‘Market failure’ arguments are a poor guide to policy

‘Market failure’ is frequently offered as a justification for government intervention in the economy. Proponents of interventions can point to almost limitless examples of markets which do not meet all the criteria for Pareto optimality and argue that government taxation, subsidies or regulation can perfect them, maximising social welfare. But comparing market outcomes with an unattainable and unidentifiable ideal is not useful in a world of imperfect knowledge and government failure. It is better to compare market outcomes against realistic alternatives. Furthermore, even within the market failure paradigm, concepts such as ‘public goods’ and ‘negative externalities’ are routinely misunderstood and inconsistently applied. This leads to predictably poor policy outcomes.     

Modelling Heterogeneity and Uncertainty in Contingent Valuation: an Application to the Valuation of Informal Care

Both the lack of market data and the need to adopt a more holistic approach in the valuation of non‐market activities within health care have pointed towards the use of contingent valuation (CV) methods. However, to date, few studies have employed such techniques to value informal care, despite its provision being an important public policy question. We propose an analytical framework that through the use of random parameters models and respondents' certainty scales can incorporate both unobserved and observed heterogeneity in the CV modelling. This is the first CV study of informal care for Scotland (UK) and a £7.68 per hour value is estimated.     

Cost-effectiveness of subdermal implantable buprenorphine versus sublingual buprenorphine to treat opioid use disorder

Aims: Subdermal implantable buprenorphine (BSI) was recently approved to treat opioid use disorder (OUD) in clinically-stable adults. In the pivotal clinical trial, BSI was associated with a higher proportion of completely-abstinent patients (85.7% vs 71.9%; p?=?.03) vs sublingual buprenorphine (SL-BPN). Elsewhere, relapse to illicit drug use is associated with diminished treatment outcomes and increased costs. This study evaluated the cost-effectiveness of BSI vs SL-BPN from a US societal perspective.

Methods: A Markov model simulated BSI and SL-BPN cohorts (clinically-stable adults) transiting through four mutually-exclusive health states for 12 months. Cohorts accumulated direct medical costs from drug acquisition/administration; treatment-diversion/abuse; newly-acquired hepatitis-C; emergency room, hospital, and rehabilitation services; and pediatric poisonings. Non-medical costs of criminality, lost wages/work-productivity, and out-of-pocket expenses were also included. Transition probabilities to a relapsed state were derived from the aforementioned trial. Other transition probabilities, costs, and health-state utilities were derived from observational studies and adjusted for trial characteristics. Outcomes included incremental cost per quality-adjusted-life-year (QALY) gained and incremental net-monetary-benefit (INMB). Uncertainty was assessed by univariate and probabilistic sensitivity analysis (PSA).

Results: BSI was associated with lower total costs (?$4,386), more QALYs (+0.031), and favorable INMB at all willingness-to-pay (WTP) thresholds considered. Higher drug acquisition costs for BSI (+$6,492) were outpaced, primarily by reductions in emergency room/hospital utilization (?$8,040) and criminality (?$1,212). BSI was cost-effective in 89% of PSA model replicates, and had a significantly higher NMB at $50,000/QALY ($20,783 vs $15,007; p?Conclusions: BSI was preferred over SL-BPN from a health-economic perspective for treatment of OUD in clinically-stable adults. These findings should be interpreted carefully, due to some relationships having been modeled from inputs derived from multiple sources, and would benefit from comparison with outcomes from studies that employ administrative claims data or a naturalistic comparative design.     

What Do Bettors Want? Determinants of Pari‐Mutuel Betting Preference

A bstract .   This paper is an analysis of the demand for thoroughbred racetrack wagers, examining evidence that would support the existence of two types of bettors: the risk-averse informed bettor versus the uninformed bettor. Looking at 12 major racetracks over the fall of 2002, we undertake an empirical examination of the determinants of bettors' preferences for particular wagers on specific races. The goal is to try to determine what individual aspects of a race (conditions, surface, participants, etc.) will encourage increased wagering dollars. With the advent of simulcasting, the competition for the wagering dollar is fierce, as the bettor can choose from more than 100 races daily, each race offering numerous betting options. We find for most wagers that higher quality participants, larger and more competitive fields, and turf races increase betting volume while higher pari-mutuel takeout, poor track conditions, and other races run concurrently reduce volume. However, more competitive fields reduce betting volume in the show and trifecta pools. Optimal field size is determined to be between 10 and 12 betting interests. Overall, we find support for the existence of a significant share of risk-averse informed bettors.     

The business case of a network that serves both public safety and commercial subscribers

Deploying a single nationwide broadband wireless network to serve all public safety users would have great advantages over the existing fragmented public safety systems. A nationwide system could be created to serve both public safety and commercial subscribers, which would allow a provider to exploit important economies but force it to meet the more costly requirements of public safety. This paper analyzes the viability of a public-private partnership that serves public safety and commercial subscribers from a for-profit provider's perspective. A model is presented that estimates the net present value (NPV) of a wireless network by calculating costs based on the number of cell sites required and revenue based on the projected number of subscribers acquired. The model is applied to both a network that serves only commercial subscribers on 10 MHz of 700 MHz spectrum and a public-private partnership that serves commercial subscribers and public safety personnel on 20 MHz of 700 MHz spectrum. It is found that NPV is greater for the public-private partnership than for the commercial-only network for any population density, which shows that the value of 10 MHz of spectrum exceeds the cost of meeting public safety requirements. Furthermore, the paper demonstrates that NPV/cell increases with population density, so urban areas are profitable and rural areas are unprofitable. The paper demonstrates that a partnership covering 94% of the US population breaks even because the most urban 56% of population subsidizes coverage for the next 38%. If initial deployment is subsidized, a financially sustainable public-private partnership can serve much more than 94%. Additionally, it is shown that allowing urban municipalities to opt-out of the partnership can significantly increase the subsidies required.     

The broadband bonus: Estimating broadband Internet's economic value

How much economic value did broadband Internet create? Despite the importance of this question for national policy, no research has estimated broadband's incremental contribution to U.S. GDP by calibrating against historical adoption and incorporating counterfactuals. This study provides benchmark estimates for 1999 through 2006 and finds that broadband accounts for $28 billion of the $39 billion observed in 2006. Depending on the estimate, households generated $20-$22 billion of broadband revenue and approximately $8.3-$10.6 billion was additional revenue created between 1999 and 2006. Consumer surplus accounted for $4.8-$6.7 billion of this amount, which is not measured in GDP. An Internet-access Consumer Price Index would have to decline by 1.6-2.2% per year for it to reflect this unmeasured value. These estimates differ from existing benchmarks by an order of magnitude and relate to several policy debates.