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Are We Taming Health Care Spending
(Private Enterprise Research Center, Texas A&M University, 2014-01-01) Rettenmaier, Andrew J.; Saving, Thomas R.
The Increase Convex Order and the Tradeoff of Size for Risk
(Private Enterprise Research Center, Texas A&M University, 2014-02-01) Liu, Liqun; Meyer, Jack
One random variable is larger than another in the increasing convex order if that random variable is preferred or indifferent to the other by all decision makers with increasing and convex utility functions. Decision makers in this set prefer larger random variables and are risk loving. When a decision maker whose utility function is increasing and concave is indifferent between such a pair of random variables, a tradeoff of size for risk is revealed, and this information can be used to make comparative static predictions concerning the choices of others. For random variables ranked by the increasing convex order, the choices of all those who are strongly more (or less) risk averse can be predicted. Thus, the increasing convex order, together with Rossâ€™s (1981) definition of strongly more risk averse, can provide additional comparative static findings in a variety of decision problems. The analysis here discusses the decision to self-protect, and several others.
Does Playing Against an Error Prone Opponent Influence Learning in Nim?
(Private Enterprise Research Center, Texas A&M University, 2014-04-01) McKinney, C. Nicholas, Jr.; Van Huyck, John
When learning to play a game well, does it help to play against an opponent who makes the same sort of mistakes one tends to make or is it better to play against a procedurally rational algorithm, which never makes mistakes? This paper investigates subject performance in the game of Nim. We nd evidence that subject performance improves more when playing against a human opponent than against a procedurally rational algorithm. We also nd that subjects learn to recognize certain heuristics that improve their overall performance in more complex games.
Testing Risk Dominance and Payoff Dominance in Repeated Global Stag Hunt Games
(Private Enterprise Research Center, Texas A&M University, 2014-04-01) Van Huyck, John; Viriyavipart, Ajalavat
In any 22 global game, Carlsson and van Damme (1993b) showed that the game has a unique dominance solvable equilibrium that corresponds to the risk dominant equilibrium of the related common knowledge game with multiple strict equilibria. We test this prediction in repeated global stag hunt games. Under private information, a few cohorts coordinate on thresholds close to the global games prediction, but many cohorts coordinate on thresholds close to the ecient threshold. We argue that initial conditions and adaptive behavior play a key role in forming mutually consistent expectations in this game. We also investigate why the iterated dominance argument used to get uniqueness in the private informationtreatment is not salient.
Market Concentration, Price Dispersion and Inefficient Cross-hauling in the Laboratory
(Private Enterprise Research Center, Texas A&M University, 2014-04-01) Van Huyck, John; Wade, Chad
This paper presents experimental evidence suggesting that persistent price dispersion that violates the law of one price may be a disequilibrium phenomena. Increasing market concentration increases the pecuniary incentive to give a best response andsatisfy the law of one price, that is, a few large firms have a larger pecuniary incentive to solve the allocation coordination problem than many small firms. In the two firm treatment, the law of one price holds. However, in both treatments with small firms or transportation costs we observe persistent price dispersion. The paper also finds evidence of ineficient cross-hauling for purely strategic reasons.
The Carrot and the Stick of Medicaid Expansion
(Private Enterprise Research Center, Texas A&M University, 2014-05-01) Rettenmaier, Andrew J.; Saving, Thomas R.
Inflation Dynamics and the Cost Channel: The Small Open Economy Case
(Private Enterprise Research Center, Texas A&M University, 2014-05-19) Chang, Jui-Chuan Della; Jansen, Dennis W.
This paper investigates the cost channel of monetary policy, transmitting its effect on economic activities other than conventional demand side, in a small open economy. The innovations lie in examination of the cost channel in a small open economy with both financial market frictions and exchange rate pass-through on the marginal cost of firm's working capital and inflation dynamics. Utilizing the Canadian and Australian quarterly data, the empirical results from the present value model of the forward-looking Phillips curve show that the larger the degree of exchange rate pass-through is, the more the cost channel is pronounced.
