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Article

From Clinical Outcomes to Health Utilities: The Role of Mapping to Bridge the Evidence Gap  

Mónica Hernández Alava

The assessment of health-related quality of life is crucially important in the evaluation of healthcare technologies and services. In many countries, economic evaluation plays a prominent role in informing decision making often requiring preference-based measures (PBMs) to assess quality of life. These measures comprise two aspects: a descriptive system where patients can indicate the impact of ill health, and a value set based on the preferences of individuals for each of the health states that can be described. These values are required for the calculation of quality adjusted life years (QALYs), the measure for health benefit used in the vast majority of economic evaluations. The National Institute for Health and Care Excellence (NICE) has used cost per QALY as its preferred framework for economic evaluation of healthcare technologies since its inception in 1999. However, there is often an evidence gap between the clinical measures that are available from clinical studies on the effect of a specific health technology and the PBMs needed to construct QALY measures. Instruments such as the EQ-5D have preference-based scoring systems and are favored by organizations such as NICE but are frequently absent from clinical studies of treatment effect. Even where a PBM is included this may still be insufficient for the needs of the economic evaluation. Trials may have insufficient follow-up, be underpowered to detect relevant events, or include the wrong PBM for the decision- making body. Often this gap is bridged by “mapping”—estimating a relationship between observed clinical outcomes and PBMs, using data from a reference dataset containing both types of information. The estimated statistical model can then be used to predict what the PBM would have been in the clinical study given the available information. There are two approaches to mapping linked to the structure of a PBM. The indirect approach (or response mapping) models the responses to the descriptive system using discrete data models. The expected health utility is calculated as a subsequent step using the estimated probability distribution of health states. The second approach (the direct approach) models the health state utility values directly. Statistical models routinely used in the past for mapping are unable to consider the idiosyncrasies of health utility data. Often they do not work well in practice and can give seriously biased estimates of the value of treatments. Although the bias could, in principle, go in any direction, in practice it tends to result in underestimation of cost effectiveness and consequently distorted funding decisions. This has real effects on patients, clinicians, industry, and the general public. These problems have led some analysts to mistakenly conclude that mapping always induces biases and should be avoided. However, the development and use of more appropriate models has refuted this claim. The need to improve the quality of mapping studies led to the formation of the International Society for Pharmacoeconomics and Outcomes Research (ISPOR) Mapping to Estimate Health State Utility values from Non-Preference-Based Outcome Measures Task Force to develop good practice guidance in mapping.

Article

Gene–Environment Interplay in the Social Sciences  

Rita Dias Pereira, Pietro Biroli, Titus Galama, Stephanie von Hinke, Hans van Kippersluis, Cornelius A. Rietveld, and Kevin Thom

Nature (one’s genes) and nurture (one’s environment) jointly contribute to the formation and evolution of health and human capital over the life cycle. This complex interplay between genes and environment can be estimated and quantified using genetic information readily available in a growing number of social science data sets. Using genetic data to improve our understanding of individual decision making, inequality, and to guide public policy is possible and promising, but requires a grounding in essential genetic terminology, knowledge of the literature in economics and social-science genetics, and a careful discussion of the policy implications and prospects of the use of genetic data in the social sciences and economics.

Article

Globalization, Trade, and Health Economics  

Richard Smith and Johanna Hanefeld

Global trade—the movement of goods, services, people, and capital between countries—is at the center of modern globalization. Since the late 20th century trade has also become established as a critical determinant of public health. As the raison d’être of trade is to increase both wealth and the availability of goods and services, changing trade patterns will inevitably impact many of the known determinants of health, including employment, nutrition, environmental factors, social capital, and education. Trade will also impact the health sector itself, most clearly through direct trade in health-related goods and services (such as pharmaceuticals, health workers, foreign direct investment in health services, and mobile patients), but also more broadly in determining tax receipts and thus overall public expenditures. It is also the case that trade—especially rapid and widespread movement of people, animals, and goods—may facilitate the rapid and widespread spread of disease. Trade, and associated policies governing and responding to that trade, has thus become increasingly recognized as a critical driver of health issues. The design of trade policies that reduce the potential health risks associated with freer trade while maximizing the positive impact of trade liberalization on the social determinants of health is still in its infancy. There remains a lack of sound empirical evidence demonstrating how trade liberalization links directly and indirectly to health. Even though the positive link between increased trade, poverty reduction, and economic growth is widely accepted, evidence regarding the impact of trade liberalization on the social determinants of health varies from one national context to another. Hence, adapting trade liberalization to national conditions is important in ensuring desired outcomes. Yet although evidence is necessary, it is not sufficient to ensure that health is more integrated in trade negotiations and decision-making. There is a substantive requirement for those with a health remit to engage in negotiation with those from other sectors and from other geographic locations.

