Economics – General

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Certificate of Need Stringency

June 15, 2011 in Economics - General, Regulation | No comments

Many states have certificate of need (CON) laws which restrict providers supply for certain procedures.  A paper presented by Vivan Ho at AcademyHealth claimed that there were 37 states with a CON law for at least one procedure.  Following up earlier research which found that CON laws decreased quality, Dr. Ho found that dropping CON laws also reduced cost.

An important point was made by an audience member, however.  CON law stringency is highly variable across states.  According to the commenter, most providers who make applications to receive a certificate of need receive one in states like Massachusetts.  In other states, however, CON laws are much more stringent.

Thus, in any empirical analysis, using an dummy variable to indicate the presence of CON law indicates the effect of CON on average.  Policymakers may care more about this variable if they feel they cannot pre-determine the level of stringency upon passing a law.  The true causal effect of CON, however, may of course vary depending on how severely States restrict providers supply of services.

This issue provides a valuable teaching point: any research into CON or other regulations must explicitly interpret what their findings do and do not say about the regulation under consideration.

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Prince William, Kate Middleton, and Nuptial Economics

May 2, 2011 in Current Events, Economics - General | No comments

Nearly 23 million Americans watched a British Prince and his fiancee get married last week.  Yet you don’t have to be royalty to enjoy a luxurious wedding.

In the U.S., the average wedding costs about $30,000.  Weddings in India are well known for their extravagance.

“India’s legendary nuptial shindigs risk emptying not just the country’s wallets, but its bellies too. In February the food minister estimated that close to 15% of all grains and vegetables in the country are wasted through ‘extravagant and luxurious social functions’, such as lavish wedding banquets.”

On the other hand, other countries are trying to reign in spending on nuptials.

“…the Afghan authorities have been considering a proposal to limit the boom in weddings, sombre affairs under the Taliban. The suggested limit is 300 guests and a few dollars per head.

…Wedding laws in Tajikistan now maintain that only one course may be served.”

When do wedding festivities excess become excessive.  Like love, the answer is in the eye of the beholder.

 

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How the Recession Changing Tiebout Sorting

April 27, 2011 in Economics - General | No comments

Typically tiebout sorting works like this:

“Sharofsky does know — very well — about another Cherry Hill [NJ] institution: its stellar public schools. He’s president of the Cherry Hill Teachers Union. Those teachers can brag that 95 percent of the students they teach go on to college. Not bad in one the state’s largest and most diverse suburban districts. Teachers’ salaries here average $54,000 a year and can go up to $100,000. Families — like Sharofsky’s — move to this suburb, right across the bridge from Philadelphia, for the education.

To support their schools, Cherry Hill residents pay some of the highest property taxes in the nation. According to the Tax Foundation, the town is among the top 10 communities with the highest tax burden relative to home value — in 2009, about $5,600 a year for the median homeowner.”

With the state taking a bigger cut, will there be less Tiebout sorting? I would guess so.  In fact, because of the recent contraction in the economy and resulting squeeze on state budgets, the state of New Jersey is not letting Cherry Hill residents keep as high a share of their tax payments. Governor Chris Christie gave millions of Cherry Hill’s surplus money to schools whose budget was even more in need.  Thus, Cherry Hill is a less attractive option if it has high taxes, but the quality of the schools regresses.

In California most education funding is funneled directly from the state, even if some funds are raised through local property taxes.  Is there less Tiebout sorting in California than other States?

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Health Care Research Awards

March 24, 2011 in Economics - General | No comments

The National National Institute for Health Care Management (NIHCM) recently selected its five finalists for their Annual Health Care Research Award.  These studies include the following:

 

 

 

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What is the difference between GDP, GNP, and National Income?

March 23, 2011 in Economics - General | No comments

Gross Domestic Product (GDP), Gross National Product (GNP), and National Income measures attempt to measure how much economic activity took place during a specified amount of time (usually a year).  Yet many people do not know the difference between these measures.  Today, I’ll briefly review these differences by describing how they are calculated by the Bureau of Economic Affairs.

  • GDP mesausre the market value of all final goods and services produced within a country in a given period of time.
  • GNP measures the market value of all final goods and services produced by a country’s citizens or residents.  The difference is subtle but improtant.  GNP excludes economic activity that occurs in the U.S. but is owned by foreigners and includes American economic activity that occurs in other countries.  GDP is place based whereas GNP is ownership based.  Thus, if a foreigner creates an internet startup in Silicon valley, this will count as GDP, but not GNP.  If General Electric opens a new plant in Poland, this investment will be included in GNP, but not GDP.
  • National Income.  National income is equal to GNP less the consumption of fixed capital (i.e., depreciation).
  • Personal Income measures the amount of income available to individuals in terms of funds on hand.  Personal income equals to national income less: corporate profits with inventory valuation and capital consumption adjustments, contributions for government social insurance, domestic net interest and miscellaneous payments on assets, net business current transfer payments, current surplus of government enterprises, undistributed wage accruals. Added to net national income are personal income receipts on assets and personal current transfer receipts.

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Did the Stimulus Hurt the Economy?

March 11, 2011 in Economics - General | No comments

Although the stimulus money may have helped the economy in the short run (1-2 years), in the near-term it seems to have exacerbated problems by bloating state government spending and postponing necessary cuts.

“As part of the 2009 stimulus package, Washington gave the states $150 billion. The states became dependent on a higher level of federal aid — 35 percent of their budgets, compared with about 25 percent before. But the stimulus is ending, and the states will have to cut.”

