Knowledge that Transforms

Research on productivity change in health care has surged in recent years. This interest reflects both policy interest in the value of health care and improving data capabilities and methods for productivity research. Because of the central importance of quality change in health care, this research has directly or indirectly considered not only changes in the costs of producing health services (e.g., the cost of a hospital day), but also changes in the benefits of health services for patient health. Some studies have compared overall changes in population health to changes in aggregate medical expenditures. For example, recent studies by Kevin Murphy and Robert Topel (1999) and William Nordhaus (1999) suggest that the value to current and future generations of Americans of improvements in life expectancy in recent decades has exceeded $2 trillion per year. Accounting for the improvements in ageadjusted functional health that also appear to have occurred in recent decades (e.g., Kenneth Manton et al., 1997) makes the improvement in health even greater. Cutler and Elizabeth Richardson (1999) estimate that, even if only 25 percent of the overall improvement in health is attributable to medical care, then health-care productivity has risen. Yet translating this into health-care productivity calculations leaves many issues unresolved. It is not immediately clear how to determine the share of health improvements that result from medical care. Further, even if overall productivity improvements have been high, it is possible that many changes in health-care productivity have been less valuable. Identifying areas of high and low past and potential future productivity improvements would be helpful for guiding policymakers. For all of these reasons, much of the recent research on health-care productivity has focused on explicit analysis of costs and outcomes for certain common, serious health problems, where other factors can be controlled for and relevant inputs and health outcomes can be measured. In this paper, we review the state of the art of the evidence on health-care productivity. We first summarize a set of recent productivity studies of common conditions that account for a substantial fraction of overall medical spending. These studies also illustrate the range of methods that have been used in disease-level productivity studies. In general, the studies show rather substantial productivity gains in care. We then present new evidence on productivity of treatment for breast cancer, a disease that, at least in its most common forms in adults, many experts believe has seen little improvement in benefits of care over time. Considering cancer allows us to focus on a condition where there is no presumption that medical care has been worthwhile, and where there are a host of complex issues related to case-finding, the timing of diagnoses, and chronic care. We find that the treatment of cancer has had at best small productivity improvements. Outcomes have improved more on a per-case basis than when considering the population as a whole.

In the aftermath of emerging market crises from Russia to Asia and Latin America, there is a quest for better monetary arrangements that are more crisis-proof. Fixed rates are out, flexible rates are in with a policy focus on inflation targeting. But there is, of course, the alternative of abolishing exchange rates all together. This paper revisits the issue of dollarization or currency boards to review what arguments in the debate stand up. The case for flexible exchange rates emphasizes the need for a tool to accomplish relative price adjustment. This paper argues that in an intertemporal perspective most shocks require financing in the capital market rather than adjustment. Moreover, countries frequently do not use their flexible rate to play a cyclical role and, as a result, only a pay a premium for the option to depreciate but do not take advantage of the flexibility; on the contrary, they engineer systematic overvaluation in the context of inflation targeting.

We study a contest with multiple, nonidentical prizes. Participants are privately informed about a parameter (ability) affecting their costs of effort. The contestant with the highest effort wins the first prize, the contestant with the second-highest effort wins the second prize, and so on until all the prizes are allocated. The contest's designer maximizes expected effort. When cost functions are linear or concave in effort, it is optimal to allocate the entire prize sum to a single “first” prize. When cost functions are convex, several positive prizes may be optimal.

This paper examines the question of whether households adjust savings in response to interest rates in a life-cycle model with precautionary savings, where both motives for saving (retirement and precautionary) are present. While uncertainty may be the most important motive for younger households, eventually, households will start saving for retirement as well. By how much the wealth of the median household at retirement changes after an exogenous permanent increase in the after-tax interest rate is computed. In an estimated life-cycle model with precautionary savings, the elasticity of savings is also very low. However, the results are sensitive to the utility parameters.

Much recent monetary policy analysis has featured stochastic simulations with small structural macroeconomic models that include: a spending vs. saving ( IS') sector; a price-adjustment sector; and an interest rate policy rule. The first two are frequently specified so as to reflect optimizing behavior; policy may or may not be specified as optimizing depending on the study's objectives. Some leading issues concern modifications to simple quantitative optimizing models that are needed to generate realistic degrees of persistence in inflation and output-gap variables. A major policy issue is whether it is desirable for monetary policy to respond strongly to the output gap. The paper argues that the latter is unobservable and considers the implications of using a trend-type measure while the true concept is of a type more in keeping with basic theory. In such circumstances, highly undesirable consequences are likely to ensue if policy responds strongly to the measured gap.(This abstract was borrowed from another version of this item.)

GARP for Kids: On the Development of Rational Choice Behavior by William T. Harbaugh, Kate Krause and Timothy R. Berry. Published in volume 91, issue 5, pages 1539-1545 of American Economic Review, December 2001

Finance theory suggests that changes in exchange rates should have little influence on asset prices in a world with integrated capital markets. Indeed, the existing literature examining the relationship between international stock prices and exchange rates finds little evidence of systematic exchange rate exposure. We argue in this paper that the absence of evidence may be due to restrictions imposed on the sample of data and the empirical specifications used in previous studies. We study a broad sample of firms in eight countries over an eighteen-year period. We find that firm-level and industry-level share values are significantly influenced by exchange rates. Further, we do not find evidence that exchange rate exposure is falling (or becoming less statistically significant) over time. Our results suggest that significant firm, industry and country-specific differences remain even as financial markets become more and more integrated.

Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions by Angela A. Hung and Charles R. Plott. Published in volume 91, issue 5, pages 1508-1520 of American Economic Review, December 2001

Politicians who care about the spoils of office may underprovide a public good because its benefits cannot be targeted to voters as easily as pork-barrel spending. We compare a winner-take-all system—where all the spoils go to the winner—to a proportional system—where the spoils of office are split among candidates proportionally to their share of the vote. In a winner-take-all system the public good is provided less often than in a proportional system when the public good is particularly desirable. We then consider the electoral college system and show that it is particularly subject to this inefficiency.

A study finds that women, like men, experience most of the expected wage response to dollar fluctuations at times of job transitions, rather than when they remain with the same employer. In this context, dollar-depreciation periods, which are generally viewed as providing positive labor demand shocks, reduce the penalties that often are associated with a job change. Since women have higher job-changing rates than their male counterparts, these findings suggest that the average female worker has more sensitive wages than her male counterpart. Within the population there is diversity in these effects, with the least-educated women having both the highest job-transition rates and the largest response to exchange rates at these transitions.