Article

The Growth of Health Spending in the United States From 1776 to 2026  

Thomas E. Getzen

During the 18th and 19th centuries, medical spending in the United States rose slowly, on average about .25% faster than gross domestic product (GDP), and varied widely between rural and urban regions. Accumulating scientific advances caused spending to accelerate by 1910. From 1930 to 1955, rapid per-capita income growth accommodated major medical expansion while keeping the health share of GDP almost constant. During the 1950s and 1960s, prosperity and investment in research, the workforce, and hospitals caused a rapid surge in spending and consolidated a truly national health system. Excess growth rates (above GDP growth) were above +5% per year from 1966 to 1970, which would have doubled the health-sector share in fifteen years had it not moderated, falling under +3% in the 1980s, +2% in 1990s, and +1.5% since 2005. The question of when national health expenditure growth can be brought into line with GDP and made sustainable for the long run is still open. A review of historical data over three centuries forces confrontation with issues regarding what to include and how long events continue to effect national health accounting and policy. Empirical analysis at a national scale over multiple decades fails to support a position that many of the commonly discussed variables (obesity, aging, mortality rates, coinsurance) do cause significant shifts in expenditure trends. What does become clear is that there are long and variable lags before macroeconomic and technological events affect spending: three to six years for business cycles and multiple decades for major recessions, scientific discoveries, and organizational change. Health-financing mechanisms, such as employer-based health insurance, Medicare, and the Affordable Care Act (Obamacare) are seen to be both cause and effect, taking years to develop and affecting spending for decades to come.

Article

Happiness and Productivity in the Workplace  

Mahnaz Nazneen and Daniel Sgroi

Happiness has become an important concept in economics as a target for government policy at the national level. This is mirrored in an increasing understanding of the microeconomic effects of increased happiness. While correlational studies have for many years documented a relationship between individual-level happiness and productivity, more recent work provides causal evidence that a positive shock to happiness can boost productivity significantly. These studies include three strands of research. The first provides a number of longitudinal surveys that have generated evidence linking happiness to productivity but run the risk of confounding happiness with other related variables that may be driving the relationship. The second includes laboratory experiments that simulate a workplace under tightly controlled conditions, and this strand has established a clear relationship between positive happiness shocks and rises in productivity. The third involves examining experimental field data, which sacrifices the control of laboratory experiments but offers greater realism. However, there is still work to be done generalizing these findings to more complex work environments, especially those that involve cooperative and team-based tasks where increases in happiness may have other consequences.

Article

Health and Economic Growth  

David E. Bloom, Michael Kuhn, and Klaus Prettner

The strong observable correlation between health and economic growth is crucial for economic development and sustained well-being, but the underlying causality and mechanisms are difficult to conceptualize. Three issues are of central concern. First, assessing and disentangling causality between health and economic growth are empirically challenging. Second, the relation between health and economic growth changes over the process of economic development. In less developed countries, poor health often reduces labor force participation, particularly among women, and deters investments in education such that fertility stays high and the economy remains trapped in a stagnation equilibrium. By contrast, in more developed countries, health investments primarily lead to rising longevity, which may not significantly affect labor force participation and workforce productivity. Third, different dimensions of health (mortality vs. morbidity, children’s and women’s health, and health at older ages) relate to different economic effects. By changing the duration and riskiness of the life course, mortality affects individual investment choices, whereas morbidity relates more directly to work productivity and education. Children’s health affects their education and has long-lasting implications for labor force participation and productivity later in life. Women’s health is associated with substantial intergenerational spillover effects and influences women’s empowerment and fertility decisions. Finally, health at older ages has implications for retirement and care.