A Model to Evaluate Vehicle Emission Incentive Policies in Japan
(Private Enterprise Research Center, Texas A&M University, 2014-06-01) Fullerton, Don; Gan, Li; Hattori, Miwa
Using three years of data from the 47 prefectures of Japan, the authors estimate behavior of households who simultaneously make discrete decisions about vehicle ownership and continuous decisions about driving distance. Estimated parameters are to calculate elasticities and to simulate the effects of alternative pollution control policies such as taxes on gasoline, on distance, or on particular cars. Given choices about cars and distance, we also calculate emissions. Since the author's model simultaneous choices, both the chosen distance and the chosen car can be affected either by a tax on distance or by a tax on car characteristics. Findings show expected signs for coefficients on price and income. Car choices are relatively inelastic, however, either to taxes on cars or to taxes on gas or distance. Thus emissions are more affected by taxes on gasoline than by taxes on particular vehicles. Given that the existing gas tax already achieves some abatement, mostly through driving reduction, this analysis suggests that further abatement from the use of distance-reducing taxes is more costly than achieving some marginal abatement from induced changes in car choices. The option with the lowest cost is to tax each car at a rate proportional to its emission rate.
The Identification of Response of Stock Returns to Monetary Policy Actions Using Market-Based Measures of Monetary Policy Shocks
(Private Enterprise Research Center, Texas A&M University, 2014-08-11) Jansen, Dennis W.; Tsai, Chun-Li
The authors investigate two related approaches to dealing with the possible joint repsonse bias in using Kuttner's approach to identifying monetary policy's impact on stock returns - the methodology recently suggested by Thornton, and use of intraday data. For all three methods, the estimated impact of monetary policy actions on stock returns is negative and statistically significant, and findings show that this negative impact is magnified during the bear markets and during recessions. We find point estimates indicating a positive joint response bias using Thornton's methodology, although these are not statistically significant. We find that intraday data provide the same qualitative pattern of results, but the estimated magnitude of the impact of monetary policy on stock returns is smaller compared to either approach using daily data.
Federal Liabilities: They're Bigger than You May Think
(Private Enterprise Research Center, Texas A&M University, 2014-09-01) Liu, Liqun; Rettenmaier, Andrew J.; Saving, Thomas R.
The Federal Reserve and Interest Rates
(Private Enterprise Research Center, Texas A&M University, 2014-11-01) Saving, Thomas R.
Impact of China's Urban Employee Basic Medical Insurance on Health Care Expenditures and Health Outcomes
(Private Enterprise Research Center, Texas A&M University, 2014-12-01) Huang, Feng; Gan, Li
At the end of 1998, China launched a government-run mandatory insurance program, the Urban Employee Basic Medical Insurance (UEBMI), to replace the previous medical insurance system. Using the UEBMI reform in China as a natural experiment, this study identifies variations in patient cost sharing that were imposed by the UEBMI reform and examine their effects on the demand for healthcare services. Using data from the 1991-2006 waves of the China Health and Nutrition Survey, the authors find that the increased cost sharing is associated with decreased outpatient medical care utilization and expenditures but not with decreased inpatient care utilization and expenditures. Patients from low- and middle- income households, or in less-serious medical situations are found to be more sensitive to prices. The authors also observed little impact on patient health, as measured by self-reported poor health status.
Testing Risk Dominance and Payoff Dominance in Repeated Global Stag Hunt Games
(Private Enterprise Research Center, Texas A&M University, 2015-01-01) Van Huyck, John; Viriyavipart, Ajalavat
This article was published as part of the PERCspectives on Research Newsletter, Winter 2015 Edition.
What Happened to Rosie?
(Private Enterprise Research Center, Texas A&M University, 2015-01-01) Rettenmaier, Andrew J.; Carr, Jillian B.
The ACA and the States
(Private Enterprise Research Center, Texas A&M University, 2015-01-01) Rettenmaier, Andrew J.; Saving, Thomas R.
What Happened to Rosie?
