Current Topics In Applied Economics

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Current Topics In Applied Economics

• Chapter-20

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I. Introduction

• This chapter discusses three topics in applied
  economics.
• Health care.
• The economics of immigration.
• Urban economics and the economics of urban
  problems.

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II. The Economics Of Health-care Reform

• Health care reform has become a focal point in
  the united states.
• A. HEALTH CARE IN THE UNITED STATES Those who
  advocate reform cite three facts
• 1. Health care is expensive and getting more so.
• 2. In 1996 about 42 million Americans had no
  health insurance and the number was growing.
• 3. The government spends about 460 billion
  dollars on health and health-related programs and
  it is the fastest growing item in the federal
  budget.

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B. Should government be involved?

• The market for health services is like any other
  market in the economy in that most people obtain
  those services from the private sector.
• Health care is a private good, meaning that
  people can be excluded from the benefits if they
  do not pay and the primary beneficiary of the
  services is the patient.

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• Physicians are in private practice or work for
  hospitals or health maintenance organizations
  (HMOs) and most of them are in business to make a
  profit.
• The cost of health care is determined in a
  market. But there are some characteristics that
  suggest a role for government

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• 1. Asymmetric information participants in the
  transaction have different information Most
  patients know little about medicine.
• This may result in adverse selection, which
  happens when insurance buyers know more about
  their health than the insurer.
• 2. Fee-for-service reimbursement the costs of
  a serious illness can be catastrophic.

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• Coverage by insurance leads to a number of
  problems
• A. Moral hazard because patients do not bear
  the costs of health care they have an incentive
  to overuse medical services. Even with a
  deductible and a co-payment consumers pay far far
  less than the cost of providing the service.
• B. The method of reimbursement employed by most
  insurance companies may lead providers to
  oversupply services.

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• C. Most insurance providers use an experience
  rating, which means that groups or individuals
  are charged premiums linked to their current
  state of health or to the probability that they
  will become sick.
• 3. Externalities health care may generate
  positive externalities because they bestow a
  benefit on some second or third parties. Poor
  health may lead to negative externalities.

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• 4. Imperfect structure and market power
  monopoly power by large companies, for example
  drug producers, has led to very high prices of
  medications.
• Another example of imperfect market structure is
  the labor market because the American medical
  association limits the number of physicians.

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• 5. Equity it is the near-poor, the working
  poor and middle income families who work for
  firms that do not provide medical coverage who
  are not insured.
• Many view health care as a right that all
  citizens should have regardless of ability to
  pay.

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C. The causes of the high cost of medical care

• 1. The average age of the U.S. Population is
  increasing and health-care costs for the elderly
  are higher.
• 2. Modern technology has produced new tools and
  treatments that are excellent but expensive.
• 3. Inefficiency and waste malpractice lawsuits
  have led to defensive medicine.

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D. REFORM PROPOSALS

• Reform proposals partial list includes
• 1. Encourage managed care HMOs and preferred
  provider organizations. Critics argue that they
  limit patients choice of physician and may
  provide an incentive for providers to hold back
  on tests.

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• 2. Require community rating accept all
  applicants and charge premiums based only on age,
  location, and perhaps some elements of behavior
  (like smoking).
• 3. Finance reform under an employer mandate
  provision all employers would be required to
  provide insurance. Critics argue that this would
  hurt small business and result in job losses.

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• 4. Premium caps most economists perceive
  inefficiencies that would come with artificially
  imposed restrictions on price movements.

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III. THE ECONOMICS OF IMMIGRATION

• A. A BRIEF HISTORY OF IMMIGRATION INTO THE UNITED
  STATES immigration has occurred in irregular
  waves and the origins of immigrants have changed.

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III. THE ECONOMICS OF IMMIGRATION

• B. ECONOMIC ARGUMENTS FOR IMMIGRATION it
  increases world output as labor moves to where it
  is in demand.
• C. THE ARGUMENT AGAINST FREE IMMIGRATION
  low-wage immigrants take jobs away from
  low-income Americans and drive up unemployment
  rates. Many believe that immigrants end up on
  the welfare rolls and cost society in the form of
  crime.

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• D. THE EVIDENCE The Net Costs of Immigration
  the evidence is mixed.
• E. IS IMMIGRATION BAD OR GOOD? No right answer
  clearly emerges.

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IV. URBAN ECONOMICS AND THE ECONOMICS OF URBAN
PROBLEMS

• A. The location of business firms is based on
  profits, and every variable in a firms profit
  function can vary from location to location.
• There is locational variation in revenues as well
  as costs. Public policy through tax changes can
  affect the decision of where to locate.

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• B. The location of households tends to reflect
  the costs of getting back and forth to work.
• 1. Monocentric city models are based on the
  belief that employment opportunities are at the
  center and households bid against each other for
  areas that cluster near the central city.
• There are other factors as well that are not
  taken into account in this model.

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• 2. Discrimination in the housing market is based
  on race and ethnicity.
• 3. The filtering process and housing for the
  poor housing filters down the income ladder.

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• C. The economics of urban decline and recovery.
• 1. The sources of urban decline center on the
  lack of investment.
• 2. The property tax problem property tax
  policies have led to increasing segregation by
  income and have exacerbated urban decay.

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• D. The problems of crime 1.
  Crime as rational behavior the choice to
  commit a crime is based on the expected return
  being greater than the expected costs.
• Two proposed policies for reducing crime are to
  increase the probability of catching criminals
  and to increase the penalties for criminal
  activity.

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• 2. Irrational crime has led to calls for gun
  control to limit the access to weapons by
  emotionally troubled people.