Results for “finkelstein” 27 found
Medical Spending Variation: 1/2 Patients, 1/2 Places
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.
Is American Pet Health Care (Also) Uniquely Inefficient?
That is the title of the new NBER paper by Liran Einav, Amy Finkelstein, and Atul Gupta, here is the abstract:
We document four similarities between American human healthcare and American pet care: (i) rapid growth in spending as a share of GDP over the last two decades; (ii) strong income-spending gradient; (iii) rapid growth in the employment of healthcare providers; and (iv) similar propensity for high spending at the end of life. We speculate about possible implications of these similar patterns in two sectors that share many common features but differ markedly in institutional features, such as the prevalence of insurance and of public sector involvement.
Note that the number of veterinarians doubled from 1996 to 2013. The authors do not seem to have data on whether cats and dogs live longer in the United States, but I have a surmise…
Here are ungated copies of the paper.
Further Wednesday assorted links
1. Volkswagen and the trade agreements: “In the best of cases, the United States will emerge as the “world super-regulator.”” Bravo.
2. Is academic freedom dead in Hong Kong?
3. How to get kids to eat their vegetables. And the true nature of Masonomics (photo, view carefully).
4. Good interview with Amy Finkelstein.
What Is “Price Theory”? (A Guest Post by Glen Weyl)
When I was last living in Chicago, in the spring 2014, a regular visitor to the department of the University of Chicago and the editor of the Journal of Economic Literature, Steven Durlauf, asked me if I would be interested in writing something for the journal. For many years I had promised Gary Becker that I would write something to help clarify the meaning and role of price theory to my generation of economists, especially those with limited exposure to the Chicago environment, which did so much to shape my approach to economics. With Gary’s passing later that spring, I decided to use this opportunity to follow through on that promise. More than a year later I have posted on SSRN the result.
I have an unusual relationship to “price theory”. As far as I know I am the only economist under 40, with the possible exception of my students, who openly identifies myself as focusing my research on price theory. As a result I am constantly asked what the phrase means. Usually colleagues will follow up with their own proposed definitions. My wife even remembers finding me at our wedding reception in a heated debate not about the meaning of marriage, but of price theory.
The most common definition, which emphasizes the connection to Chicago and to models of price-taking in partial equilibrium, doesn’t describe the work of the many prominent economists today who are closely identified with price theory but who are not at Chicago and study a range of different models. It also falls short of describing work by those like Paul Samuelson who were thought of as working on price theory in their time even by rivals like Milton Friedman. Worst of all it consigns price theory to a particular historical period in economic thought and place, making it less relevant to the future of economics.
I therefore have spent many years searching for a definition that I believe works and in the process have drawn on many sources, especially many conversations with Gary Becker and Kevin Murphy on the topic as well as the philosophy of physics and the methodological ideas of Raj Chetty, Peter Diamond and Jim Heckman among others. This process eventually brought me to my own definition of price theory as analysis that reduces rich (e.g. high-dimensional heterogeneity, many individuals) and often incompletely specified models into ‘prices’ sufficient to characterize approximate solutions to simple (e.g. one-dimensional policy) allocative problems. This approach contrasts both with work that tries to completely solve simple models (e.g. game theory) and empirical work that takes measurement of facts as prior to theory. Unlike other definitions, I argue that mine does a good job connecting the use of price theory across a range of fields of microeconomics from international trade to market design, being consistent across history and suggesting productive directions for future research on the topic.
To illustrate my definition I highlight four distinctive characteristics of price theory that follow from this basic philosophy. First, diagrams in price theory are usually used to illustrate simple solutions to rich models, such as the supply and demand diagram, rather than primitives such as indifference curves or statistical relationships. Second, problem sets in price theory tend to ask students to address some allocative or policy question in a loosely-defined model (does the minimum wage always raise employment under monopsony?), rather than solving out completely a simple model or investigating data. Third, measurement in price theory focuses on simple statistics sufficient to answer allocative questions of interest rather than estimating a complete structural model or building inductively from data. Raj Chetty has described these metrics, often prices or elasticities of some sort, as “sufficient statistics”. Finally, price theory tends to have close connections to thermodynamics and sociology, fields that seek simple summaries of complex systems, rather than more deductive (mathematics), individual-focused (psychology) or inductive (clinical epidemiology and history) fields.
I trace the history of price theory from the early nineteenth to the late twentieth when price theory became segregated at Chicago and against the dominant currents in the rest of the profession. For a quarter century following 1980, most of the profession either focused on more complete and fully-solved models (game theory, general equilibrium theory, mechanism design, etc.) or on causal identification. Price theory therefore survived almost exclusively at Chicago, which prided itself on its distinctive approach, even as the rest of the profession migrated away from it.
