You are looking at 81-100 of 145 articles
Health insurance increases the demand for healthcare. Since the RAND Health Insurance Experiment in the 1970s this has been demonstrated in many contexts and many countries. From an economic point of view this fact raises the concern that individuals demand too much healthcare if insured, which generates a welfare loss to society. This so-called moral hazard effect arises because individuals demand healthcare that has less value to them than it costs to provide it. For that reason, modern health insurance plans include demand side cost-sharing instruments like deductibles and copayments. There is a large and growing literature analyzing the effects of these cost-sharing instruments on healthcare demand.
Three issues have recently received increasing attention. First, cost-sharing instruments such as yearly deductibles combined with stop losses create nonlinear price schedules and dynamic incentives. This generates the question of whether patients understand the incentives and what price individuals use to determine their healthcare demand. Second, it appears implausible that patients know the benefits of healthcare (which is crucial for the moral hazard argument). If patients systematically underestimated these benefits they would demand too little healthcare without health insurance. Providing health insurance and increasing healthcare demand in this case may increase social welfare. Finally, what is the role of healthcare providers? They have been completely absent in the majority of the literature analyzing the demand for healthcare, but there is striking evidence that the physicians often determine large parts of healthcare spending.
Joachim Winter and Amelie Wuppermann
Choice of health insurance plans has become a key element of many healthcare systems around the world along with a general expansion of patient choice under the label of “Consumer-Directed Healthcare.” Allowing consumers to choose their insurance plan was commonly associated with the aim of enhancing competition between insurers and thus to contribute to the efficient delivery of healthcare. However, the evidence is accruing that consumers have difficulties in making health insurance decisions in their best interest. For example, many consumers choose plans with which they spend more in terms of premiums and out-of-pocket costs than in other available options. This has consequences for the individual consumer’s budget as well as for the functioning of the insurance market.
The literature puts forward several possible reasons for consumers’ difficulties in making health insurance choices in their best interest. First, consumers may not have a sufficient level of knowledge of insurance products; for example, they might not understand insurance terminology. Second, the environment or architecture in which consumers make their decision may be too complicated. Health insurance products vary in a large number of features that consumers have to evaluate when comparing options, introducing search or hassle costs. Third, consumers may be prone to psychological biases and employ decision-making heuristics that impede good choices. For example, they might choose the plan with the cheapest premium, ignoring other important plan features that determine total cost, such as copayments. There is also evidence that consumer education programs, simplification of the choice environment, or introducing nudges such as setting smart defaults facilitate consumer decision making.
Despite recent progress in our understanding of consumer choices in health insurance markets, important challenges remain. Evidence-based healthcare policy should be based on an evaluation of whether different interventions aimed at facilitating consumer choices result in welfare improvements. Ultimately, this requires measuring consumer utility, an issue that is vividly debated in the literature. Furthermore, welfare calculations necessitate an understanding of how interventions will affect the supply of health insurance, including supply reactions to changes in demand. This depends on the specific regulatory setting and characteristics of the specific market.
André Medici and Maureen Lewis
Latin American and Caribbean (LAC) countries have experienced a long-term process of improvement in populational health conditions, shifting their health priorities from child–mother care and transmissible diseases to non-communicable diseases (NCDs). However, persistent socioeconomic inequalities create barriers to achieve universal health coverage (UHC). Despite a high level of governmental commitment to UHC, and rising coverage, approximately 25% of the population does not have access to healthcare, particularly in rural and outlying areas.
Health system quality issues have been largely ignored, and inefficiency, from health financing to health delivery, is not on the policy agenda. The use of incentives to improve performance are rare in LAC health systems and there are political barriers to introduce reforms in payment systems in the public sector, though the private sector has opportunity to adapt change.
Fragmentation in the financing of healthcare is a common theme in the region. Most systems retain social health insurance (SHI) schemes, mostly for the formal sector, and in some cases have more than one; and parallel National Health System (NHS)-type arrangements for the poor and those in the informal labor market. The cost and inefficiency in delivery and financing is considerable.
Regional health economics literature stresses inadequate funding—despite the fact that the region has the highest inequality in access and spends the most on healthcare across the regions—and analyzes multiple aspects of health equity. The agenda needs to move from these debates to designing and leveraging delivery and payment systems that target performance and efficiency.
