Payer Competition and Cost Shifting in Health Care

This paper studies a model in which two payers contract with one hospital. True costs per patient are not a possible basis for payment, and contracts can only be written on the basis of allocated cost. Payers choose a contract that is fully prospective or fully based on cost allocation, or a payment scheme that would give some weight to each of these two. We characterize the payers'equilibrium contracts arid show how in equilibrium hospital input decisions are distorted by the payers' incentives to engage in cost shifting. Two cost-shifting incentives work in opposite directions, and equilibrium can be characterized by too little or too much care relative to the socially efficient level.     

Strategy and Structure in Information-Intensive Markets: The Relationship Between Marketing and IT

This paper discusses the relationship between the traditionalfunctions of Marketing and Information Technology (IT) from theperspective of the emerging information-intensive marketsthat characterize the environment faced by most modern organizations.First, a conceptual framework is presented for understandingthe range of information-intensive strategies (built aroundexploiting the Customer Information File as the key corporateasset) that are increasingly the determinants of competitivesuccess. Next, the appropriate organizational structure to supportthese strategies is proposed—one in which the historicalseparation between marketing and IT is abandoned in favor ofa new structure organized around a core set of information-processingactivities. Finally, the characteristics of this new organizationare described—in particular its role as a market-drivenlearning organization and, increasingly, as a living, biologicalorganism.     

Optimal Contracts When a Worker Envies His Boss

A worker's utility may increase with his income, but envy canmake his utility decline with his employer's income. This articleuses a principal-agent model to study profit-maximizing contractswhen a worker envies his employer. Envy tightens the worker'sparticipation constraint and so calls for higher pay and/ora softer effort requirement. Moreover, a firm with an enviousworker can benefit from profit sharing, even when the worker'seffort is fully contractible. We discuss several applicationsof our theoretical work: envy can explain why a lower-levelworker is awarded stock options, why incentive pay is lowerin nonprofit organizations, and how governmental productionof a good can be cheaper than private production.     

Psychiatric treatment programs: the continuous services model

With the inclusion of behavioral managed care in the design of many benefit plans, the delivery of psychiatric care has changed. The continuous services model offers advantages for both employers and employees who utilize mental health benefits.     

Debates and Decisions: On a Rationale of Argumentation Rules

We view a debate as a mechanism by which an uninformed decision maker (the listener) extracts information from two informed debaters, who hold contradicting positions regarding the right decision. During the debate, the debaters raise arguments and, based on these arguments, the listener reaches a conclusion. Using a simple example, we investigate the mechanism design problem of constructing rules of debate that maximize the probability that the listener reaches the right conclusion, subject to constraints on the form and length of the debate. It is shown that optimal debate rules have the property that the conclusion drawn by the listener is not necessarily the same as the conclusion he would have drawn, had he interpreted the information, revealed to him or her during the debate, literally. The optimal design of debate rules requires that the information elicited from a counterargument depends on the argument it counterargues. We also link our discussion with the pragmatics literature. Journal of Economic Literature Classification Numbers: C72, D78.     

POLITICS WITH AND WITHOUT POLICY†

When strategic complementarities lead to the existence of multiple equilibria, a change in control of government may lead to changes in economic behavior by consumers or firms even if the different parties pursue the same policies. The existence of multiple equilibria, however, is not necessary to predict partisan effects. Furthermore, electoral uncertainty is not necessary to generate partisan effects; indeed, such uncertainty can dampen the cycle.     

STRATEGIC LOBBYING BY POTENTIAL INDUSTRY ENTRANTS*

A firm which lobbies government for a change in policy, say an import tariff, can increase its profits in two ways. First, the policy can increase the profits of all firms in the industry. This effect therefore involves a free-rider problem. Second, a firm's lobbying expenditures may signal other firms about its costs and interests. For example, a firm with low marginal costs may profit much from an import ban. Other firms which see that this firm expects to profit much from the ban may decide not to enter the industry. This may further increase the low-cost firm's profits.     

The Electoral Politics of Extreme Policies

A government may adopt extreme policies (policies lying outside the interval between the ideal points of the political parties) for electoral purposes. It can benefit when a change in policy is costly, and when the opposing party cannot commit to maintaining the status quo.