Is utility additive? The case of alcohol

By using the quantile regressions of earnings equation, we find that the educational wage premium is higher in industries with rapid technological change than in industries with slower technological change at every decile in the distribution of wage residuals. The wage premium associated with the technological change is mostly explained by the returns to workers' unobserved heterogeneities, which are correlated with education, rather than the rents of high-tech industries.     

Capture or contract? The early years of electric utility regulation

Jarrell (J Law Econ 21:269?C295, 1978) found that electricity prices fell more slowly in states that adopted state regulation before 1917, suggesting that regulators were ??captured?? by the interests of the regulated electric utilities. An alternative explanation is that state regulation more credibly protected specialized utility assets from regulatory opportunism than did the municipal franchise contracting that preceded it. We test this alternative hypothesis using a panel of data from the U.S. Electrical Censuses of 1902?C1937. We find that the shift from municipal franchise contracting to state regulation was associated with a substantial decrease in investment propensity, an outcome supporting the capture hypothesis.     

‘Expected utility / subjective probability’ analysis without the sure-thing principle or probabilistic sophistication

Summary. The basic analytical concepts, tools and results of the classical expected utility/subjective probability model of risk preferences and beliefs under subjective uncertainty can be extended to general event-smooth preferences over subjective acts that do not necessarily satisfy either of the key behavioral assumptions of the classical model, namely the Sure-Thing Principle or the Hypothesis of Probabilistic Sophistication. This is accomplished by a technique analogous to that used by Machina (1982) and others to generalize expected utility analysis under objective uncertainty, combined with an event-theoretic approach to the classical model and the use of a special class of subjective events, acts and mixtures that exhibit almost-objective like properties. The classical expected utility/subjective probability characterizations of outcome monotonicity, outcome derivatives, probabilistic sophistication, comparative and relative subjective likelihood, and comparative risk aversion are all globally robustified to general event-smooth preferences over subjective acts.Received: 4 May 2004, Revised: 4 October 2004, JEL Classification Numbers: D81.This paper presents a considerably improved version of the concept of event-differentiability from Machina (1992). An alternative definition has been independently developed by Epstein (1999) in his analysis of the concept of uncertainty aversion. I am grateful to Kenneth Arrow, Mark Durst, Jürgen Eichberger, Daniel Ellsberg, Clive Granger, Simon Grant, Edi Karni, Peter Klibanoff, David Kreps, Duncan Luce, Robert Nau, Uzi Segal, Peter Wakker, Joel Watson and especially Larry Epstein, Ted Groves and Joel Sobel for helpful discussions and comments. This material is based upon work supported by the National Science Foundation under Grants No. 9209012 and 9870894.     

The assumption of equal marginal utility of income: how much does it matter?

In most applied cost–benefit analyses, individual willingness to pay (WTP) is aggregated without using explicit welfare weights. This can be justified by postulating a utilitarian social welfare function along with the assumption of equal marginal utility of income for all individuals. However, since marginal utility is a cardinal concept, there is no generally accepted way to verify the plausibility of this latter assumption, nor its empirical importance. In this paper, we use data from seven contingent valuation studies to illustrate that if one instead assumes equal marginal utility of the public good for all individuals, aggregate monetary benefit estimates change dramatically.     

Need for speed? Exploring the relative importance of patents and utility models among German firms

Despite the wide use of two-tiered patent systems (patents and utility models (UMs)), there is little empirical evidence about how often UMs are actually used, what kind of firms use them to protect their intellectual property, and how firms rank them relative to patents. We offer such an analysis using data from Germany. We find that larger firms are more likely to use both protection methods. Moreover, a short life cycle of products and services is associated with an increased likelihood to use UMs. The features and functioning of the German UM system are of broader interest because it has been a benchmark for several second tier patent protection systems around the world.     

A cost–utility analysis of degarelix in the treatment of advanced hormone-dependent prostate cancer in the United Kingdom

Objective:

To determine the cost-effectiveness of the treatment of advanced hormone-dependent prostate cancer with degarelix compared to luteinizing hormone-releasing hormone (LHRH) agonists in the UK using the latest available evidence and the model submitted to AWMSG.

Methods:

A cost-effectiveness model was developed from the perspective of the UK National Health Service evaluating monthly injection of degarelix against 3-monthly leuprorelin therapy plus anti-androgen flare cover for the first-line treatment of patients with advanced (locally advanced or metastatic) hormone-dependent prostate cancer. A Markov process model was constructed using the patient population characteristics and efficacy information from the CS21 Phase III clinical trial and associated extension study (CS21A). The intention-to-treat (ITT) population and a high-risk sub-group with a PSA level >20?ng/mL were modeled.

Results:

In the base-case analysis using the patient access scheme (PAS) price, degarelix was dominant compared to leuprorelin with cost savings of £3633 in the ITT population and £4310 in the PSA?>?20?ng/mL sub-group. The chance of being cost-effective was 95% in the ITT population and 96% in the PSA?>?20?ng/mL sub-group at a threshold of £20,000 per quality-adjusted life-year (QALY). In addition, degarelix remained dominant when PSA progression was assumed equal and only the benefits of preventing testosterone flare were taken into account. Treatment with degarelix also remained dominant in both populations when the list price was used. The additional investment required to treat patients with degarelix could be offset in 19 months for the ITT population and 13 months for the PSA?>?20?ng/mL population. The model was most sensitive to the hazard ratio assumed for PSA progression between degarelix and leuprorelin and the quality-of-life (utility) of patients receiving palliative care.

Conclusion:

Degarelix is likely to be cost-effective compared to leuprorelin plus anti-androgen flare cover in the first-line treatment of advanced hormone-dependent prostate cancer.     

Developing business ethics theory and integrating economic analysis into business ethics teaching – a conceptualization based on externalities and diminishing marginal utility

Contrary to understandings that treat ethical considerations and economic thinking as separate if not antagonistic issues, we advocate a holistic view that links business ethics to consequentialist economic concepts and their concern about how scarce means should be used for the attainment of (given) ends. We believe that business ethics students will profit from a development of business ethics theory that facilitates an outcome-based evaluation of business strategies anchored in the economic concepts of externalities, game theory, equilibria, efficiency, transaction costs, and diminishing marginal utility. We outline how moral judgments about (socially irresponsible) business behaviors, which often lack theoretical grounding and self-critical examination, can be made both more consistent and transparent through a systematic application of these theoretical concepts. We furthermore point out that, in this evaluative exercise, business ethics analysts should make all assumptions explicit to meet their task of facilitating informed public debates and informed moral choices.     

A cost utility analysis of simeprevir used with peginterferon + ribavirin in the management of genotype 1 hepatitis C virus infection,from the perspective of the UK National Health Service

Abstract

Introduction:

Triple therapy using a protease inhibitor (PI) with peginterferon and ribavirin (PR) is increasingly used in patients with chronic hepatitis C virus (HCV) infection. The most recently introduced PI, simeprevir (SMV), offers high levels of viral eradication combined with a reduced overall duration of therapy. The objective of this study was to compare the cost-effectiveness of SMV?+?PR vs PR alone or in combination with telaprevir (TVR) or boceprevir (BOC) in patients infected with genotype 1 HCV