The absence of research on payment arrangements and performance is a symptom of a health management culture based on processes rather than results. Indeed, health services in the region remain rooted in a culture of fee-for-service and supply-driven models, where expenditures are independent of outcomes.
Health policy reforms in LAC need to address efficiency rather than equity, integrate healthcare delivery, and tackle provider payment reforms. The integration of medical records, adherence to protocols and clinical pathways, establishment of health networks built around primary healthcare, along with harmonized incentives and payment systems, offer a direction for reforms that allow adapting to existing circumstances and institutions. This offers the best path for sustainable UHC in the region.
Health status measurement issues arise across a wide spectrum of applications in empirical health economics research as well as in public policy, clinical, and regulatory contexts. It is fitting that economists and other researchers working in these domains devote scientific attention to the measurement of those phenomena most central to their investigations. While often accepted and used uncritically, the particular measures of health status used in empirical investigations can have sometimes subtle but nonetheless important implications for research findings and policy action. How health is characterized and measured at the individual level and how such individual-level measures are summarized to characterize the health of groups and populations are entwined considerations. Such measurement issues have become increasingly salient given the wealth of health data available from population surveys, administrative sources, and clinical records in which researchers may be confronted with competing options for how they go about characterizing and measuring health. While recent work in health economics has seen significant advances in the econometric methods used to estimate and interpret quantities like treatment effects, the literature has seen less focus on some of the central measurement issues necessarily involved in such exercises. As such, increased attention ought to be devoted to measuring and understanding health status concepts that are relevant to decision makers’ objectives as opposed to those that are merely statistically convenient.
Ciaran N. Kohli-Lynch and Andrew H. Briggs
Cost-effectiveness analysis is conducted with the aim of maximizing population-level health outcomes given an exogenously determined budget constraint. Considerable health economic benefits can be achieved by reflecting heterogeneity in cost-effectiveness studies and implementing interventions based on this analysis. The following article describes forms of subgroup and heterogeneity in patient populations. It further discusses traditional decision rules employed in cost-effectiveness analysis and shows how these can be adapted to account for heterogeneity.
This article discusses the theoretical basis for reflecting heterogeneity in cost-effectiveness analysis and methodology that can be employed to conduct such analysis. Reflecting heterogeneity in cost-effectiveness analysis allows decision-makers to define limited use criteria for treatments with a fixed price. This ensures that only those patients who are cost-effective to treat receive an intervention. Moreover, when price is not fixed, reflecting heterogeneity in cost-effectiveness analysis allows decision-makers to signal demand for healthcare interventions and ensure that payers achieve welfare gains when investing in health.
Home bias in international macroeconomics refers to the fact that investors around the world tend to allocate majority of their portfolios into domestic assets, despite the potential benefits to be had from international diversification. This phenomenon has been occurring across countries, over time, and across equity or bond portfolios. The bias towards domestic assets tends to be larger in developing countries relative to developed economies, with Europe characterized by the lowest equity home bias, while Central and South America—by the highest equity home bias. In addition, despite the secular decline in the level of equity home bias over time in all countries and regions, home bias still remains a robust feature of the data.
Whether home bias is a puzzle depends on the portfolio allocation that one uses as a theoretical benchmark. For instance, home bias in equity portfolio is a puzzle when assessed through the lens of a simple international capital asset pricing model (CAPM) with homogeneous investors. This model predicts that investors should hold world market portfolios, namely a portfolio with the share of domestic asset equal to the share of those assets in the world market portfolio. For instance, since the share of US equity in the world capitalization in 2016 was 56%, then US investors should allocate 56% of their equity portfolio into local assets, while investing the remaining 44% into foreign equities. Instead, foreign equity comprised just 23% of US equity portfolio in 2016, hence the equity home bias.
Alternative portfolio benchmark comes from the theories that emphasize costs for trading assets in international financial markets. These include transaction and information costs, differential tax treatments, and more broadly, differences in institutional environments. This research, however, has so far been unable to reach a consensus on the explanatory power of such costs.
Yet another theory argues that equity home bias can arise due to the hedging properties of local equity. In particular, local equity can provide insurance from real exchange rate risk and non-tradable income risk (such as labor income risk), and thus a preference towards home equities is not a puzzle, but rather an optimal response to such risks.
