More random afternoon econ


First of all, Austin Frakt has a brief review of the literature on employee costs in employer-based health plans:

One of the big issues with the employer-plan tax credit is its distortive effect on health insurance prices across the market.  But the presence of the employer distorts the transaction further; for example, if your employer can convince you to sign on with your spouse’s corporate health plan, they don’t have to buy one for you:

All other things equal, the higher the premium faced by an employee, the less likely it is that employee will purchase coverage. A firm can reduce its health care costs to the extent it is successful using price signals to encourage its workers to drop coverage, shift coverage to a less expensive plan within the firm, or to shift coverage to a spouse’s plan from another firm.

Dranove, Spier, and Baker (2000) developed a theoretical model that explains employees’ contribution levels as a source of encouragement on the part of employers for their workers to obtain coverage from their spouses’ employer. The authors found confirming evidence for their model with empirical estimates using 1993-1994 establishment data from at least one employer in each of ten states. The employee proportion of total premium is explained by firm and work force characteristics plausibly related to likelihood of spousal coverage including firm size, proportion of work force that is female, age distribution, full/part time breakdown, union status, wage distribution, flexible spending account offer, and premium level.

There’s a bunch more lit review at the link; here’s the take-home point:

Employer-sponsored health insurance is a good deal for workers, due to the tax subsidy. But the association of health insurance with employment places yet another entity–the employer–between the individual and the health care they obtain. Employers’ interests therefore exert an influence on employee behavior through price signals. That provides an opportunity for another layer of distortion in the health care system, and one that is likely to be with us for a while.


Next we have a marvelously stark example of regulatory capture from Tyler Cowen:

The new regulation, designed to combat ever-increasing childhood obesity, limits bake sales to “fresh fruits and vegetables, or one of 27 specific packaged items” that include low-fat Doritos, Nutri-Grain Cereal Bars (blackberry only) and Linden’s Cookies (butter crunch, chocolate chip or fudge chip cookies in two cookie packs) among other things.

Ignore the “zOMG TEH NANNY STATE” angle for a moment: how much do you think Kellogg paid to get in NYC’s good books, and what chance do you think a smaller competitor would have of achieving the same success?


To wash that down, we visit some entertaining commentary by Jaime Whyte:

Pretty much what it says on the tin:

But how can a bad policy be good politics? What defect in the electoral system can explain this?

The most popular explanation these days is the malign influence of “special interests”. Perhaps there is something in this. But a more fundamental defect is always overlooked, presumably because it is mistaken for a virtue of modern democracies. The reason so many bad policies are good politics is that so many people vote: about 62 percent of adults at the last general election, both in Great Britain and in the United States. The best way to get more sensible policies would be to reduce the number of voters to less than 0.01 percent of the population.

We’ll take a short break for the howls of outrage to die down.

Finished?  Let’s continue.

Whyte argues (not unpersuasively) that the more people you have voting, the less any individual vote matters.  Even the narrowest of popular-vote electoral margins is a matter of a few score people; any one individual could have stayed home and not affected the outcome.  This leaves people with short-term motivations (vote ’cause it feels good), but gives them no incentive to sink dozens or hundreds of hours into following the issues and learning enough about the problems at hand to make an informed decision.

This naturally leads to a situation where politicians pander to prevalent biases rather than propose solutions that are anywhere near likely to address current problems, because voters have no incentive to recognize viable solutions in favour of fairy-tale intuitions.  Or, as Whyte puts it:

Modern politics is just as you should expect it to be when votes are cast by ignorant people taking advantage of a low-cost source of emotional gratification.

So what’s the solution?  Whyte proposes drastically to decrease the number of eligible voters per election, and this is where his post starts to read like my favourite kind of cryptosystem paper:

Something like 12 voters per district should be about right. If you were one of these 12 voters then, like one of 12 jurors deciding if someone should be imprisoned, you would take a serious interest in the issues.

These 12 voters should be selected at random from the electorate. With 535 districts in Congress – 435 in the House and 100 in the Senate – there would be 6,420 voters nationally. A random selection would deliver a proportional representation of sexes, ages, races and income groups. This would improve on the current system, in which the voting population is skewed relative to the general population: the old vote more than the young, the rich vote more than the poor, and so on.

