Governance Structure and Exit: Evidence from California Hospitals (with Wesley Wilson)

Forthcoming in Review of Industrial Organization. Available online by clicking here.

Most inpatient and emergency health care services in the U.S. are delivered by non-profit organizations. To understand the impact of policies that are designed to affect competitive outcomes in hospital markets, it’s important to understand whether the “non-profit” structure changes the behavior and competitive conduct of firms. Given the complexity of the product space within which hospitals operate, we focus on more easily interpreted decisions within the hospital market: entry and exit. Using comprehensive administrative data for the universe of California hospitals from 1980 to 2013, we document the observed entry and exit behavior. We estimate flexible exit policy functions and demonstrate a difference in behavior between for-profit and non-profit firms that exists after accounting for several observable characteristics of hospitals. We find differences in observed behavior: this is a finding that strongly suggests that there are differences in the underlying objective function of the various firms.

Working Papers

The Substitutability of Recreational Substances: Marijuana, Alcohol, and Tobacco (with Boyoung Seo)

Under review

Proponents of the legalization of recreational marijuana have argued that the policy would result in increased tax revenues for states. However, if legal substances are highly substitutable, tax revenues from marijuana may crowd
out pre-existing revenues. We study the interaction between the marijuana, alcohol, and tobacco industries in Washington state using a combination of detailed administrative data on the marijuana industry and scanner data on alcohol and tobacco sales. We estimate a demand system and find that alcohol and marijuana are substitutes, with the legalization of marijuana in isolation leading to a 12% decrease in alcohol demand, and a marginal cross price elasticity of demand of .16. Marijuana legalization results in a 20% decrease in tobacco demand, but the marginal relationship is unclear. When prices are held fixed, 50% of marijuana tax revenue comes from cannibalizing alcohol and tobacco taxes. When those industries adjust their prices, only 22% of marijuana tax revenue comes from alcohol and tobacco. Though Washington has the highest marijuana tax rate in the country, a 1% increase in the marijuana tax results in a 1.01% increase in total revenues collected by the state.

Download the draft (March 2018)

Early Evidence on Recreational Marijuana Legalization and Traffic Fatalities (with Ben Hansen and Caroline Weber)

Under review

Over the last several years, marijuana has become legally available for recreational use to roughly a quarter of Americans. The substantial external costs of alcohol have long worried policy makers and similar costs could come with the liberalization of marijuana policy. The fraction of fatal accidents in which at least one driver tested positive for THC has increased nationwide by an average of 10 percent from 2013 to 2016. In contrast, for Colorado and Washington, both of which legalized in 2014, these increases were 92 percent and 28 percent, respectively. However, identifying a causal effect is difficult due to the presence of significant confounds. We test for a causal effect of marijuana legalization on traffic fatalities in Colorado and Washington with a synthetic control approach using Fatal Analysis and Reporting System data from 2000-2016. We find the synthetic control groups saw similar increases in marijuana-related fatality rates despite not legalizing recreational marijuana.

Download the draft (February 2018)

Modeling the Costs and Benefits of Civil Court Case Resolution (with Amil Petrin)

Under review

Civil courts provide a setting in which society’s citizens can right a believed wrong. Resolving the case determines whether a wrong was committed and, if so, the damages caused. Determining which acts are bad can also benefit
society by deterring future acts of the same nature. We estimate the costs of case resolution directly from court accounting data. We estimate the benefit to society by assuming that the court’s view of the damages—the judgment—is correlated with society’s view of the benefit of righting the wrong. Additional benefits come when the resolution of the case deters future bad acts—the size of the judgment reflects the size of the bad acts deterred. We apply our approach to all civil cases handled by the Fourth Judicial Court of Minnesota from 2008 to 2012. Average judgments are magnitudes larger than costs: the average Contract case judgment in our data is $440,685 and the average cost to the court is $1,183. Over the sample period, the total court costs for the cases we consider were $23.1 million and the total judgments were $1.5 billion.

Download the draft (February 2018)

Drug Trafficking Under Partial Prohibition: Evidence from Recreational Marijuana (with Ben Hansen and Caroline Weber)

Under review

Marijuana is partially prohibited: though banned federally, it will soon be available to 21% of U.S. adults under state statutes. A chief concern among policy makers is marijuana trafficking from states with legal markets elsewhere. We measure trafficking with a natural experiment. Oregon opened a recreational market on October 1, 2015,
next to Washington's existing market. Using administrative data with the universe of recreational market sales, we find Washington retailers along the Oregon border experienced a 41% decline in sales following Oregon’s market opening. In counties that are the closest crossing point for the majority of neighboring counties, the estimated
decrease grows to 58%, and is the largest for the biggest transactions.

Download the draft (November 2017)

The Taxation of Recreational Marijuana: Evidence from Washington State (with Ben Hansen and Caroline Weber)

Under review

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.

Optimal Managed Competition Subsidies (with Amil Petrin, Robert Town, and Michael Chernew)

The Medicare Advantage program enables Medicare recipients to receive their health care benefits via private insurance plans instead of through the federal government. Insurers receive a payment from the government for each individual enrolled, and may add additional benefits and charge an additional premium -- an approach which mirrors many other goods provided via a government subsidy. The optimal subsidy in different markets -- conditional on a fixed amount of government expenditures across all markets -- depends on the interactions between consumer demand and supply-side responses to changes in the payments offered by the government. However, governments subsidies are typically pegged only to a measure of average cost.  We study optimal subsidy design in Medicare Advantage by estimating a flexible supply and demand systems in an oligoply setting that features demand-side heterogeneity and switching costs, and supply-side price-setting and benefit design behavior. We find the the optimal subsidy structure differs from the implemented one and significantly improves consumer surplus. 

Download draft (February 2018, incomplete)

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.

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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.


Work in Progress

Retail Price Holidays: Theory and Evidence (with Ben Hansen, Kendall Houghton, and Caroline Weber)

Understanding Washington's Marijuana Traceability Data (with Ben Hansen, Kendall Houghton, and Caroline Weber)

    Equilibrium Approximation with Heterogeneous Consumers and Continuous State Spaces