Student engagement and campus design

It's the season to add dorm space. Maybe it can be done in a way which enhances engagment and connections. We'll see.

Here's my contribution.

Why health care markets fail

Thoughts on why your a priori beliefs might be that health care markets would fail:

 

1. Individuals are not wired to deal rationally with risk. To some extent we manage this through insurance. But think about how they operate:

 

Low probability in the short run (at least for younger individuals). Think about what we do for

auto insurance: the state requires you have it in order to drive a vehicle.

 

home insurance: the holder of your mortgage requires it.

 

How many people would in fact choose not to purchase auto or home insurance if not forced to?

Now think about very high probablity events in the long run (but only for a relatively short period at the end of life).

We deal with other high probability long run needs through a variety of forced or strongly encouraged "voluntary" systems: that would be social security and pension/defined contribution plans, respectively.

 

Conclusion: not very much insurance coverage is "voluntary."

 

2. Lots of medical care is predictable, and thus can't be insured. That is, costs can't be spread out across individuals by insurance. For example, keeping a type I diabetic going is simply going to cost a whole lot. There are really only two options (for the situation of an average income individual):

the individual does not receive significant amounts of care and dies young.

 

society subsidizes care through forced contributions from everyone else.

 There is little way that private insurance can reasonably address this situation.

 

 

3. Asymmetric information. Related to (2), insurance firms are likely to have a very good idea what you will cost them in the future, but you may have much less idea. Those who are most likely to need insurance coverage of future costs are thus most likely to not have that coverage. Insurance firms will work hard to only cover low risks. This is called adverse selection, and is really the basic business plan in health insurance.

 

Most commonly talked about is the reverse of this: you know about a medical condition which an insurance company does not. This is classis moral hazard and drives up costs for everyone else (thus making insurance less available).

Why is Greg Mankiw upset about cap and trade?

We may finally get meaningful climate policy in the form of a cap and trade bill limiting carbon emissions. Because the emerging legislation will give away (rather than auctioning) maybe half of the cap, this is a perfect illustration of Mankiw's (tongue in cheek) "first law of carbon taxation":

Cap-and-trade = Carbon tax + Corporate welfare

I have yet to meet major legislation that did not include substantial corporate welfare. And giving away big portions of the cap does not change any of the environmental benefits (e.g. acid rain regulation since 1990) Yet the efficiency loving Mankiw denounces the cap and trade bill as "highly flawed." What's the deal?

Climate policy chicken littles

Krugman writes this morning about the contradiction (or hypocrisy) of chicken littles. The claim is that doing anything about climate change will make us poor, because modern economies just can't develop substitutes to fossil fuels. But these are exactly the "market can solve anything" cheerleaders.

 

A related contradiction of these free market marketers : the biggest cheerleaders of foreign intervention to "secure" oil supplies are those who profess the greatest faith in markets. Bun market economies it doesn't matter who owns oil, because it will be traded to those who have the greatest interest in paying to use it. And for better or worse, that is still us.

Nanny State vers. 2

Thacher Park is the closest substantial chunk of public land near Albany. It's signature feature is an escarpment of hundred foot tall cliffs, with a walk that descends to the cliff base, before ascending back on the last 50 feet of the historically important Indain Ladder trail.

Despite being operated by the New York State Office of Parks Recreation and Historic Preservation, most of the Indian Ladder trail (the only other easy access below the cliffs), while on state park land, is closed off to the public.

And oh yes; the rest is closed six months of the year, including Easter weekend.

So go enjoy the view from the parking lot, but don't try walking to what is truly unique about this fabulous area.

Thoughts on freebies

Skiing last weekend I chanced into FREE lift tickets. I was very happy:

* I enjoyed myself much more than I'd been anticipating. While I was in a bad mood before coming into the freebies (there was also a teenager involved ...), I was immediately relaxed and carefree afterwards.

* I felt free to stop anytime, not needing to "get my money's worth."

Neither of these sentiments seems to make much sense under standard consumer choice theory. Or at least the latter. Maybe the former is some kind of positive feedback from the unanticipated gift and hence higher consumer surplus from the trip.

If my reactions are typical (and I believe they are), how do we exploit such behavior to make better policy?

About the GOP budget "plan"

All you need to know.

1. The key philosopy: "limits the federal budget from growing faster than the family budget." I guess that's a pretty clear rejection of fiscal policy.

2. Oh yes. The blueprint budget has lots of blue print, but alas, few proposed numbers.

3. Intriguingly, it apparently proposes that the laws of supply and demand be repealed. It complains about proposed energy (carbon) taxes but calls for increased development of wind and solar:

Keeps Energy and Fuel Costs Low
Instead of taxing all energy users with a new national energy tax ... Republicans want energy independence
with increased development of all our natural resources, including
renewable energy sources, such as wind and solar.

While we're at it let's just change some basic physics as well. That could create energy independence in a big hurry.