Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Chapter 6, Problem 6E
To determine
Check whether the statement is true or false.
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Consider the following abstract from the following research paper “Do Social Connections Reduce Moral Hazard? Evidence from the New York City Taxi Industry” by C. Kirabo Jackson and Henry Schneider:
“This study investigates the role of social networks in aligning the incentives of agents in settings with incomplete contracts. Specifically, the study examines the New York City taxi industry where taxis are often leased and lessee-drivers have worse driving outcomes [like gas overuse and accidents] than owner-drivers due to moral hazard… We find that drivers leasing from members of their country-of-birth community exhibit significantly reduced effects of moral hazard, representing an improvement… of the outcome measures.”
1. Thinking of moral hazard, draw an analogy between the taxi leasing industry and health insurance. Specifically, briefly highlight the following aspects
Price distortion effects
Behaviour change due to price sensitivity
Information asymmetry
Social loss
2. The paper…
Indicate whether the statement is true, false, or unclear, and justify your answer.Although a firm prediction of Akerlof’s model, the adverse selection death spiral has never been observed in practice.
Indicate whether the statement is true or false, and justify your answer.The RAND HIE found that people assigned to the free health plan had the same rate of hospitalization as people assigned to the cost-sharing plans.
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- Indicate whether the statement is true, false, or unclear, and justify your answer.The fact that more free-plan participants logged ER visits for broken bones than costsharing plan participants in the RAND Health Insurance Experiment is evidence of moral hazard.arrow_forwardIndicate whether each statement is true or false, and justify your answer.Cost-sharing is used to combat moral hazard at the expense of equity.arrow_forwardIndicate whether each statement is true or false, and justify your answer.Most economists think that innovation is not random, and that pharmaceutical companies can steer their research toward profit opportunities.arrow_forward
- Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss. Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks. The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers. To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.arrow_forwardIndicate whether the statement is true or false, and justify your answer.If buyers care sufficiently more about cars than do sellers, then there are prices at which transactions can occur. In that scenario, there is no longer any adverse selection (although there still may be some information asymmetry).arrow_forwardIndicate whether the statement is true or false, and justify your answer.In a Rothschild–Stiglitz model separating equilibrium, low-risk consumers of insurance are quantity constrained. They cannot buy as much insurance as they want because the insurance company is worried it will lose money on them.arrow_forward
- Indicate whether the statement is true or false, and justify your answer.In the US, well-educated males can expect to live longer than poorly educated males.arrow_forwardIndicate whether the statement is true or false, and justify your answer.Most economists believe that the smallpox eradication campaign was not costeffective because it required so many upfront costs and smallpox was already eliminated in much of the developed world.arrow_forwardIndicate whether each statement is true or false, and justify your answer.The Dartmouth Atlas results are proof that health is easier and/or cheaper to produce in some American cities than others.arrow_forward
- Indicate whether the statement is true or false, and justify your answer.Results from the Oregon Medicaid Experiment suggest that having health insurance has a positive impact on health status.arrow_forwardThis question is broken into 4 parts. Please answer all parts. A. Explain the relation between moral hazard and insurance premiums. B. Now think about how people with different health risks assess insurance products with a given deductible, and explain how supporters of minimizing adverse selection should think about a proposal (say from Bernie Sanders) that all insurance policies should have zero deductibles and coinsurance. C. Does community rating make the policy tradeoffs inherent in b harder or easier to manage? D. Would a purchase mandate make the policy tradeoffs inherent in b + c harder or easier to manage?arrow_forward“Too big to fail” was a common buzz phrase during the Great Recession. The idea behind it is that certain businesses are so important to an economy that disastrous consequences would result if they were allowed to fail and so government intervention is necessary. How is the concept of moral hazard relevant here? Please explian the reasoningarrow_forward
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