I would guess that there are asymmetric costs to increasing and decreasing the budget.  Increasing the budget is easy and generates short-term jobs.  Cutting budget, however, produces significant administrative costs as interest groups fight to maintain funding.  Further, more creative solutions to spending shortfalls are postponed when the Feds inject stimulus money for states.

Consider Vallejo, CA in the Bay Area.

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An Oxygen Tax

February 17, 2011 in Economics - General, Taxes | 1 comment

The UK  explored selling or leasing forest land to private interests, but encounter some public backlash.

“The plans were intended to give the private sector, community and charitable groups greater involvement in woodlands by encouraging a “mixed model” of ownership.

But critics argued it could threaten public access, biodiversity and result in forests being used for unsuitable purposes.”

Should the government own forests?  In general, I would say no.  If private firms or organizations would want to pay to access these forest, they should be able to do so.  Some of the businesses who buy the land may want to harvest trees or start building apartment buildings.  Others may want to create eco-tourism sites or private NGOs could buy the land to maintain it in its natural state.  Regardless, individuals, firms, or organizations with the highest willingness to pay should be able to purchase the property.

Once exception may be the production of oxygen.  Trees produce oxygen for the whole country.  However, oxygen is generally non-excludable.  Thus, by cutting down trees, businesses who decide to deforest land impose an externality on others, especially if there are few forests left.

To solve this problem, the government would create an oxygen tax.  The tax would basically mandate that you need to have a certain number of trees per acre on your land or else you would pay the tax.  This could apply to all land, not just forests.  With the cost of apartments in central London, it is of course optimal to simply pay the tax and create dense neighborhoods.

The oxygen tax is not without its flaws.  If the tax is based on the number of trees on the property, one could simply buy lots of young trees to avoid the tax.  Young, smaller trees, however, will not produce as much oxygen as larger older trees.  One could estimate the aggregate biomass of trees on any property, but this would of course require regulators to ensure that people don’t lie about the biomass on their property.

Is the oxygen tax a good idea?  If deforestation becomes severe enough, it may be.

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Prison

January 28, 2011 in Economics - General | No comments

Below are two excerpts from a series of articles in Wilson Quarterly on Prison reform:

“With effective programs, we could reduce the number of repeat offenders by nearly 100,000.  We could do even better if these efforts were linked to improved services in teh community upon release.  Such efforts would pay for themselves by reducing future criminal justice and corrections cost.  Economist Mark A. Cohen and criminologist Alex Piquero found in a recent study that a high-risk youth who become a chronic offender costs society between $4.2 and $7.2 million, principally in police and court outlays, property losses, and medical care.  We either pay now or pay later–and we pay a lot more later.”

“Unserved warrants tend not to pile up in jurisdictions with commercial bondsmen.  In those places, the bail bond agent is on the hook for the bond and thus has a strong incentive to bring those who jump bail to justice.”

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Do Economists need an ethical code?

January 10, 2011 in Economics - General | No comments

American Sociological Association and the American Anthropology Association have a code of ethics.  Similarly, the American Psychology Associationand the American Statistical Association both have guidelines for ethics.  Does the American Economic Association need one for economists as well?

A recent petition by a group of economists called for just such a code. The petition has been covered in the New York Times and the Economist. The authors propose the following basic code:

“Economists should maintain the highest degree of integrity in their professional work and avoid conflicts of interest and the appearance of conflict. Moreover, economists should disclose relevant sources of financial support and relevant personal or professional relationships that may have the appearance or potential for a conflict of interest in public speeches and writing, as well as in academic publications.”

I do not think an ethical code that asks economists to ‘maintain the highest degree of integrity’ will have much of an effect on behavior.  First, most economists already know they should act with integrity.  Second, what body would enforce that economists act with integrity.  Without enforcement, the code would have little teeth.  However, the AEA is made up of a small clique of economists, few of who would expel their peers (and friends) from being an economist.

On the other hand, compelling economists to disclose their financial interest could be useful.  Almost every economist has their own homepage.  The code could compel economists to include a link to a webpage which lists the sources from which the economists receive income.  Again, enforcement could be a problem.  The AEA could check that the webpage is updated annually for each of their members.  It is unlikely, however, that the AEA would be able to verify the accuracy of these reports.

Thus, the code of ethics could promote more of a culture of disclosure among economists.  For instance, upon all economists could be required to sign the code of ethics upon defending their dissertation. Thinking that the code of ethics will turn corrupt economists honest, however, is unrealistic.  More likely, it will have a very marginal or no effect on economist behavior.

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Japan: Bigger deficit problems than the U.S.

November 22, 2010 in Economics - General, Public Policy | No comments

The cover of The Economist this week looked at America’s budget deficit.  According to their estimates, “America’s budget deficit in the fiscal year that ended on September 30th stood at $1.3 trillion; at 9% of GDP, the second-largest since the second world war.”  The short run cause of this deficit is the recent severe recession, the wars in Iraq and Afghanistan, and the stimulus spending.  In the long run, however, entitlements will further destabilize the country’s fiscal soundness.  Entitlements such as Social Security, Medicare and Medicaid “…will double the federal debt by 2027; and the number keeps on rising after then.”

Nevertheless, the prospects for Japan look even bleaker.  While the U.S. debt has exceeded 50% of GDP, Japan’s debt is near 200% of GDP.  Further, Japan is aging quickly; the median age in Japan is 44.6.  Although a long life expectancy is a good thing, it will be difficult to support so many older workers without a concurrent rise in the number of workers.  Since the birth rate in Japan is so low (2nd lowest in the world), fewer and fewer youth are entering the job market.  More immigration could help, but it is currently difficult for non-Japanese immigrants to gain citizenship even after working in Japan for many decades.

More from the Economist:

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