The idea of candidates for national office being “judged by twelve” has a very satisfying symbolism to me.  Anyway, Whyte proposes that these twelve electors be spirited off by polling officers to study the relevant issues attend speeches by and debates between the candidates for a week, all in a reality-show bubble of broadcast for “transparency”.  I mean, we’re well within the realm of this will never, ever happen EVAR, so why not go all Philip K. Dick with it?

On the whole, I get the sense that this proposal is similar to the introduction of stock options to motivate corporate executives: it would give voters an incentive to give a shit about how they vote, but blithely assumes that the incentive in question will favour the long-term good (whatever that might be).


Moving on, Eric Crampton has a post on Canada’s equalization-payment scheme:

First, the theory:

In theory, Canada’s equalization system taxes rich provinces so that poorer provinces can enjoy social services comparable to those in richer provinces. Those who appreciate Tiebout competition recoil in horror, of course: workers should move to the province offering the best bundle of taxes and services, so the system attenuates incentives for government efficiency. I’ve seen the argument made that equalization reduces inefficient migration, as though it’s somehow better that folks stay unemployed in Newfoundland rather than move to Alberta; I don’t buy it.

(Emphasis added.)

Next, the practice:

Frontier’s work shows that donor provinces – Ontario, Alberta, and British Columbia – have lower average levels of access to public services than the provinces that they help to support. If the point of equalization is to provide equal access to these services, then it’s engaging in far too much redistribution.

(Emphasis again added.)



And finally, Arnold Kling sat through the first two and a half hours of the health-care summit so you didn’t have to:

He wasn’t impressed.  I’ll tease you with the first excerpt that made me chuckle, and send you thence for the rest:

On costs, everyone came out four-square against waste, fraud, and abuse in Medicare. I don’t give points for that. If they were serious, they could pass a bill that focuses on that issue, and then go back and argue about everything else.

Sorta like Republicans and spending cuts, I suppose.  (Update: That chart has changed since I first posted the link; details at The Monkey Cage.  I’m kinda surprised to see “war on terror” so high up the ixnay list, but I don’t intend to complain.)

Oh, one more thing:

President Obama pretty much flat-out said that catastrophic insurance is bad insurance and needs to be regulated out of existence. In contrast, he called comprehensive insurance “good insurance,” when it is not really insurance at all, but instead is a pre-paid service plan.

What’s so awful about catastrophic insurance?  (That’s a serious question: please, if you have a reasonable idea of where Obama’s coming from, drop me a note in the comments.)


3 Responses to “More random afternoon econ”

  1. 1 Jon
    February 25, 2010 at 18:29

    I believe the theory is that catastrophic insurance would decrease preventative care.

    • February 25, 2010 at 18:59

      Oh, okay; I can see where that’s coming from. Thanks, Jon.

      My intuition is that people who buy catastrophic insurance are either (a) heavily involved in their own health-care planning (like kbiel in this comment), or (b) unable to afford comprehensive health insurance. I’d expect the first kind of person to be much more proactive about preventative care than most people, and the second kind of person probably wouldn’t pay for it anyway. But this sounds like the sort of issue that’s been well studied already, and I haven’t even asked Google about it. (Yet.)

  2. February 26, 2010 at 22:29

    I agree that maximising voter turnout is a silly goal. Whyte’s suggestion obviously isn’t going to work, and even if it did work, I’m not sure if it would be the best solution anyhow. I have a couple of ideas (based on the current Australian System):

    1. Optional voting, or you don’t have a legal obligation to vote (Obviously doesn’t apply to USA or UK; I’m not sure about Canada)
    2. Make the voting itself a bit more inconvenient. In Australia we have have preference based voting, but if you want you can just check the box to use the preferences that your favourite party wants, I would suggest we remove that option, so that you actually have to figure out the preferences yourself. Some people would argue that this discriminates against the stupid, but it doesn’t (I’m not sure why that would necessarily be a bad thing though). The different parties are going to print out lists showing which order they want people to put the preferences in anyhow, so it only discriminates against the lazy, and people who are to lazy to fill out such a relatively simple form are also going to be to lazy to understand the issues.

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