(Private Enterprise Research Center, Texas A&M University, 2015-02-01) Carr|, Jillian Beaugez|Rettenmaier, Andrew J.
Identifying the relationship between wartime work and womenâ€™s lifetime outcomes is difficult due to scant work histories from the 1940s. This study identifies â€œRosie the Rivetersâ€� using data from the 1973 Current Population Survey matched to Social Security earnings records. Relative to women who did not work during or immediately after the war, Rosies had greater labor force attachment later in life, but had similar earnings. Their husbandsâ€™ earnings were also higher. The Rosiesâ€™ outcomes were less distinguishable from the women who worked during and/or after the war, though they were more likely to be married as of 1973.
Restricted Increases in Risk Aversion and Their Application
(Private Enterprise Research Center, Texas A&M University, 2015-02-23) Eeckhoudt, Louis; Liu, Liqun; Meyer, Jack
This paper proposes two restricted forms of an increase in risk aversion. Using examples from portfolio choice, self-protection and insurance demand, it is shown that these stronger notions of increased risk aversion facilitate clear-cut comparative statics analysis in environments where traditional concepts of increased risk aversion are insufficient.
Tradeoffs for Downside Risk-Averse Decision-Makers and the Self-Protection Decision
(Private Enterprise Research Center, Texas A&M University, 2015-03-26) Denuit, Michel M.; Eeckhoudt, Louis; Liu, Liqun; Meyer, Jack
Besides risk aversion, decision makers are often assumed to be downside risk averse. In order to investigate tradeoffs that downside risk averse decision makers face, this paper proposes five stochastic orders, each corresponding to a tradeoff involving a downside risk increase. In addition to obtaining their respective CDF characterizations, these orders are also combined with Ross more risk aversion and two versions of Ross more downside risk aversion to produce comparative static theorems identifying the choices of decision makers relative to that of a reference decision maker. The paper concludes with analysis of the decision to self-protect, a decision that increases downside risk along with making other changes. This exercise not only shows that all five stochastic orders studied in this paper find corresponding tradeoffs in the self-protection model, it also demonstrates that these five tradeoffs are the only meaningful tradeoffs that the standard self-protection model creates. Therefore, the concepts and results presented here provide a systematic and complete treatment of the relationship between self-protection and risk preferences.
Cash for Corollas: When Stimulus Reduces Spending
(Private Enterprise Research Center, Texas A&M University, 2015-04-01) Hoekstra, Mark; Puller, Steven L.; West, Jeremy
The 2009 Cash for Clunkers program aimed to stimulate consumer spending in the new automobile industry, which was experiencing disproportionate reductions in demand and employment during the Great Recession. Exploiting program eligibility criteria in a regression discontinuity design, we show nearly 60 percent of the subsidies went to households who would have purchased during the two-month program anyway; the rest accelerated sales by no more than eight months. Moreover, the programâ€™s fuel efficiency restrictions shifted purchases toward vehicles that cost on average $5,000 less. On net, Cash for Clunkers significantly reduced total new vehicle spending over the ten month period
The Probability Premium Approach to Comparative Risk Aversion
(Private Enterprise Research Center, Texas A&M University, 2015-04-23) Liu, Liqun; Neilson, William S.
In the framework of expected utility, nth-degree risk aversion/loving is unequivocally characterized by the sign of the nth-order derivative of the utility function, but there exist different notions of one decision maker being nth-degree more risk averse than another. This paper first reformulates Prattâ€™s (1964) probability premium approach to comparative (2nd-degree) risk aversion with a nonrandom starting wealth, and then shows that the reformulated probability premium approach can be easily extended to deal with random starting wealth and comparative nth-degree risk aversion. The paper shows that interpersonal comparisons of various versions of probability premia for nth-degree risk aversion are characterized by the (n/m)th-degree Ross more risk aversion of Liu and Meyer (2013), where n > m >1. Besides the original Pratt setting, the same comparative nth-degree risk aversion extends to probability premia derived from the risk apportionment setting of Eeckhoudt and Schlesinger (2006) and the comparative statics setting of Jindapon and Neilson (2007).

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