This situation could not last, however, because price theory is powerfully complementary with the other traditions. One example is work on optimal redistributive taxation. During the 1980’s and 1990’s large empirical literatures developed on the efficiency losses created by income taxation (the elasticity of labor supply) and on wage inequality. At the same time a rich theory literature developed on very simple models of optimal redistributive income taxation. Yet these two literatures were largely disconnected until the work of Emmanuel Saez and other price theorists showed how measurements by empiricists were closely related to the sufficient statistics that characterize some basic properties of optimal income taxation, such as the best linear income tax or the optimal tax rate on top earners.
Yet this was not the end of the story; these price theoretic stimulated empiricists to measure quantities (such as top income inequality and the elasticity of taxable income) more closely connected to the theory and theorists to propose new mechanisms through which taxes impact efficiency which are not summarized correctly by these formulas. This has created a rich and highly productive dialog between price theoretic summaries, empirical measurement of these summaries and more simplistic models that suggest new mechanisms left out of these summaries.
A similar process has occurred in many other fields of microeconomics in the last decade, through the work of, among others, five of the last seven winners of the John Bates Clark medal. Liran Einav and Amy Finkelstein have led this process for the economics of asymmetric information and insurance markets; Raj Chetty for behavioral economics and optimal social insurance; Matt Gentzkow for strategic communication; Costas Arkolakis, Arnaud Costinot and Andrés Rodriguez-Clare in international trade; and Jeremy Bulow and Jon Levin for auction and market design. This important work has shown what a central and complementary tool price theory is in tying together work throughout microeconomics.
Yet the formal tools underlying these price theoretic approximations and summaries have been much less fully developed than have been analytic tools in other areas of economics. When does adding up “consumer surplus” across individuals lead to accurate measurements of social welfare? How much error is created by assumptions of price-taking in the new contexts, like college admissions or voting, to which they are being applied? I highlight some exciting areas for further development of such approximation tools complementary to the burgeoning price theory literature.
Given the broad sweep of this piece, it will likely touch on the interests of many readers of this blog, especially those with a Chicago connection. Your comments are therefore very welcome. If you have any, please email me at [email protected].
Interpreting the results of the Oregon Medicaid experiment
There is a new and probably very important paper by Amy Finkelstein, Nathaniel Hendren, and Erzo F.P. Luttmer:
We develop and implement a set of frameworks for valuing Medicaid and apply them to welfare analysis of the Oregon Health Insurance Experiment, a Medicaid expansion that occurred via random assignment. Our baseline estimates of the welfare bene fit to recipients from Medicaid per dollar of government spending range from about $0.2 to $0.4, depending on the framework, with a relatively robust lower bound of about $0.15. At least two- fifths – and as much as four- fifths – of the value of Medicaid comes from a transfer component, as opposed to its ability to move resources across states of the world. In addition, we estimate that Medicaid generates a substantial transfer to non-recipients of about $0.6 per dollar of government spending.
An implication of this is that the poor would be better off getting direct cash transfers: “Our welfare estimates suggest that if (counterfactually) Medicaid recipients had to pay the government’s cost of their Medicaid, they would not be willing to do so.”
And perhaps this sentence could use the “rooftops treatment”:
It is a striking finding that Medicaid transfers to non-recipients are large relative to the benefits to recipients; depending on which welfare approach is used, transfers to non-recipients are between one-and-a-half and three times the size of benefits to recipients.
Or this:
Across a variety of alternative specifications, we consistently find that Medicaid’s value to recipients is lower than the government’s costs of the program, and usually substantially below. This stands in contrast to the current approach used by the Congressional Budget Office to value Medicaid at its cost. It is, however, not inconsistent with the few other attempts we know of to formally estimate a value for Medicaid; these are based on using choices to reveal ex-ante willingness to pay, and tend to fi nd estimates (albeit for different populations) in the range of 0.3 to 0.5.
What I’ve been reading
1. Hassan Blasim, The Corpse Exhibition and Other Stories of Iraq. Short stories about the conflict in Iraq, by an Iraqi. I expected to find these widely heralded stories to be disappointing, as the premise is a little too easy for the Western critic to embrace. But they are excellent and this book is one of the year’s best fiction releases.
2. Michael Hofmann, Where Have You Been?: Selected Essays. Excellent and informationally dense literary essays, I especially like the ones on the German-language poets and writers, such as Benn and Walser and Bernhard and Grass.
