International Health Economics

Mark  Egan; Tomas J. Philipson

Working Paper | 2013

International Health Economics

by Mark Egan and Tomas J. Philipson

Abstract

Perhaps because health care is a local service sector, health economists have paid little attention to international linkages between domestic health care economies. However, the growth in domestic health care sectors is often attributed to medical innovations whose returns are earned worldwide. Because world returns drive innovation and innovation is central to spending growth, spending growth in a given country is thereby highly affected by health care economies and policies of other countries. This paper analyzes the unique positive and normative implications of these innovation-induced linkages across countries when governments centrally price health care. Providing world returns to medical innovation under such central pricing involves a public-goods problem; the taxation to fund reimbursements involves a private domestic cost with an international benefit of medical innovation. This has the direct normative implication that medical innovations have inefficiently low world returns. It also has the positive implication that reimbursements in one country depend negatively on those of others; reimbursements are "strategic substitutes" through free riding. Because reimbursements are strategic substitutes, world concentration of health care is a significant issue. A small European country has no access-innovation trade-off in its pricing; it will have low reimbursements because it does not affect world returns and sees the same innovations regardless of its reimbursement policy. The public-goods problem of innovation thereby implies that the United States, despite being the world's largest buyer, will pay the highest reimbursements. This problem also implies that free riding counteracts the standard positive impact of larger world markets on innovation when health care concentration falls. Indeed, currently, health care is highly concentrated; about half of world health care spending occurs in the United States, despite the fact that it makes up only about one-fifth of the world economy. We assess the effect that emerging markets will have on this concentration and thus world returns. We use pharmaceutical reimbursement data from 1996-2010 to provide IV estimates of the degree to which domestic reimbursements are strategic substitutes. We find that these estimates imply that world returns from innovation may actually fall from a growth in "market size" of BRICS countries as a result of increased free riding in non-BRICS countries. The overall analysis has important positive implications for spending patterns across countries as well as normative implications for evaluating domestic or regional health care reforms.

Keywords: Health Care and Treatment; Innovation and Invention; Global Range; Economics;

Language: English

Format: Print

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Citation:

Egan, Mark, and Tomas J. Philipson. "International Health Economics." NBER Working Paper Series, No. 19280, August 2013.

Working Paper | HBS Working Paper Series | 2018

Arbitration with Uninformed Consumers

Mark Egan, Gregor Matvos and Amit Seru

We examine whether firms have an informational advantage in selecting arbitrators in consumer arbitration as well as the impact of the arbitrator selection process on outcomes. We collect data containing roughly 9,000 arbitration cases in securities arbitration. Securities disputes present a good laboratory: the selection mechanism is similar to other major arbitration forums; arbitration is mandatory for all disputes, eliminating selection concerns; and the parties choose arbitrators from a randomly generated list. We first document that some arbitrators are systematically industry friendly while others are consumer friendly. Firms appear to utilize this information in the arbitrator selection process. Despite a randomly generated list of potential arbitrators, industry friendly arbitrators are 40% more likely to be selected than their consumer friendly counterparts. Better informed firms and consumers choose more favorable arbitrators. We develop and calibrate a model of arbitrator selection in which, like the current process, both the informed firms and uninformed consumers have control over the selection process. Arbitrators compete against each other for the attention of claimants and respondents. The model allows us to interpret our empirical facts in equilibrium and to quantify the effects of changes to the current arbitrator selection process on consumer outcomes. Competition between arbitrators exacerbates the informational advantage of firms in equilibrium resulting in all arbitrators slanting towards being industry friendly. Evidence suggests that limiting the respondents' and claimants' inputs over the arbitrator selection process could significantly improve outcomes for consumers.

Keywords: Arbitration; Financial Advisers; Financial Advisors; Brokers; consumer finance; Financial Misconduct; Personal Finance; Conflict and Resolution; Information; Fairness;

Citation:

Egan, Mark, Gregor Matvos, and Amit Seru. "Arbitration with Uninformed Consumers." Harvard Business School Working Paper, No. 19-046, October 2018. (NBER Working Paper Series, No. 25150, October 2018.) View Details

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International Health Economics

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