These theories, main advances and results in the macroeconomic literature on home bias are discussed in this article. It starts by presenting some empirical facts on the extent and dynamics of equity home bias in developed and developing countries. It is then shown how home bias can arise as an equilibrium outcome of the hedging demand in the model with real exchange rate and non-tradable labor income risk. Since solving models with portfolio choice is challenging, the recent advances in solving such models are also outlined in this article.
Integrating the portfolio dynamics into models that can generate realistic asset price and exchange rate dynamics remains a fruitful avenue for future research. A discussion of additional open questions in this research agenda and suggestions for further readings are also provided.
Economists have long regarded healthcare as a unique and challenging area of economic activity on account of the specialized knowledge of healthcare professionals (HCPs) and the relatively weak market mechanisms that operate. This places a consideration of how motivation and incentives might influence performance at the center of research. As in other domains economists have tended to focus on financial mechanisms and when considering HCPs have therefore examined how existing payment systems and potential alternatives might impact on behavior. There has long been a concern that simple arrangements such as fee-for-service, capitation, and salary payments might induce poor performance, and that has led to extensive investigation, both theoretical and empirical, on the linkage between payment and performance. An extensive and rapidly expanded field in economics, contract theory and mechanism design, had been applied to study these issues. The theory has highlighted both the potential benefits and the risks of incentive schemes to deal with the information asymmetries that abound in healthcare. There has been some expansion of such schemes in practice but these are often limited in application and the evidence for their effectiveness is mixed. Understanding why there is this relatively large gap between concept and application gives a guide to where future research can most productively be focused.
Ching-to Albert Ma and Henry Y. Mak
Health services providers receive payments mostly from private or public insurers rather than patients. Provider incentive problems arise because an insurer misses information about the provider and patients, and has imperfect control over the provider’s treatment, quality, and cost decisions. Different provider payment systems, such as prospective payment, capitation, cost reimbursement, fee-for-service, and value-based payment, generate different treatment quality and cost incentives. The important issue is that a payment system implements an efficient quality-cost outcome if and only if it makes the provider internalize the social benefits and costs of services. Thus, the internalization principle can be used to evaluate payment systems across different settings.
The most common payment systems are prospective payment, which pays a fixed price for service rendered, and cost reimbursement, which pays according to costs of service rendered. In a setting where the provider chooses health service quality and cost reduction effort, prospective payment satisfies the internalization principle but cost reimbursement does not. The reason is that prospective payment forces the provider to be responsible for cost, but cost reimbursement relieves the provider of the cost responsibility. Beyond this simple setting, the provider may select patients based on patients’ cost heterogeneity. Then neither prospective payment nor cost reimbursement achieves efficient quality and cost incentives. A mixed system that combines prospective payment and cost reimbursement performs better than each of its components alone.
In general, the provider’s preferences and available strategies determine if a payment system may achieve internalization. If the provider is altruistic toward patients, prospective payment can be adjusted to accommodate altruism when the provider’s degree of altruism is known to the insurer. However, when the degree of altruism is unknown, even a mixed system may fail the internalization principle. Also, the internalization principle fails under prospective payment when the provider can upcode patient diagnoses for more favorable prices. Cost reimbursement attenuates the upcoding incentive. Finally, when the provider can choose many qualities, either prospective payment and cost reimbursement should be combined with the insurer’s disclosure on quality and cost information to satisfy the internalization principle.
When good healthcare quality is interpreted as a good match between patients and treatments, payment design is to promote good matches. The internalization principle now requires the provider to bear benefits and costs of diagnosis effort and treatment choice. A mixed system may deliver efficient matching incentives. Payment systems necessarily interact with other incentive mechanisms such as patients’ reactions against the provider’s quality choice and other providers’ competitive strategies. Payment systems then become part of organizational incentives.
Hendrik Schmitz and Svenja Winkler
The terms information and risk aversion play central roles in healthcare economics. While risk aversion is among the main reasons for the existence of health insurance, information asymmetries between insured individual and insurance company potentially lead to moral hazard or adverse selection. This has implications for the optimal design of health insurance contracts, but whether there is indeed moral hazard or adverse selection are ultimately empirical questions. Recently, there was even a debate whether the opposite of adverse selection—advantageous selection—prevails. Private information on risk aversion might weigh out information asymmetries regarding risk type and lead to more insurance coverage of healthy individuals (instead of less insurance coverage in adverse selection).