Article

Healthcare System Challenges in Asia  

Winnie Yip

Important health system challenges in the east and southeast Asian countries/territories of Japan, South Korea, Taiwan, Hong Kong, Malaysia, China, Thailand, Vietnam, Indonesia, the Philippines, Laos, Myanmar, and Cambodia exist. The most commonly adopted health system among these areas is social health insurance. The high-income, aging societies of Japan, South Korea, and Taiwan have adopted single-payer/single-pipe systems with a single uniform benefit package and a single fee schedule for paying providers for services included in the benefit package. All three have achieved universal coverage with relatively equitable access to affordable care. All grapple with overutilization, aging populations, and hospital-centric and curative-focused care that is ill-suited for addressing an increasing chronic disease burden. Rising patient expectations and demand for expensive technologies contribute to rising costs. Korea also faces comparatively poorer financial risk protection. China, Thailand, Vietnam, Indonesia, and the Philippines have also adopted social health insurance, though not single-payer systems. China and Thailand have established noncontributory schemes, whereby the government heavily subsidizes poor and non-poor populations. General tax revenue is used to extend coverage to those outside formal-sector employment. Both countries use multiple, unintegrated schemes to cover their populations. Thailand has improved access to care and financial risk protection. While China has improved insurance coverage, financial risk protection gains have been limited due to low levels of service coverage, fee-for-service payment systems, poor gatekeeping, and the fee schedule that incentivizes overprescription of tests and medicine. Indonesia, Vietnam, and the Philippines use contributory schemes. Government revenue provides insurance coverage for the poor, near-poor, and selected vulnerable populations; the rest of the population must contribute to enroll. Therefore, expanding insurance coverage to the informal sector has been a significant challenge. Instead of social health insurance, Hong Kong and Malaysia have two-tiered health systems where the public sector is financed by general tax revenue and the private sector is financed primarily by out-of-pocket payments and limited private insurance. There is universal access to care; free or subsidized, good-quality public-sector services provide financial risk protection. However, Hong Kong and Malaysia have fragmented delivery systems, weak primary care, budgetary strains, and inequitable access to private care (which may offer shorter wait times and better perceived quality). Laos, Cambodia, and Myanmar’s health systems feature high out-of-pocket spending, low government investment in health, and reliance on external aid. User fees, low insurance coverage, unequal distribution of health services, and fragmented financing pose pressing challenges to achieving equitable access and adequate financial risk protection. These countries/territories are diverse in terms of demographics, epidemiological profiles, and stages of economic development, and thus they face different health system challenges and opportunities. This diversity also suggests that these nations/territories will utilize different types of health systems to achieve universal health coverage, whereby all people have equitable access to affordable, good-quality care with adequate financial risk protection.

Article

Health Economics of the Workplace: Workplace Accidents and Effects of Job Loss and Retirement  

Jan C. van Ours

There are three main topics in research on the effects of work on health. The first topic is workplace accidents where the main issues are reporting behavior and workplace safety policies. A worker seems to be less inclined to report a workplace accident for fear of job loss when unemployment is high or when the worker has a temporary contract that may not be renewed. Workplace safety legislation has intended to reduce the incidence and severity of workplace accidents but empirical evidence on this result is unclear. The second topic is employment and health where the focus is on how job characteristics and job loss affect health, in particular mental health. Physically demanding jobs have negative health effects. The effects of working hours vary and the effects of job loss on physical and mental health are not uniform. Job loss seems to increase mortality. The third topic concerns retirement and health. Retirement seems to have a negative effect on cognitive skills and short-term positive effects on overall health. Other than that, the effects are very inconsistent, that is, even with as clear a measure as mortality, it is not clear whether life expectancy goes up, goes down, or remains constant due to retirement.

