value than monetary worth
— has long had the potential to ignite family feuds.  Divorce and
second marriages can add to the tension, as children and stepfamilies
vie for valued objects.

Now, families and estate planners increasingly are
turning to a number of novel strategies, including family auctions and
a round-robin selection strategy, to divide tangible property without
splitting families apart.  Recent online tools also can help family
members divide up a parent’s belongings.

Here is the (gated) article (WSJ).  For the pointer, thanks to both Don Boudreaux and a Sr. McKethan.