Under certain cost conditions the optimal insurance policy offers full coverage above a deductible, as Arrow and others have shown. However, many insurance policies currently provide coverage against several losses although the possibilities for the insured to affect the loss probabilities by several prevention activities (multiple moral hazard) are substantially different. This article shows that optimal contracts under multiple moral hazard generally call for complex reimbursement schedules. It also examines the conditions under which different types of risks can optimally be covered by a single insurance policy and argues that the case for umbrella policies under multiple moral hazard is limited in practice.
This paper examines the interplay of endogenous vertical integration and cost-reducing downstream investment in successive oligopoly. Analyzing a linear Cournot model, we establish the following key results: (i) Vertical integration increases own investment and decreases competitor investment (intimidation effect). (ii) Asymmetric integration is a non-degenerate equilibrium outcome. (iii) Compared to a benchmark model without investment, complete vertical separation is a less likely outcome. We argue that these findings generalize beyond the linear Cournot model under reasonable assumptions.
We consider a reduced form model with acquisitions and entry. There are two investors and several small non-investing firms. One investor can acquire a small firm, the other investor decides about market entry. After that all firms play an oligopoly game. We derive conditions under which increasing market concentration arises with myopic firms. We apply the framework to a Cournot model with cost synergies and a Bertrand model where acquisitions extend the product spectrum of a firm.
This paper purports to develop a simple microeconomic model designed to shed light on behavioral change induced by improved information about smoking risks. It predicts the conditions in which improved information indeed increases the demand for cigarettes. After recalling the economic rationale of an anti-tobacco policy, the article points out a few startling implications of improved information about the risks of smoking.
Uniform, risk-independent insurance premiums are accepted as part of ‘managed competition’ in health care. However, they are not compatible with optimality of health insurance contracts in the presence of both ex ante and ex post moral hazard. They have adverse effects on insurer behaviour even if risk adjustment is taken into account. Risk-based premiums combined with means-tested, tax-financed transfers are advocated as an alternative.
National policies towards the regulation of the telecommunications industry have undergone significant change in response to technological progress and increasing competition. This article discusses the consecutive revisions of the Swiss regulatory framework during the 1990's and presents lessons to be drawn from this process. After reviewing the Telecommunications Act (Fernmeldegesetz; FMG) 1992 and the reasons for its revision, this article presents the most important prescriptions of the FMG 98 concerning the licence regime, universal service, and interconnection. The implementation of the FMG 98 has led to a fundamental change in regulatory policy. However, transitional rules appear to promote excessively slow adjustments in the current industry configuration.
This paper examines the causes and effects of mobile number portability (MNP) and provides a survey of its implementation in Europe. It first examines the competitive effects and costs of introducing MNP. Next, it discusses how to charge for MNP. It argues that a price cap regime starting from the average cost of porting is likely to provide appropriate incentives. Finally, it reviews recent experience with implementing MNP in Europe. Differences in the speed of porting and porting charges appear to explain part of the differences in the use of MNP across countries.
The author reports on a series of experiments designed to investigate the factor of incentive mechanisms in the case of private provisions of public goods. In the Control treatment, there was no mechanism so that subjects faced strong free-riding incentives. In the so-called Falkinger mechanism treatment, the author implemented the Falkinger mechanism. The studies explored the impact of the mechanism in different economic environments. Results showed that the proposed incentive mechanism is very promising. Section I of the paper introduces the mechanism to be examined. Section II discusses the experimental design. Empirical results are provided in Section III, and Section IV interprets these results followed by a summary.
The observation that average health care expenditure rises with age generally leads experts and laymen alike to conclude that population ageing is the main driver of health care costs. In recently published studies we challenged this view (Zweifel et al., 1999; Felder et al., 2000). Analysing health care expenditure of deceased persons, we showed that age is insignificant if proximity to death is controlled for. Thus, we argued that population ageing per se will not have a significant impact on future health care expenditure. Several authors (Salas and Raftery, 2001; Dow and Norton, 2002; Seshamani and Gray, 2004a) disputed the robustness of these findings, pointing to potential weaknesses in the econometric methodology. This paper revisits the debate and provides new empirical evidence, taking into account the methodological concerns that have been raised. We also include surviving individuals to test for the possibility that the relative importance of proximity to death and age differs between the deceased and survivors. The results vindicate our earlier findings of no significant age effect on health care expenditure of the deceased. However, with respect to the survivors, we find that age may matter. Still, a naive estimation that does not control for proximity to death will grossly overestimate the effect of population ageing on aggregate health care expenditure. Following Stearns and Norton (2004), we conclude that "it is time for time to death" in projections of future health care costs.
The objective of this contribution is to evaluate the strengths and weaknesses of the Swiss health care system after the new Law on Health Insurance (LHI) that took effect at the beginning of 1996. The LHI just barely survived a popular referendum. An important argument of the campaign in its favor had been that health insurance premiums would fall thanks to increased competition between the sickness funds (mutual health insurers). At the same time, the federal government hoped that its budget would be less burdened by subsidies earmarked for health insurance. Neither expectation has been fulfilled, not least because Parliament made the list of benefits covered more comprehensive than ever. Thus, the health share in the GDP has continued to grow, from 9.5% in 1996 to some 11% in 2003 (OECD, 2004).