Becker Friedman Institute
for Research in Economics
The University of Chicago

Research. Insights. Impact. Advancing the Legacy of Chicago Economics.

I18: Health: Government Policy; Regulation; Public Health

Sharing R&D Risk in Healthcare via FDA Hedges

Adam Jørring, Andrew W. Lo, Tomas Philipson, Manita Singh, Richard Thakor

The high cost of capital for firms conducting medical research and development (R&D) has been partly attributed to the government risk facing investors in medical innovation. This risk slows down medical innovation because investors must be compensated for it. We propose new and simple financial instruments, Food and Drug Administration (FDA) hedges, to allow medical R&D investors to better share the pipeline risk associated with FDA approval with broader capital markets.

Work Incentives of Medicaid Beneficiaries and the Role of Asset Testing

Svetlana Pashchenko, Ponpoje Porapakkarm

Should asset testing be used in means-tested programs? These programs target low-income people, but low income can result not only from low productivity but also from low labor supply. We aim to show that in the asymmetric information environment, there is a positive role for asset testing. We focus on Medicaid, one of the largest means-tested programs in the US, and we ask two questions: 1) Does Medicaid distort work incentives? 2) Can asset testing improve the insurance-incentives trade-off of Medicaid?

The Upside-down Economics of Regulated and Otherwise Rigid Prices

Casey Mulligan, Kevin Tsui

A version of the Becker-Lancaster characteristics model featuring quality-quantity tradeoffs reveals a number of surprising market behaviors that can result from price regulations that are imposed on competitive markets for products that have adjustable non-price attributes.  Quality need not clear a competitive market in the same way that prices do, because quality can reduce the willingness to pay for quantity. Producers can benefit from price ceilings, at the expense of consumers.

2SLS vs 2SRI: Appropriate Methods For Rare Outcomes And/Or Rare Exposures

Anirban Basu, Norma Coe

Using Monte-Carlo simulations, we compare the two-stage least-squares (2SLS) estimator with twostage residual inclusion (2SRI) estimators, with varying forms of residuals, to estimate the local average treatment effect parameter for a binary outcome and endogenous binary treatment model in the presence of binary covariates and a binary instrumental variable. We vary the rarity of either/both the outcome and the treatment and find different estimators to produce the least bias in different settings.

Caught in the Bulimic Trap? Persistence and State Dependence of Bulimia Among Young Women

John Ham, Daniela Iorio, Michelle Sovinsky Goeree

Eating disorders are an important and growing health concern, and bulimia nervosa (BN) accounts for the largest fraction of eating disorders. Health consequences of BN are substantial and especially serious given the increasingly compulsive nature of the disorder. However, remarkably little is known about the mechanisms underlying the persistent nature of BN. We use data from a unique panel data set, the National Heart, Lung, and Blood Institute Growth and Health Study, which was conducted for ten years on young women aged 9-10 at the start of the survey (in 1987).

No Small Matter : The Impact of Poverty, Shocks, and Human Capital Investments in Early Childhood Development

Harold Alderman

The relative lack of attention to early childhood development in many developing countries remains a puzzle, and an opportunity. There is increasing evidence that investments in the nutritional, cognitive, and socio-emotional development of young children have high payoffs. Researchers and development practitioners are building on this evidence to raise the topic's profile and bring it to the attention of decision makers. This volume is an important contribution to these efforts.

Childhood Obesity, Parents' Knowledge and Report Cards

Heather Royer, Silvia Prina

Using a randomized field experiment, we study the impact of body mass index report cards on parental attitudes and behaviors in Mexico, a country with one of the highest obesity rates. Parents in all treatment groups received information about the height and weight of their children and their child's weight status (i.e., underweight, healthy weight, overweight, or obese) and the type of information varied across treatment groups.

Sick of the Welfare State? Adaptation in the Demand for Social Insurance

Martin Ljunge

We argue that the supply of social insurance programs has long term effects on individual demand for program benefits. We postulate a model where the utility of taking up social insurance benefits depends on older generations’ past behavior, and we estimate the model using individual panel data. This intertemporal mechanism can account for three-quarters of the younger generations’ higher demand for social insurance benefits. The influence of older generations’ behavior remains when we instrument using mortality rates.

Adverse Selection and Switching Costs in Health Insurance Markets: When Nudging Hurts

Benjamin Handel

This paper investigates consumer switching costs in the context of health insurance markets, where adverse selection is a potential concern. Switching costs contribute to poor choices when the market environment changes and consumers do not adjust appropriately. Though previous work has studied the problems of adverse selection and consumer choice inadequacy in isolation, these phenomena interact in a way that directly impacts market outcomes.