Article

Health Information Technology  

Jordan Everson and Melinda Beeuwkes Buntin

The potential for health information technology (HIT) to reshape the information-intensive healthcare industry has been recognized for decades. Nevertheless, the adoption and use of IT in healthcare has lagged behind other industries, motivating governments to take a role in supporting its use to achieve envisioned benefits. This dynamic has led to three major strands of research. Firstly, the relatively slow and uneven adoption of HIT, coupled with government programs intended to speed adoption, has raised the issue of who is adopting HIT, and the impact of public programs on rates of adoption and diffusion. Secondly, the realization of benefits from HIT appears to be occurring more slowly than its proponents had hoped, leading to an ongoing need to empirically measure the effect of its use on the quality and efficiency of healthcare as well as the contexts under which benefits are best realized. Thirdly, increases in the adoption and use of HIT have led to the potential for interoperable exchange of patient information and the dynamic use of that information to drive improvements in the healthcare delivery system; however, these applications require developing new approaches to overcoming barriers to collaboration between healthcare organizations and the HIT industry itself. Intertwined through each of these issues is the interaction between HIT as a tool for standardization and systemic change in the practice of healthcare, and healthcare professionals’ desire to preserve autonomy within the increasingly structured healthcare delivery system. Innovative approaches to improve the interactions between professionals, technology, and market forces are therefore necessary to capitalize on the promise of HIT and develop a continually learning health system.

Article

Health Insurance and Labor Supply  

Gregory Colman, Dhaval Dave, and Otto Lenhart

Health insurance depends on labor market activity more in the U.S. than in any other high-income country. A majority of the population are insured through an employer (known as employer-sponsored insurance or ESI), benefiting from the risk pooling and economies of scale available to group insurance plans. Some workers may therefore be reluctant to leave a job for fear of losing such low-cost insurance, a tendency known as “job lock,” or may switch jobs or work more hours merely to obtain it, known as “job push.” Others obtain insurance through government programs for which eligibility depends on income. They too may adapt their work effort to remain eligible for insurance. Those without access to ESI or who are too young or earn too much to qualify for public coverage (Medicare and Medicaid) can buy insurance only in the individual or nongroup market, where prices are high and variable. Most studies using data from before the passage of the Patient Protection and Affordable Care Act (ACA) in 2010 support the prediction that ESI reduced job mobility, labor-force participation, retirement, and self-employment prior to the ACA, but find little effect on the labor supply of public insurance. The ACA profoundly changed the health insurance market in the U.S., removing restrictions on obtaining insurance from new employers or on the individual market and expanding Medicaid eligibility to previously ineligible adults. Research on the ACA, however, has not found substantial labor supply effects. These results may reflect that the reforms to the individual market mainly affected those who were previously uninsured rather than workers with ESI, that the theoretical labor market effects of expansions in public coverage are ambiguous, and that the effect would be found only among the relatively small number on the fringes of eligibility.

Article

Health Insurance and the Demand for Healthcare  

Michael Gerfin

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.

Article

Health Insurance Plan Choice and Switching  

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.

Article

Health Policy and Finance Challenges in Latin America and the Caribbean: An Economic Perspective  

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.

Article

Health Status Measurement  

John Mullahy

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.

Article

Heterogeneity in Cost-Effectiveness Analysis  

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.

Article

Housing, Neighborhoods, and Education  

Sarah A. Cordes, Jeehee Han, and Amy Schwartz

Children’s educational outcomes are determined not only by school inputs, such as teachers, curriculum, or classroom peers, but also by a broad range of resources and experiences outside the classroom. Housing and neighborhoods—where children live—are likely where students spend most of their time when not in school and can play a crucial role in children’s development. Housing may influence children’s K–12 educational outcomes through three key channels. First, unit quality (i.e., size, ventilation, etc.) may affect student performance through sleep, ability to concentrate, or health. Second, affordability and tenure may shape student outcomes by affecting disposable income or wealth accumulation, which could be used for complementary educational inputs or could influence outcomes by affecting parental stress and housing stability. Third, housing stability/mobility may itself result in better or worse academic outcomes depending on whether moves are made to access better opportunities or are disruptive. Neighborhoods may also play an important role in education by shaping the peers and adult role models to whom children are exposed, through levels of exposure to crime and violence, and access to opportunities, such as the quality of local schools. A growing body of research points to the importance of both housing and neighborhoods in shaping educational outcomes, suggesting investments in housing or neighborhoods may pay an educational dividend and such investments may be leveraged to improve children’s educational outcomes. Yet there is still work to be done to better understand the roles that housing and neighborhoods play in shaping educational outcomes. In particular, future research should focus on examining how the physical aspects of housing may shape children’s outcomes, disentangling the effects of residential mobility under different circumstances (i.e., forced moves due to job losses versus voluntary moves), and estimating the effects of specific neighborhood changes — or improvements — on academic outcomes.