3. Andy Weir, The Martian. Ostensibly science fiction, but more a 21st century Robinson Crusoe story — set on Mars of course — with huge amounts of (ingenious) engineering driving the story. Lots of fun, many other people have liked it too.
4. Andrew MacGregor Marshall, Kingdom in Crisis: Thailand’s Struggle for Democracy in the 21st Century. It is hard for me to judge the specifics of the argument, still this is a readable and conceptual account of the mess that is Thai politics, namely that much of it is about royal succession. If true, this is a very good book.
Arrived in my pile is Amy Finkelstein, Moral Hazard in Health Insurance, with Gruber, Arrow, and Stiglitz as commentators.
The follow-up study on Medicaid coverage in Oregon
Here is some overview coverage from Annie Lowrey, an important issue of course with some striking results. Here is coverage from Sarah Kliff. Here is commentary from Justin Wolfers, and here. After the R&R saga, I say it’s time for someone to stand up and admit “We have some egg on our face with this one.”
Addendum: Reading more carefully through the quotations from Finkelstein and Holahan in the Lowrey piece, I find it amazing, and I suppose even embarrassing, what those commentators are claiming as a positive result. Of course it is worth comparing the program to simply giving people the cash.
Assorted links
Sentences to ponder
Recent research by economists Amy Finkelstein, Erzo Luttmer, and Matthew Notowidigdo suggests that you’ll get a bigger bang for your consumer buck by spending while you’re healthy, before old age starts to take the fun out of life’s indulgences.
Here is more. I worry about the asymmetry between gaining happiness and avoiding pain. Surely money for the young is better for the former but how about the latter?
Electronic tolls mean higher tolls
After an electronic system is put in place, tolls start rising
sharply. Take two tollbooths that charge the same fee and are in a
similar setting – both on highways leading into a big city, for
instance. A decade after one of them gets electronic tolls, it will be
about 30 percent more expensive on average than a similar tollbooth
without it. There are no shortage of examples: the Golden Gate Bridge,
the George Washington Bridge and the Tappan Zee Bridge, among them.
“You may be less aware you’re paying the toll,” said Ms. Finkelstein, now an associate professor at M.I.T., “but you’re paying a higher toll than you used to.”
Here is the full story. One thought is the Brennan-Buchanan government rapaciousness angle, layered on top of behavioral imperfections. This result is also why electronically extracted tolls might reduce congestion less than we would expect; they’re not sufficiently noticed. Mark Thoma suggests some other interpretations of the data, namely that the electronic toll, by lowering traffic, inconvenience, and queuing to pay tolls, allows the highway authorities to raise the monetary fee to restore the previous net price.
Assortative mating
Last month the New York Times’ David Leonhardt published a fascinating article, listing 13 young (untenured) in his piece The Future of Economics Isn’t So Dismal…
Of the 13 up-and-coming academic economists, six are married to each other. For example, Chicago’s Emily Oster is married to fellow Chicago economist Jesse Shapiro. Not only that, Dr Oster is the daughter of two economists, Yale’s Ray Fair and Sharon Oster. Talk about keeping it in the family. The other two couples were MIT’s Amy Finkelstein and Harvard’s Benjamin Olken, and Berkeley’s Ulrike Malmendier, and Stefano DellaVigna.
Wharton’s Justin Wolfers,
by the way, has a partner with a PhD in economics from Harvard, who
worked for two Federal Reserve banks and who is now an Assistant
Professor of Business and Public Policy at Wharton: Betsey Stevenson. So that means over half (7 out of 13) of the rising US economic stars have an economist as partner.
Here is the link.
An important paper on health care economics
Amy N. Finkelstein offers up a juicy abstract and paper:
Abstract: This paper investigates the effects of market-wide changes in health insurance by examining the single largest change in health insurance coverage in American history: the introduction of Medicare in 1965. I estimate that the impact of Medicare on hospital spending is over six times larger than what the evidence from individual-level changes in health insurance would have predicted. This disproportionately larger effect may arise if market-wide changes in demand alter the incentives of hospitals to incur the fixed costs of entering the market or of adopting new practice styles. I present some evidence of these types of effects. A back of the envelope calculation based on the estimated impact of Medicare suggests that the overall spread of health insurance between 1950 and 1990 may be able to explain about half of the increase in real per capita health spending over this time period.
Amy is an assistant professor at MIT; this week’s Business Week has an article claiming she is revolutionizing health care economics. Perhaps that is an exaggeration, but her home page is worth a look.