The Legal Market for Recreational Marijuana: Evidence from Washington State (with Ben Hansen and Caroline Weber)
The median United States voter supports the legalization of marijuana, at least in part due to a desire to increase state tax revenues. However, states with legal markets have implemented wildly different regulatory schemes with tax rates ranging from 3.75 to 37 percent, indicating that policy makers have a range of beliefs about industry responses to taxes and regulation. We examine a policy reform in Washington: a switch from a 25 percent gross receipts tax collected at every step in the supply chain to a sole 37 percent excise tax at retail. Using novel, comprehensive administrative data, we assess responses to the reform throughout the supply and consumption chain. We find the previous tax regime provided strong incentives for vertical integration. Tax invariance did not hold, with some types of firms benefiting much more than predicted. Consumers bear 44 percent of the additional retail tax burden. Finally, we find evidence that consumer demand for marijuana is price-inelastic in the short-run, but becomes price-elastic within a few weeks of a price increase.
Do Private Medicare Firms Face Lower Costs?
The US government’s Medicare Advantage (MA) program offers subsidies to private insurers who then compete to provide Medicare and supplemental benefits to seniors. Today, the subsidies paid to firms exceed Medicare’s costs, but almost all plans provide a number of benefits on top of those provided by traditional Medicare. To evaluate the welfare effect of the MA program, I estimate the cost to firms of providing Medicare-equivalent benefits and the consumer welfare gains from supplemental benefits. I introduce a model of supply and demand for MA that focuses on supply-side dynamics. In my model, firms choose prices and generosities for multiple plans and take into account the inter-temporal incentives generated by the existence of switching costs on the demand side. I estimate the model’s parameters using panel data on consumers and plans from 2008-2010 and find that, on average, private firms spend $5,293 to provide Medicare-equivalent benefits to a healthy individual, whereas Medicare spends $4,390 on similar individuals. The average plan spends $184 on supplemental benefits, generating $328 in consumer welfare. In counterfactual simulations, I explore the effect of a reduction in the subsidies offered to firms and policies that make it easier to switch providers. I find both policies increase total welfare, primarily by moving customers to traditional Medicare.
The Costs and Benefits of Varying the Medicare Advantage Reimbursement Rate (with Amil Petrin, Robert Town, and Michael Chernew)
The Medicare Advantage program enables Medicare recipients to receive their benefits via private insurance plans instead of the federal government. These plans must provide coverage at least equivalent to Medicare, and may offer additional benefits. Insurers receive a subsidy from the government for each individual enrolled, and may charge an additional premium. We investigate the demand for these plans and find that consumers face large costs when switching between providers. We also investigate the degree to which increases in the payment rate flow through to the consumer. We find that an increase in the payment rate generates less surplus than it costs the government.
New draft coming soon!
Does Premerger Notification Matter? Evidence from Cable Television (with Kailin Clarke)
U.S. antitrust policy requires firms to disclose sizable acquisition plans to the Department of Justice before completing any transactions so effects on competition can be proactively evaluated. It has been difficult to test the effects of this policy given the difficulty of defining potential and actual acquisitions across industries. We construct a novel dataset of acquisitions in the cable television industry to study the acquisition behavior of several large firms. We test the effect of the disclosure threshold and the nature of local competition on the probability that a small firm is acquired. We find the program has a small but significant impact on large firms' propensities to purchase horizontal (overbuilt) competitors but no significant effect on other types of acquisitions. Our results are robust to several variations of the test.
Preliminary version available. New draft coming soon.