Health-Care Payment Systems: Cost and Quality Incentives—Reply

I reconsider the implementation of efficient cost and quality efforts when health-care providers may refuse services to consumers, and introduce a mechanism that is a combination of prospective payment and cost reimbursement. Conditions are derived for the prospective payment level and the margin above cost reimbursement for the implementation of efficient efforts.     

The Mundane Economics of the Austrian School

The Austrian School of economics—the causal-realist, marginalist, subjectivist tradition established by Carl Menger in 1871—has experienced a remarkable renaissance over the last five decades. It is not always clear, however, exactly what distinguishes the Austrian School from other traditions, schools of thought, approaches, or movements within economics and its sister disciplines. This paper argues that Austrian economics, while part of a broader tradition emphasizing the coordination of the market order, is nonetheless a distinct kind of economic analysis, and that its essence is not subjectivism, the market process, or spontaneous order, but what I call “mundane economics”—price theory, capital theory, monetary theory, business-cycle theory, and the theory of interventionism. Call this the “hard core” of Austrian economics. I argue that this hard core is (1) distinct, and not merely a verbal rendition of mid-twentieth-century neoclassical economics; (2) the unique foundation for applied Austrian analysis (political economy, social theory, business administration, and the like); and (3) a living, evolving body of knowledge, rooted in classic contributions of the past but not bound by them. Most Austrian economists from Menger to Rothbard devoted their energies to developing and communicating the principles of mundane economics, not because they failed to grasp the importance of time, uncertainty, knowledge, expectations, institutions, and market processes, but because they regarded these issues as subordinate to the main task of economic science, namely the construction of a more satisfactory theory of value, production, exchange, price, money, capital, and intervention.     

ESTIMATING SOURCES OF FLUCTUATIONS IN THE AUSTRALIAN WOOL MARKET: AN APPLICATION OF VAR METHODS

Vector autoregression (VAR) methods are used to analyse the contribution of supply, demand and policy shocks to unpredictable fluctuations in the market for Australian wool. VAR procedures are compared with conventional structural econometric models as methods for decomposing sources of instability. While each has advantages and disadvantages, VAR procedures might be viewed as preferable when the underlying market structure is complex and uncertain, as it is in the case of wool. Based on the results obtained, demand shocks are the dominant source of uncertainty in the wool market in the absence of Australian Wool Corporation intervention, but intervention has blunted their effects, reducing market uncertainty and increasing the average level of prices and revenues.     

Comparative statics for state-contingent technologies

The implications of supermodularity conditions in comparative-static analysis are analyzed for a generalized version of the separable-effort representation of a firm facing stochastic prices and a stochastic technology. Previous analysis is generalized in two ways. General risk-averse, as opposed to expected-utility, preferences are considered. The stochastic technology is represented by an Arrow–Debreu state-space representation. It is shown that results familiar from the theory of the price-taking firm in the absence of risk generalize to the uncertain case.