Information and risk preferences are important not only in health insurance but more generally in health economics. For instance, they affect health behavior and, consequently, health outcomes. The degree of risk aversion, the ability to perceive risks, and the availability of information about risks partly explain why some individuals engage in unhealthy behavior while others refrain from smoking, drinking, or the like.
Information has several dimensions. Apart from information on one’s personal health status, risk preferences, or health risks, consumer information on provider quality or health insurance supply is central in the economics of healthcare. Even though healthcare systems are necessarily highly regulated throughout the world, all systems at least allow for some market elements. These typically include the possibility of consumer choice, for instance, regarding health insurance coverage or choice of medical provider. An important question is whether consumer choice elements work in the healthcare sector—that is, whether consumers actually make rational or optimal decisions—and whether more information can improve decision quality.
Eduardo A. Cavallo
Sudden stops in capital flows are a form of financial whiplash that creates instability and crises in the affected economies. Sudden stops in net capital flows trigger current account reversals as countries that were borrowing on net from the rest of the world before the stop can no longer finance current account deficits. Sudden stops in gross capital flows are associated with financial instability, especially when the gross flows are dominated by volatile cross-border banking flows. Sudden stops in gross and net capital flows are episodes with an external trigger. This implies that the spark that ignites sudden stops originates outside the affected country: more specifically, in the supply of foreign financing that can halt for reasons that may be unrelated to the affected country’s domestic conditions. Yet a spark cannot generate a fire unless combustible materials are around. The literature has established that a set of domestic macroeconomic fundamentals are the combustible materials that make some countries more vulnerable than others. Higher fiscal deficits, larger current account deficits, and higher levels of foreign currency debts in the domestic financial system are manifestations of weak fundamentals that increase vulnerability. Those same factors increase the costs in terms of output losses when the crisis materializes. On the flip side, international reserves provide buffers that can help countries offset the risks. Holding foreign currency reserves hedges the fiscal position of the government providing it with more resources to respond to the crisis. While it may be impossible for countries to completely insulate themselves from the volatility of capital inflows, the choice of antidotes to prevent that volatility from forcing potentially costly external adjustments is in their own hands. The global financial architecture can be improved to support those efforts if countries could agree on and fund a more powerful international lender of last resort that resembles, at the global scale, the role of the Federal Reserve Bank in promoting financial stability in the United States.
The links of international reserves, exchange rates, and monetary policy can be understood through the lens of a modern incarnation of the “impossible trinity” (aka the “trilemma”), based on Mundell and Fleming’s hypothesis that a country may simultaneously choose any two, but not all, of the following three policy goals: monetary independence, exchange rate stability, and financial integration. The original economic trilemma was framed in the 1960s, during the Bretton Woods regime, as a binary choice of two out of the possible three policy goals. However, in the 1990s and 2000s, emerging markets and developing countries found that deeper financial integration comes with growing exposure to financial instability and the increased risk of “sudden stop” of capital inflows and capital flight crises. These crises have been characterized by exchange rate instability triggered by countries’ balance sheet exposure to external hard currency debt—exposures that have propagated banking instabilities and crises. Such events have frequently morphed into deep internal and external debt crises, ending with bailouts of systemic banks and powerful macro players. The resultant domestic debt overhang led to fiscal dominance and a reduction of the scope of monetary policy. With varying lags, these crises induced economic and political changes, in which a growing share of emerging markets and developing countries converged to “in-between” regimes in the trilemma middle range—that is, managed exchange rate flexibility, controlled financial integration, and limited but viable monetary autonomy. Emerging research has validated a modern version of the trilemma: that is, countries face a continuous trilemma trade-off in which a higher trilemma policy goal is “traded off” with a drop in the weighted average of the other two trilemma policy goals. The concerns associated with exposure to financial instability have been addressed by varying configurations of managing public buffers (international reserves, sovereign wealth funds), as well as growing application of macro-prudential measures aimed at inducing systemic players to internalize the impact of their balance sheet exposure on a country’s financial stability. Consequently, the original trilemma has morphed into a quadrilemma, wherein financial stability has been added to the trilemma’s original policy goals. Size does matter, and there is no way for smaller countries to insulate themselves fully from exposure to global cycles and shocks. Yet successful navigation of the open-economy quadrilemma helps in reducing the transmission of external shock to the domestic economy, as well as the costs of domestic shocks. These observations explain the relative resilience of emerging markets—especially in countries with more mature institutions—as they have been buffered by deeper precautionary management of reserves, and greater fiscal and monetary space.
