Concerns over inflation have led to an uptick in research and policy debate over the specific sectoral drivers of price increases—and tools for their management. 

In a new article in Health Affairs, ROBERT BERENSON and ROBERT MURRAY review the literature and policy thinking on healthcare price regulation.

From the article: 

“Acknowledging the pervasive pricing problem, pro-market advocates have offered proposals aimed at making the health care market function better. Proposals include greater price transparency, tiered- and narrow-provider networks, relaxation of provider network adequacy provisions, expanded use of nonphysician health professionals, greater patient cost sharing, wide adoption of telehealth, greater anti-trust enforcement, and prohibition of anti-competitive contract provisions. Regardless of their merits as system improvements, most would serve, at best, as Band-Aids.

Hospital price regulation can support competition over important care delivery components other than prices, including quality and patient choice, creating stronger incentives for providers to improve operating efficiency while addressing high and rising prices directly. Legislators and policy makers should redirect their energies from debating whether to regulate hospital prices to discussing how best to do so.”

Link to the article.

+  In a Washington Post round-up of economists on policy responses to inflation, Employ America’s Arnab Datta, Skanda Amarnath and Alex Williams make the case for wielding existing policy tools to drive down health-care costs. Link. And link to Amarnath and Datta with a more in-depth report on disinflationary healthcare policy.

+  A 1997 article in JAMA examines managed care and the “merger mania” of the 1990s. And a 2014 article in Health Affairs looks at the impact of consolidation on provider bargaining power. Link, and link

+  A review of the 2020 book Which Country Has The Best Healthcare? revisits and reopens many of the core questions about comparative studies of healthcare systems, including “What exactly is ‘market price’ for a drug in the US?” Link. (And linked within, a 2009 NBER paper by Darius Lakdawalla and Wesley Yin on insurers’ bargaining power and Medicare D.) 


Hold-up Power

In his Job Market Paper, JUSTIN BLOESCH, with co-authors BIRTHE LARSEN and BLEDI TASKA, examines the relationship between firm productivity and worker earnings. Using a measurement of “individual hold-up power,” the paper provides a new framework for understanding wage heterogeneity across firms and occupations.

From the paper:

“Workers have individual hold-up power if (i) labor is organized into distinct, differentiated positions (ii) the output of positions is individually complementary or “critical” in the production process, and (iii) skills are position-specific, i.e., skills are acquired on the job and are not transferable across positions or firms. If output losses from an unfilled position are larger at productive firms, incomplete contracts and on-the-job search incentivize productive firms to pay differentially high wages. We estimate individual worker hold-up power by occupation using the effect of worker deaths on firm profits in Danish administrative data and using a measure of within-firm, across-position task differentiation from US job posting data. High hold-up occupations exhibit both higher wage levels and higher long-run passthrough of permanent firm productivity innovations to wages.

Individual worker hold-up power may also be a useful framework for exploring the borders of the firm, workplace fissuring, and internal pay equity constraints. The observation that industry pay premia in the US were once uniform across occupations, but now firm premia in the US only benefit college educated workers, combined with the pay losses from outsourcing, suggest that changes in internal pay equity constraints may be important for explaining changes in wage inequality. Knowing which occupations have individual hold-up power may predict which workers benefit from erosion of internal pay constraints. Individual hold-up power may also be useful for understanding the boundaries of the firm, as employers may use the boundary of the firm to mitigate hold-up power while outsourcing the lower hold-up jobs.” 

Link to the paper, link to Bloesch’s research page. 

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations:

+ + +

+   “This paper shows that racial composition shocks during the Great Migration (1940–1970) reduced the gains from growing up in the northern United States for Black families and can explain 27 percent of the region’s racial upward mobility gap today.” Ellora Derenoncourt’s paper on the Great Migration now published in the American Economic Review. Link.

+   “Aggregate Demand Externalities, Income Distribution and Wealth Inequality.” By Daniele Tavani and Luke Petach. Link.

+   “With austerity legally enshrined, new forms of private provision have become crucial to meet people’s essential needs.” Guilherme Leite Gonçalves and Lena Lavinas on “mass-based financialization” in Brazil. Link. And link to a PW discussion with Lavinas, André Singer, and Barbara Weinstein.

+   Adam Tooze on the inflation debate in Germany. Link.

+   “Results from our age-period-cohort model of literacy rates reveal a picture of overall stagnation in education quality in the developing world, and fairly stable gaps in quality across countries. We find virtually no case worldwide of dramatic improvements in education quality over a fifty-year time horizon.” By Alexis Le Nestour, Laura Moscoviz, and Justin Sandefur. Link.

+   In The Guardian, Nicholas Mulder on Keynes and sanctions. Link. And link to Mulder’s new brand book The Economic Weapon.

+   “Where is Standard of Living the Highest?” By Rebecca Diamond and Enrico Moretti. Link.

+   A new paper by Luca Fornaro and Federica Romei on optimal monetary policy responses during unbalanced recoveries. Link.

+   “In the Republic of Venice, the 1629 famine and the 1630–31 plague caused a unique negative macroeconomic shock, that the oligarchic government addressed using a particularly radical form of fiscal monetization that corresponds to the modern notion of ‘net-worth helicopter money.’ We analyze the money-financed fiscal stimulus implemented in Venice during the famine and plague, and argue that the strategy aimed at reconciling the need to subsidize inhabitants suffering from containment policies with the desire to prevent an increase in long-term government debt, but it generated much monetary instability and had to be quickly reversed.” By Donato Masciandaro, Charles Goodhart, and Stefano Ugolini. Link.

Each week we highlight research from a graduate student, postdoc, or early-career professor. Send us recommendations:

Subscribe to PW Sources