Bài giảng Macroeconomics - Chapter 10: Using Economics to Make Better Policy Decisions

Chapter 10: Using Economics to Make Better Policy DecisionsDescribe how the Scarcity Principle applies to choices involving healthUse the Incentive Principle to explain why health care costs have been rising so rapidlyDiscuss pollution taxes and effluent permits as a means to reduce the cost of improved air qualityIllustrate why free trade is often politically controversial even though it promises to increase total incomeAssess the economic pros and cons of various components of the social safety netHealth Care DeliveryHealth care spending has grown faster than incomeUp from 4% of national income in 1940 to 16% in 2010Part of the increase is due to improved quality of tests, procedures, drugs, etc.Part is due to the third-party payment systemGrowth in use of insurance for payments (Employer-provided and government-provided)Cost-benefit test assures efficient allocation of health carePerform a service only if the benefit exceeds the costCosts are easy to measureBenefits are complicatedUsual measure is willingness to pay marginal costSome patients are unable to pay for basic services (government-provided insurance)Confused by third-party payment systemHealth Care for EmployedEmployer pays insuranceon behalf of employeeEmployees pay part of the insurance premiumsMedical provider cares forpatient / employeePatient co-payMedical provider bills insuranceInsurance company pays providerInsurance company periodically reviews employer's policy and adjusts ratesMedical ProviderPatient / EmployeeEmployerInsurance CompanyInsurance, Demand, and WasteAmount of waste from full insurance depends on the price elasticity of demand for medical servicesResearch compared patients with first dollar coverage to those with $1,000 deductiblesFirst-dollar coverage pays all expenses for the insured's health care$1,000 deductible pays all expenses after the patient has paid $1,000Deductible patients spent 40 – 50% less on health care and had the same health outcomesPolicy ImplicationsResearch shows that when individuals pay for their health care, they consume lessA more efficient system can be designedAdopt a system of high deductible health insuranceUse stipend payments for the poorAn efficient policy will increase the size of the health care pieHealth Maintenance Organization (HMO)A Health Maintenance Organization is a group of physicians that provides health services for a fixed annual feeReduced incentives to prescribe expensive testsThe doctor receives no additional fee for prescribing and interpreting testsIn most cases, diagnoses and treatment will be the same with conventional health insurance and with an HMOHMO costs less than conventional health insuranceUS Health InsuranceIn 2007, 47 million Americans had no health insuranceCost of a policy for a family of 4 generally exceeds annual health spending for the familyStigma of being irresponsible is fadingAdverse selection problemIf the healthy opt for no insurance, the insured are those with known health problems or risks (Raises costs for remaining insured)A possible solutionGovernment payment of $5,000 to each familyHealth care market efficiency increasesPatients decide, not insurance companiesCost to government would be $350 billion per yearHigher taxes offset by higher salaries and reductions in high-cost care for the uninsuredPrice Incentives and the EnvironmentGoods with negative externalities tend to be overproducedSocial objective is to reduce pollution by half from its unregulated levelThe most efficient solution is one where the marginal cost of pollution abatement is the same for all pollutersCost data are not available to governmentOne solution is to have all reduce pollution by the same proportionUneven distribution of costsTaxing PollutionIf tax is $T per ton, the firms will reduce pollution as long as the cost of reductions is less than $TA tax of $101 moves Sludge to B and NW Lumber to DTotal cost is $100 for Sludge + $180 for NW = $280/dayNet savings of $300/day over regulationProcess (smoke)A (4 T/day)B(3 T / day)C(2 T/day)D(1 T/day)E(0 T/day)Sludge Oil ($/day)$100$200$600$1,300$2,300NW Lumber ($/day)$300$320$380$480$700Cost of Production and Amount of Smoke EmittedPrice Incentives and the EnvironmentTaxing pollution concentrates pollution reduction in firms that can accomplish it at the least costCost – Benefit PrincipleCost of the last ton of smoke removed is the same for all firmsIt can be difficult to determine the optimal tax rateSet the