We close the discussion noting that the global financial crisis, and the subsequent Eurozone crisis, have shown that no country is immune from exposure to financial instability and from the modern quadrilemma. However, countries with mature institutions, deeper fiscal capabilities, and more fiscal space may substitute the reliance on costly precautionary buffers with bilateral swap lines coordinated among their central banks. While the benefits of such arrangements are clear, they may hinge on the presence and credibility of their fiscal backstop mechanisms, and on curbing the resultant moral hazard. Time will test this credibility, and the degree to which risk-pooling arrangements can be extended to cover the growing share of emerging markets and developing countries.
Daniel Eisenberg and Ramesh Raghavan
One of the most important unanswered questions for any society is how best to invest in children’s mental health. Childhood is a sensitive and opportune period in which to invest in programs and services that can mitigate a range of downstream risks for health and mental health conditions. Investing in such programs and services will require a shift from focusing not only on reducing deficits but also enhancing the child’s skills and other assets. Economic evaluation is crucial for determining which programs and services represent optimal investments. Several registries curate lists of programs with high evidence of effectiveness; many of these programs also have evidence of positive benefit-cost differentials, although the economic evidence is typically limited and uncertain. Even the programs with the strongest evidence are currently reaching only a small fraction of young people who would potentially benefit. Thus, it is important to understand and address factors that impede or facilitate the implementation of best practices. One example of a program that represents a promising investment is home visiting, in which health workers visit the homes of new parents to advise on parenting skills, child needs, and the home environment. Another example is social emotional learning programs delivered in schools, where children are taught to regulate emotions, manage behaviors, and enhance relationships with peers. Investing in these and other programs with a strong evidence base, and assuring their faithful implementation in practice settings, can produce improvements on a range of mental health, academic, and social outcomes for children, extending into their lives as adults.
Joni Hersch and Blair Druhan Bullock
The labor market is governed by a panoply of laws, regulating virtually all aspects of the employment relation, including hiring, firing, information exchange, privacy, workplace safety, work hours, minimum wages, and access to courts for redress of violations of rights. Antidiscrimination laws, especially Title VII, notably prohibit employment discrimination on the basis of race, color, religion, sex, and national origin. Court decisions and legislation have led to the extension of protection to a far wider range of classes and types of workplace behavior than Title VII originally covered.
The workplace of the early 21st century is very different from the workplace when the major employment discrimination statutes were enacted, as these laws were conceived as regulating an employer–employee relationship in a predominantly white male labor market. Prior emphasis on employment discrimination on the basis of race and sex has been superseded by enhanced attention to sexual harassment and discrimination on the basis of disability, sexual orientation, gender identity, and religion. Concerns over the equity or efficiency of the employment-at-will doctrine recede in a workforce in which workers are increasingly categorized as independent contractors who are not covered by most equal employment laws. As the workplace has changed, the scholarship on the law and economics of employment law has been slow to follow.
While economists overwhelmingly favor free trade, even unilateral free trade, because of the gains realizable from specialization and the exploitation of comparative advantage, in fact international trading relations are structured by a complex body of multilateral and preferential trade agreements. The article outlines the case for multilateral trade agreements and the non-discrimination principle that they embody, in the form of both the Most Favored Nation principle and the National Treatment principle, where non-discrimination has been widely advocated as supporting both geopolitical goals (reducing economic factionalism) and economic goals (ensuring the full play of theories of comparative advantage undistorted by discriminatory trade treatment).
Despite the virtues of multilateral trade agreements, preferential trade agreements (PTAs), authorized from the outset under GATT, have proliferated in recent years, even though they are inherently discriminatory between members and non-members, provoking vigorous debates as to whether (a) PTAs are trade-creating or trade-diverting; (b) whether they increase transaction costs in international trade; and (c) whether they undermine the future course of multilateral trade liberalization.
