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on Contract Theory and Applications |
| By: | Katharina Huesmann (University of Cologne, Germany); Wanda Mimra (ETH Zurich, Switzerland) |
| Abstract: | We model competition for a multi-attribute health service where patients observe attribute quality imprecisely before deciding on a provider. High quality in one attribute, e.g. medical quality, is more important for ex post utility than high quality in the other attribute. Providers can shift resources to increase expected quality in some attribute. Patients rationally focus on attributes depending on signal precision and beliefs about the providers’ resource allocations. When signal precision is such that patients focus on the less important attribute, any Perfect Bayesian Nash Equilibrium is inefficient. Increasing signal precision can reduce welfare, as the positive effect of better provider selection is overcompensated by the negative effect that a shift in patient focusing has on provider quality choice. We discuss the providers’ strategic reporting incentives and reporting policies. Under optimal reporting, signals about the important attribute are always published. However, banning reporting on less important attributes might be necessary. |
| Keywords: | multi-attribute good, quality signals, focusing, reporting |
| JEL: | I11 D83 L10 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:eth:wpswif:15-221&r=all |
| By: | Auriol, Emmanuelle; Miquel-Florensa, Josepa |
| Abstract: | We present a model with two donors-principals that provide funds to a unique recipient-agent. Each donor decides how to allocate his aid funds between a pooled and a donor specific unilateral project. The production function of development depends positively on the three inputs (pooled funds and each unilateral project). They are complement in the sense that the development good is only produced if a minimum of each of these inputs is provided. Both principals and the agent value the output produced with the principals' pooled and two unilateral funded projects. However the donors have a bias in favor of their own unilateral project, which leads them to over-invest in these projects compared to the investment in the pooled project. The contributions to unilateral projects are greater than the welfare maximizing levels. To correct this problem the agent establishes a tax on the implementation of unilateral projects, which acts as a protection measure against biased allocation by the principals. The optimal tax imposed by the recipient on unilateral projects varies depending on the total amount of aid provided by the donor and on the productivity of his unilateral project. We present empirical support on the donors' preferences for unilateral projects, and how allocations and fragmentation are affected by recipient's characteristics. |
| Keywords: | Aid fragmentation; Development; incentives; multi-principal |
| JEL: | D82 D86 F35 O19 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:10802&r=all |
| By: | Hebous, Shafik; Weichenrieder, Alfons J. |
| Abstract: | There is a large, but yet growing debate about the need to complement the European monetary union with a stronger fiscal union. This paper reviews the potential trade-offs between effectiveness, moral hazard problems, and permanent redistribution. In particular, we contribute to the question of how member states may be willing to enter into a stronger fiscal union if the evolution of this union may imply large redistribution under incomplete contracting. We discuss clawback mechanisms that have been suggested in the literature, but conclude that clawbacks are undesirable, as they would essentially destroy the insurance value of a fiscal union. Instead, we propose that a clearly defined exit option as a guarantee against involuntary redistribution can make entry into a stronger fiscal union less risky and hence more attractive for member states. |
| Keywords: | EMU,Eurozone,European unemployment insurance,fiscal transfers |
| JEL: | H1 H7 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewh:28&r=all |
| By: | Maria Polyakova |
| Abstract: | I take advantage of regulatory and pricing dynamics in Medicare Part D to empirically explore interactions among adverse selection, switching costs, and regulation. I first document novel evidence of adverse selection and switching costs within Part D using detailed administrative data. I then estimate a contract choice and pricing model in order to quantify the importance of switching costs for risk-sorting, and for policies that may affect risk sorting. I first find that in Part D, switching costs help sustain an adversely-selected equilibrium and are likely to mute the ability of ACA policies to improve risk allocation across contracts, leading to higher premiums for some enrollees. I then estimate that, overall, decreasing the cost of active decision-making in the Part D environment could lead to a substantial gain in consumer surplus of on average $400-$600 per capita, which is around 20%-30% of average annual per capita drug spending. |
| JEL: | H0 H50 H51 I1 I13 L51 L78 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21541&r=all |
| By: | Timothy J. Layton; Randall P. Ellis; Thomas G. McGuire |
| Abstract: | Health insurance markets face two forms of adverse selection problems. On the demand side, adverse selection leads to plan price distortions and inefficient sorting of consumers across health plans. On the supply side, adverse selection creates incentives for plans to inefficiently distort benefits to attract profitable enrollees. These problems can be addressed by features of health plan payment systems such as reinsurance, risk adjustment, and premium categories. In this paper, we develop Harberger- type measures of the efficiency consequences of price and benefit distortions under a given payment system. Our measures are valid, that is, based on explicit economic models of adverse selection. Our measures are complete, in that they are able to incorporate multiple features of plan payment systems. Finally, they are practical, in that they are based on the ex ante data available to regulators and researchers during the design phase of payment system development, prior to observing actual insurer and consumer behavior. After developing the measures, we illustrate their use by comparing the performance of the payment system planned for implementation in the ACA Marketplaces in 2017 to several policy alternatives. We show that, in protecting against both types of selection problems, a payment system that incorporates reinsurance and prospective risk adjustment out-performs the planned payment system which includes only concurrent risk adjustment. |
| JEL: | I11 I13 I18 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21531&r=all |
| By: | Hajime Tomura (Graduate School of Economics, University of Tokyo) |
| Abstract: | This paper presents a three-period model to analyze why banks need bank reserves for interbank payments despite the availability of other liquid assets like Treasury securities. The model shows that banks need extra liquidity if they settle bank transfers without the central bank. In this case, each pair of banks sending and receiving bank transfers must determine the terms of settlement between them bilaterally in an overthe-counter transaction. As a result, a receiving bank can charge a sending bank a premium for the settlement of bank transfers, because depositors’ demand for timely payments causes a hold-up problem for a sending bank. In light of this result, the large value payment system operated by the central bank can be regarded as an interbank settlement contract to save liquidity. A third party like the central bank must operate this system because a custodian of collateral is necessary to implement the contract. This result implies that bank reserves are not independent liquid assets, but the balances of collateral submitted by banks to participate into a liquidity-saving contract. The optimal contract is the floor system. Whether a private clearing house can replace the central bank depends on the range of collateral it can accept. |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:upd:utppwp:056&r=all |