Article

Human Capital in a Historical Perspective  

Gabriele Cappelli, Leonardo Ridolfi, and Michelangelo Vasta

Human capital can be defined as the set of knowledge and skills that individuals accumulate over time. These range from basic competences to more sophisticated forms of knowledge (intermediate and upper-tail human capital). All of them entail complex measurement problems in historical perspective as sources are often too scarce, problematic, and unreliable to allow proper measurement. Human capital is usually measured relying on the extensive margin of education or the quantity of education, that is, how many people are able to read or count or how many people have a certain degree of schooling. Less is known about the effective acquisition of skills, for example, the quality of education. Human capital can affect labor productivity and innovative capacity and it is generally regarded as one of the most important determinants of economic growth, figuring prominently in debates on the origin of the Industrial Revolution and the transition from preindustrial to modern economic growth. The determinants of education are several and vary widely over time and across space, including economic, institutional, cultural, and social factors. Historically, the acquisition of skills has deeply changed in nature, passing from the largely decentralized and fragmented systems of the preindustrial period to the 19th-century systems of mass education, where education was more and more universal and free, and the accumulation of skills was largely coordinated by states and other public authorities. In several regards, literature on human capital is still limited. Few efforts, for instance, have been made to harmonize data, integrate them in a comparative and regional perspective, explore the potential of individual-level information, and assess if and to what extent different dimensions of human capital such as technical and higher education have affected long-term patterns in economic growth and development. Other aspects have long been neglected or remain virtually unexplored, such as gender differences in education, the efficiency of education systems and its determinants, and the analysis of human capital in developing countries.

Article

The Implications of Pupil Rank for Achievement  

Richard Murphy and Felix Weinhardt

The significance of social interaction has become an increasingly important part of economic thought and models through the work on peer effects, social norms, and networks. Within this literature, a novel focus of ranking within groups has emerged. The rank of an individual is usually defined as the ordinal position within a specific group. This could be the work environment or a classroom, and much of this literature focuses on rank effects in education settings. The literature studies rank effects for various age groups. There is evidence that a rank position even during early life phases, such as in elementary education, has lasting effects on education outcomes such as test scores or subject specializations, choices during college, and wages. A first-order challenge in the study of rank effects is to separate them from other highly correlated effects. For example, individuals with a high rank academic rank in a group will likely have high academic ability in absolute terms. Papers in this field directly account for measured ability, and so rely on the variation in rank that exists across groups for any given ability measure, that is, a score of 80 in one group would rank the student top, while near the bottom in another. The comparability of achievement measures across settings is key; one commonly employed solution is to account for level differences across settings. While the literature has now established the importance of rank, there are several—potentially non-competing—ideas for the precise behavioral mechanisms of why rank matters so much. Future work will most likely focus on integrating rank effects into the literature on social interactions to discuss implications for optimal group formation.

Article

The Implications of School Assignment Mechanisms for Efficiency and Equity  

Atila Abdulkadiroğlu

Parental choice over public schools has become a major policy tool to combat inequality in access to schools. Traditional neighborhood-based assignment is being replaced by school choice programs, broadening families’ access to schools beyond their residential location. Demand and supply in school choice programs are cleared via centralized admissions algorithms. Heterogeneous parental preferences and admissions policies create trade-offs among efficiency and equity. The data from centralized admissions algorithms can be used effectively for credible research design toward better understanding of school effectiveness, which in turn can be used for school portfolio planning and student assignment based on match quality between students and schools.

Article

Incentives and Performance of Healthcare Professionals  

Martin Chalkley

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.