A further and similarly contentious derogation from the principle of non-discrimination under the multilateral system is Special and Differential Treatment for developing countries, where since the mid-1950s developing countries have been given much greater latitude than developed countries to engage in trade protectionism on the import side in order to promote infant industries, and since the mid-1960s on the export side have benefited from non-reciprocal trade concessions by developed countries on products of actual or potential export interest to developing countries.
Beyond debates over the strengths and weaknesses of multilateral trade agreements and the two major derogations therefrom, further debates surround the appropriate scope of trade agreements, and in particular the expansion of their scope in recent decades to address divergences or incompatibilities across a wide range of domestic regulatory and related policies that arguably create frictions in cross-border trade and investment and hence constitute an impediment to it.
The article goes on to consider contemporary fair trade versus free trade debates, including concerns over trade deficits, currency manipulation, export subsidies, misappropriation of intellectual property rights, and lax labor or environmental standards. The article concludes with a consideration of the case for a larger scope for plurilateral trade agreements internationally, and for a larger scope for active labor market policies domestically to mitigate transition costs from trade.
Law and economics is an important, growing field of specialization for both legal scholars and economists. It applies efficiency analysis to property, contracts, torts, procedure, and many other areas of the law. The use of economics as a methodology for understanding law is not immune to criticism. The rationality assumption and the efficiency principle have been intensively debated. Overall, the field has advanced in recent years by incorporating insights from psychology and other social sciences. In that respect, many questions concerning the efficiency of legal rules and norms are still open and respond to a multifaceted balance among diverse costs and benefits. The role of courts in explaining economic performance is a more specific area of analysis that emerged in the late 1990s. The relationship between law and economic growth is complex and debatable. An important literature has pointed to significant differences at the macro-level between the Anglo-American common law family and the civil law families. Although these initial results have been heavily scrutinized, other important subjects have surfaced such as convergence of legal systems, transplants, infrastructure of legal systems, rule of law and development, among others.
Long memory models are statistical models that describe strong correlation or dependence across time series data. This kind of phenomenon is often referred to as “long memory” or “long-range dependence.” It refers to persisting correlation between distant observations in a time series. For scalar time series observed at equal intervals of time that are covariance stationary, so that the mean, variance, and autocovariances (between observations separated by a lag j) do not vary over time, it typically implies that the autocovariances decay so slowly, as j increases, as not to be absolutely summable. However, it can also refer to certain nonstationary time series, including ones with an autoregressive unit root, that exhibit even stronger correlation at long lags. Evidence of long memory has often been been found in economic and financial time series, where the noted extension to possible nonstationarity can cover many macroeconomic time series, as well as in such fields as astronomy, agriculture, geophysics, and chemistry.
As long memory is now a technically well developed topic, formal definitions are needed. But by way of partial motivation, long memory models can be thought of as complementary to the very well known and widely applied stationary and invertible autoregressive and moving average (ARMA) models, whose autocovariances are not only summable but decay exponentially fast as a function of lag j. Such models are often referred to as “short memory” models, becuse there is negligible correlation across distant time intervals. These models are often combined with the most basic long memory ones, however, because together they offer the ability to describe both short and long memory feartures in many time series.
Noémi Kreif and Karla DiazOrdaz
While machine learning (ML) methods have received a lot of attention in recent years, these methods are primarily for prediction. Empirical researchers conducting policy evaluations are, on the other hand, preoccupied with causal problems, trying to answer counterfactual questions: what would have happened in the absence of a policy? Because these counterfactuals can never be directly observed (described as the “fundamental problem of causal inference”) prediction tools from the ML literature cannot be readily used for causal inference. In the last decade, major innovations have taken place incorporating supervised ML tools into estimators for causal parameters such as the average treatment effect (ATE). This holds the promise of attenuating model misspecification issues, and increasing of transparency in model selection. One particularly mature strand of the literature include approaches that incorporate supervised ML approaches in the estimation of the ATE of a binary treatment, under the unconfoundedness and positivity assumptions (also known as exchangeability and overlap assumptions).