tax too high and you get too little reductionSet the tax too low and you get too much reductionMarginal cost exceeds marginal benefit to societyAuctioning Pollution PermitsSet a target level for total pollution allowedAuction 4 permits to allow 4 tons/dayDetermine price of a permit, who buys them, and the total cost of pollution reductionsProcess (smoke)A (4 T/day)B(3 T / day)C(2 T/day)D(1 T/day)E(0 T/day)Sludge Oil ($/day)$100$200$600$1,300$2,300NW Lumber ($/day)$300$320$380$480$700Cost of Production and Amount of Smoke EmittedAuctioning Pollution PermitsProcess (smoke)A (4 T/day)B(3 T / day)C(2 T/day)D(1 T/day)E(0 T/day)Sludge Oil ($/day)$100$200$600$1,300$2,300NW Lumber ($/day)$300$320$380$480$700Cost of Production and Amount of Smoke Emitted# permits1234Sludge Oil ($/day)$1,000$700$400$100NW Lumber ($/day)$220$100$60$20Benefit of Permits Resistance to International TradeInternational trade benefits both exporting country and importing countryExporter gets a higher price abroad than he could get at homeImporter pays less than he would pay for the same product made domesticallyBlockades and sanctions limit a country's tradeCivil War blockade of the SouthCurrent trade sanctions against IranOpposition focuses on groups who lose from free trade and ignores the benefit to the economy as a wholeResistance to International TradeSuppose Brazil has a comparative advantage in coffee and the US has a comparative advantage in computersIf Brazil allows the free importation of computers, Brazilians get more computers and pay a lower priceBrazilian computer manufacturers are harmedPrice has decreased, so inefficient firms failSurviving firms earn lower profitsIn general --Consumers are helped by importsDomestic producers of imported goods are hurt by free tradeResistance to International TradeSuppose Brazil exports coffee to the USPrice of coffee in Brazil increases, hurting domestic consumersProducers of coffee benefit from a higher price and a larger marketIn general --Consumers are hurt by exportsDomestic producers of exported goods benefit from free tradeRestricting TradeProtectionism is the view that free trade is injurious and should be restricted"Protecting" domestic markets is achieved in several waysA tariff is a tax on an imported goodRaises the price of the import and reduces quantity importedA quota is a legal limit on the quantity of a good that can be importedReduces supply of imports and increases the market price for the good compared to free tradeIncome RedistributionRaising incomes of the needy reduces the incentive to workDifficulty distinguishing between needy and othersRisk takers may appear "needy"People who prefer not to work ineligibleHurricane victimsNo perfect solutionChoose among imperfect alternativesWelfare Payments and In-kind TransfersIn-kind transfers are direct transfers of goods or servicesFood stamps, Medicaid, public housing, free school lunchesFrom mid 1960s to 1996, Aid to Families with Dependent Children (AFDC) provided cash Sometimes required no adult male in the householdDestabilizing for familiesCreated persistent dependence on AFDCMeans-Tested Benefit ProgramsA means-tested program decreases benefits as the recipient's other income increasesIntends to avoid paying benefits to those who can support themselvesAdministrative structure discourages workIf benefits are reduced by $1 for each $2 earned, participants in multiple programs may lose more benefits than the income they earnAdministrative costs are highSimplify the program and distribute the cost savings to the needyEarned Income Tax Credit (EITC)An earned-income tax credit is a policy under which low-income workers receive credits on their federal taxesA family of four earns $15,000EITC is $4,750Federal taxes are reduced by $4,750 If taxes are less than EITC, a refund is issuedEITC does not interfere with market incentivesAffects only people who workAllows labor markets to reach equilibriumPublic Employment for the PoorOvercomes the shortcomings of the EITC and NITEITC does not help the unemployedNIT reduces the incentive to workGovernment could employ the poorIf wages are the same as the private sector, some workers will prefer government jobsIncreases the cost of the programMake-work programs are not productiveIncreases size of governmentA Combination of MethodsUse a NIT with payment set below the poverty thresholdSet the public service wage below the minimum wagePrivatize the management of the public service employment programNITPublic JobNIT + Public JobNIT + Private JobPovertythreshold