American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Journal Article Front Matter i vi http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.i 10.1257/jep.25.2.i American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Symposia The (Paper)Work of Medicine: Understanding International Medical Costs David M.CutlerHarvard U Dan P.LyHarvard U 3 25 This paper draws on international evidence on medical spending to examine what the United States can learn about making its healthcare system more efficient. We focus primarily on understanding contemporaneous differences in the level of spending, generally from the 2000s. Medical spending differs across countries either because the price of services differs (for example, a coronary bypass surgery operation may cost more in the United States than in other countries) or because people receive more services in some countries than in others (for example, more bypass surgery operations). Within the price category, there are two further issues: whether factors earn different returns across countries and whether more clinical or administrative personnel are required to deliver the same care in different countries. We first present the results of a decomposition of healthcare spending along these lines in the United States and in Canada. We then delve into each component in more detail—administrative costs, factor prices, and the provision of care received—bringing in a broader range of international evidence when possible. Finally, we touch upon the organization of primary and chronic disease care and discuss possible gains in that area. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.3 10.1257/jep.25.2.3 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Symposia The Pragmatist's Guide to Comparative Effectiveness Research AmitabhChandraHarvard U Anupam B.JenaHarvard U Jonathan S.SkinnerDartmouth College 27 46 Following an acrimonious healthcare reform debate involving charges of "death panels," in 2010, Congress explicitly forbade the use of cost-effectiveness analysis in government programs of the Patient Protection and Affordable Care Act. In this context, comparative effectiveness research emerged as an alternative strategy to understand better what works in health care. Put simply, comparative effectiveness research compares the efficacy of two or more diagnostic tests, treatments, or health care delivery methods without any explicit consideration of costs. To economists, the omission of costs from an assessment might seem nonsensical, but we argue that comparative effectiveness research still holds promise. First, it sidesteps one problem facing cost-effectiveness analysis—the widespread political resistance to the idea of using prices in health care. Second, there is little or no evidence on comparative effectiveness for a vast array of treatments: for example, we don't know whether proton-beam therapy, a very expensive treatment for prostate cancer (which requires building a cyclotron and a facility the size of a football field) offers any advantage over conventional approaches. Most drug studies compare new drugs to placebos, rather than "head-to-head" with other drugs on the market, leaving a vacuum as to which drug works best. Finally, the comparative effectiveness research can prove a useful first step even in the absence of cost information if it provides key estimates of treatment effects. After all, such effects are typically expensive to determine and require years or even decades of data. Costs are much easier to measure, and can be appended at a later date as financial Armageddon draws closer. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.27 10.1257/jep.25.2.27 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Symposia Patient Cost-Sharing and Healthcare Spending Growth KatherineBaickerHarvard U DanaGoldmanU Southern CA and RAND Corporation, Santa Monica, CA 47 68 In this paper, we explore the role patient incentives play in slowing healthcare spending growth. Evidence suggests that while patients do indeed respond to financial incentives, cost-sharing does not uniformly improve value; rather, cost-sharing provisions must be deliberately structured and targeted to reduce care of low marginal value. Other mechanisms may be helpful in targeting particular populations or types of utilization. The spillover effects between privately insured and publicly insured populations as well as market imperfections suggest a potential role for public policy in promoting insurance design that slows spending growth while increasing the health that each dollar buys. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.47 10.1257/jep.25.2.47 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Symposia Reforming Payments to Healthcare Providers: The Key to Slowing Healthcare Cost Growth While Improving Quality? MarkMcClellanBrookings Institution 69 92 This paper focuses on a broad movement toward a fundamentally different way of paying healthcare providers. The approach reaches beyond the old dichotomies about whether healthcare providers are reimbursed on a fee-for-service or a "capitated" or per-person payment. Instead, these reforms seek to create direct linkages between payments to healthcare providers and measures of the quality and efficiency of care. After an overview of payment reforms for healthcare providers and their welfare implications, this paper discusses a range of empirical studies. These often small-scale studies suggest that provider payment reforms in conjunction with greater attention to improving measurements of care quality and outcomes can have a significant impact on quality of care and, in some cases, resource use and costs of care. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.69 10.1257/jep.25.2.69 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Symposia Evaluating the Medical Malpractice System and Options for Reform Daniel P.KesslerStanford U 93 110 The U.S. medical malpractice liability system has two principal objectives: to compensate patients who are injured through the negligence of healthcare providers and to deter providers from practicing negligently. In practice, however, the system is slow and costly to administer. It both fails to compensate patients who have suffered from bad medical care and compensates those who haven't. According to opinion surveys of physicians, the system creates incentives to undertake cost-ineffective treatments based on fear of legal liability—to practice "defensive medicine." The failures of the liability system and the high cost of health care in the United States have led to an important debate over tort policy. How well does malpractice law achieve its intended goals? How large of a problem is defensive medicine and can reforms to malpractice law reduce its impact on healthcare spending? The flaws of the existing system have led a number of states to change their laws in a way that would reduce malpractice liability—to adopt "tort reforms." Evidence from several studies suggests that wisely chosen reforms have the potential to reduce healthcare spending significantly with no adverse impact on patient health outcomes. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.93 10.1257/jep.25.2.93 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Articles Offshoring Bias in U.S. Manufacturing SusanHousemanUpjohn Institute for Employment Research, Kalamazoo, MI ChristopherKurzFederal Reserve Board PaulLengermannFederal Reserve Board BenjaminMandelFederal Reserve Board 111 32 In this paper, we show that the substitution of imported for domestically produced goods and services—often known as offshoring—can lead to overestimates of U.S. productivity growth and value added. We explore how the measurement of productivity and value added in manufacturing has been affected by the dramatic rise in imports of manufactured goods, which more than doubled from 1997 to 2007. We argue that, analogous to the widely discussed problem of outlet substitution bias in the literature on the Consumer Price Index, the price declines associated with the shift to low-cost foreign suppliers are generally not captured in existing price indexes. Just as the CPI fails to capture fully the lower prices for consumers due to the entry and expansion of big-box retailers like Wal-Mart, import price indexes and the intermediate input price indexes based on them do not capture the price drops associated with a shift to new low-cost suppliers in China and other developing countries. As a result, the real growth of imported inputs has been understated. And if input growth is understated, it follows that the growth in multifactor productivity and real value added in the manufacturing sector have been overstated. We estimate that average annual multifactor productivity growth in manufacturing was overstated by 0.1 to 0.2 percentage point and real value added growth by 0.2 to 0.5 percentage point from 1997 to 2007. Moreover, this bias may have accounted for a fifth to a half of the growth in real value added in manufacturing output excluding the computer and electronics industry. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.111 10.1257/jep.25.2.111 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Articles The Minimum Legal Drinking Age and Public Health ChristopherCarpenterU CA, Irvine CarlosDobkinU CA, Santa Cruz 133 56 The Amethyst Initiative, signed by more than 100 college presidents and other higher education officials calls for a reexamination of the minimum legal drinking age in the United States. A central argument of the initiative is that the U.S. minimum legal drinking age policy results in more dangerous drinking than would occur if the legal drinking age were lower. A companion organization called Choose Responsibility explicitly proposes "a series of changes that will allow 18-20 year-olds to purchase, possess and consume alcoholic beverages." Does the age-21 drinking limit in the United States reduce alcohol consumption by young adults and its harms, or as the signatories of the Amethyst Initiative contend, is it "not working"? In this paper, we summarize a large and compelling body of empirical evidence which shows that one of the central claims of the signatories of the Amethyst Initiative is incorrect: setting the minimum legal drinking age at 21 clearly reduces alcohol consumption and its major harms. We use a panel fixed effects approach and a regression discontinuity approach to estimate the effects of the minimum legal drinking age on mortality, and we also discuss what is known about the relationship between the minimum legal drinking age and other adverse outcomes such as nonfatal injury and crime. We document the effect of the minimum legal drinking age on alcohol consumption and estimate the costs of adverse alcohol-related events on a per-drink basis. Finally we consider implications for the correct choice of a minimum legal drinking age. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.133 10.1257/jep.25.2.133 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Articles The Market for Charitable Giving John A.ListU Chicago 157 80 Through good and bad economic times, charitable gifts have continued to roll in largely unabated over the past half century. In a typical year, total charitable gifts of money now exceed 2 percent of gross domestic product. Moreover, charitable giving has nearly doubled in real terms since 1990, and the number of nonprofit organizations registered with the IRS grew by nearly 60 percent from 1995 to 2005. This study provides a perspective on the economic interplay of three types of actors: donors, charitable organizations, and government. How much is given annually? Who gives? Who are the recipients of these gifts? Would changes in the tax treatment of charitable contributions lead to more or less giving? How can charitable institutions design mechanisms to generate the greatest level of gifts? What about the effectiveness of seed money and matching grants? http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.157 10.1257/jep.25.2.157 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Articles Incomplete Contracts and the Theory of the Firm: What Have We Learned over the Past 25 Years? PhilippeAghionHarvard U RichardHoldenU Chicago 181 97 Sanford Grossman and Oliver Hart used the theory of incomplete contracts to develop answers to the question "What is a firm, and what determines its boundaries?" in their path-breaking paper on "The Costs and Benefits of Ownership: A Theory of Vertical and Lateral Integration" (Journal of Political Economy, 1986, vol. 94, no. 4). Perhaps the central issue is that economic actors are only boundedly rational and cannot anticipate all possible contingencies. It might well be that certain states of nature or actions cannot be verified by third parties after they arise, like certain qualities of a good to be traded in the future, and thus cannot be written into an enforceable contract. When contracts are incomplete, and consequently not all uses of an asset can be specified in advance, any contract negotiated in advance must leave some discretion over the use of the assets; and the "owner" of the firm is the party to whom the residual rights of control have been allocated at the contracting stage. The optimal allocation of property rights—or governance structure—is one that minimizes efficiency losses. This produces a theory of ownership and vertical integration as well as a theory of the firm. First we spell out Grossman and Hart's argument using a simple numerical example. Then we show how the incomplete contracts approach can be used to analyze the firms' internal organization; the firms' financial decisions; the costs and benefits from privatization; and the organization of international trade between inter- and intrafirm trade. We discuss several criticisms of the incomplete contracts/property rights methodology and review recent developments of the incomplete contracts approach. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.181 10.1257/jep.25.2.181 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Features Retrospectives: Lionel W. McKenzie and the Proof of the Existence of a Competitive Equilibrium E. RoyWeintraubDuke U 199 215 The theorem proving the existence of general equilibrium in a competitive economy, which necessarily involved specifying the conditions under which such an equilibrium would exist, is an extraordinary achievement of twentieth-century economics. The discovery is commonly attributed to a paper by (eventual) Nobel Prize winners Kenneth Arrow and Gerard Debreau: "Existence of an Equilibrium for a Competitive Economy," published in the July 1954 issue of Econometrica. However it is less well-known that Lionel McKenzie published a paper in the previous issue of Econometrica, "On Equilibrium in Graham's Model of World Trade and Other Competitive Systems," that discussed many of the same themes. Both papers established the existence of a competitive equilibrium for suitable general equilibrium models and employed fixed point theorem arguments. McKenzie had priority in publication in 1954 and received credit for simultaneous discovery in prominent sources around that time. But over the years, McKenzie's role in creating the proof of the existence of a general equilibrium seems to have faded from the collective consciousness of the economics profession. Newly available archival material permits a reexamination of the events surrounding the publication of both Econometrica papers in 1954. The story raises general issues concerning "simultaneous discovery," "priority," and "credit" in economic research and opens a window into some academic practices of that time. http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.199 10.1257/jep.25.2.199 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Features Recommendations for Further Reading TimothyTaylorMacalester College 217 24 http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.217 10.1257/jep.25.2.217 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Features Notes 225 226 http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.225 10.1257/jep.25.2.225 American Economic Association Nashville, TN 0895-3309 Journal of Economic Perspectives http://www.aeaweb.org/jep/ 25 2 Spring 2011 http://www.aeaweb.org/issue.php?journal=JEP&volume=25&issue=2 Features Considerations for Those Proposing Topics and Papers for JEP 227 230 http://www.aeaweb.org/articles.php?doi=10.1257/jep.25.2.227 10.1257/jep.25.2.227