This article begins by reviewing popular supervised machine learning algorithms, including trees-based methods and the lasso, as well as ensembles, with a focus on the Super Learner. Then, some specific uses of machine learning for treatment effect estimation are introduced and illustrated, namely (1) to create balance among treated and control groups, (2) to estimate so-called nuisance models (e.g., the propensity score, or conditional expectations of the outcome) in semi-parametric estimators that target causal parameters (e.g., targeted maximum likelihood estimation or the double ML estimator), and (3) the use of machine learning for variable selection in situations with a high number of covariates.
Since there is no universal best estimator, whether parametric or data-adaptive, it is best practice to incorporate a semi-automated approach than can select the models best supported by the observed data, thus attenuating the reliance on subjective choices.
Charles Ka Yui Leung and Cho Yiu Joe Ng
This article summarizes research on the macroeconomic aspects of the housing market. In terms of the macroeconomic stylized facts, this article demonstrates that with respect to business cycle frequency, there was a general decrease in the association between macroeconomic variables (MV), such as the real GDP and inflation rate, and housing market variables (HMV), such as the housing price and the vacancy rate, following the global financial crisis (GFC). However, there are macro-finance variables, such as different interest rate spreads, that exhibited a strong association with the HMV following the GFC. For the medium-term business cycle frequency, some but not all patterns prevail. These “new stylized facts” suggest that a reconsideration and refinement of existing “macro-housing” theories would be appropriate. This article also provides a review of the corresponding academic literature, which may enhance our understanding of the evolving macro-housing–finance linkage.
José Luis Pinto-Prades, Arthur Attema, and Fernando Ignacio Sánchez-Martínez
Quality-adjusted life years (QALYs) are one of the main health outcomes measures used to make health policy decisions. It is assumed that the objective of policymakers is to maximize QALYs. Since the QALY weighs life years according to their health-related quality of life, it is necessary to calculate those weights (also called utilities) in order to estimate the number of QALYs produced by a medical treatment. The methodology most commonly used to estimate utilities is to present standard gamble (SG) or time trade-off (TTO) questions to a representative sample of the general population. It is assumed that, in this way, utilities reflect public preferences. Two different assumptions should hold for utilities to be a valid representation of public preferences. One is that the standard (linear) QALY model has to be a good model of how subjects value health. The second is that subjects should have consistent preferences over health states. Based on the main assumptions of the popular linear QALY model, most of those assumptions do not hold. A modification of the linear model can be a tractable improvement. This suggests that utilities elicited under the assumption that the linear QALY model holds may be biased. In addition, the second assumption, namely that subjects have consistent preferences that are estimated by asking SG or TTO questions, does not seem to hold. Subjects are sensitive to features of the elicitation process (like the order of questions or the type of task) that should not matter in order to estimate utilities. The evidence suggests that questions (TTO, SG) that researchers ask members of the general population produce response patterns that do not agree with the assumption that subjects have well-defined preferences when researchers ask them to estimate the value of health states. Two approaches can deal with this problem. One is based on the assumption that subjects have true but biased preferences. True preferences can be recovered from biased ones. This approach is valid as long as the theory used to debias is correct. The second approach is based on the idea that preferences are imprecise. In practice, national bodies use utilities elicited using TTO or SG under the assumptions that the linear QALY model is a good enough representation of public preferences and that subjects’ responses to preference elicitation methods are coherent.
David A. Hyman and Charles Silver
Medical malpractice is the best studied aspect of the civil justice system. But the subject is complicated, and there are heated disputes about basic facts. For example, are premium spikes driven by factors that are internal (i.e., number of claims, payout per claim, and damage costs) or external to the system? How large (or small) is the impact of a damages cap? Do caps have a bigger impact on the number of cases that are brought or the payment in the cases that remain? Do blockbuster verdicts cause defendants to settle cases for more than they are worth? Do caps attract physicians? Do caps reduce healthcare spending—and by how much? How much does it cost to resolve the high percentage of cases in which no damages are recovered? What is the comparative impact of a cap on noneconomic damages versus a cap on total damages?
Other disputes involve normative questions. Is there too much med mal litigation or not enough? Are damage caps fair? Is the real problem bad doctors or predatory lawyers—or some combination of both?
This article summarizes the empirical research on the performance of the med mal system, and highlights some areas for future research.