Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Chapter 6, Problem 7E
To determine
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Indicate whether each statement is true or false, and justify your answer.After passage of the Kefauver–Harris Amendment in 1962, the number of new chemical entities introduced into the US market by pharmaceutical companies dropped substantially.
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 or false, and justify your answer.The fact that practicing surgeons who have finished residency earn more than practicing pediatricians implies that the rate of return of choosing surgery exceeds the rate of return of choosing pediatrics for a medical school graduate.
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- Indicate whether the statement is true or false, and justify your answer. 1. In some markets, adverse selection develops over time as customers learn about their own risk levels. 2. The fact that high-risk individuals are usually less risk-averse than low-risk individuals helps counteract adverse selection.arrow_forwardImagine a signaling model where there are two types of workers, low-productivity workers with a productivity of 10, and high-productivity workers with a productivity of 30. The proportion of low-productivity workers is .5. Firms are competitive and obtain profit equal to the productivity of the worker they hire. Workers can obtain one of three levels of education: e1, e2, and e3. Workers get utility equal to their wage minus the cost of education. Wages must be between 10 and 30. The cost of getting an education for low-productivity workers is e1 = 0, e2 = 9, e3 = 18. The cost of getting an education for high-productivity workers is e1 = 0, e2 =4, e3 = 8. Are there any separating equilibria in this model? If so, find them, if not show why they do not exist.arrow_forwardImagine a signaling model where there are two types of workers, low-productivity workers with a productivity of 10, and high-productivity workers with a productivity of 30. The proportion of low-productivity workers is .5. Firms are competitive and obtain profit equal to the productivity of the worker they hire. Workers can obtain one of three levels of education: e1, e2, and e3. Workers get utility equal to their wage minus the cost of education. Wages must be between 10 and 30. The cost of getting an education for low-productivity workers is e1 = 0, e2 = 9, e3 = 18. The cost of getting an education for high-productivity workers is e1 = 0, e2 =4, e3 = 8. A) Are there any pooling equilibria in this model? If so find all of them, if not, show why they do not exist.arrow_forward
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