Coase Colored Glasses

Sunday, October 30, 2005

Coase Colored Glasses

Alex Tabarrok at Marginal Revolution posted this nice piece on adverse selection today. BTW, we on the job health care benefits near the end of WWII when a government mandated wage freeze made it impossible to compete for workers by offering higher wages. And because people are not just pieces on a chess board (remember Adam Smith's example in The Theory of Moral Sentiments), employeers found a non-wage way to compete--health insurance. I will blog another time about the problems of third-party payers. For now, enjoy Alex's post:

Wages for low-wage workers have been flat in recent years but health care costs have been increasing. For a company like Wal-Mart, which pays many of its workers modest wages but does offer a reasonable health insurance plan, this is an invitation to adverse selection. As the value of the wage component of the Wal-Mart benefit package has declined relative to the value of the health insurance component Wal-Mart has attracted more workers who want the job for the health benefits, i.e. sicker workers. Reed Abelson writing in the NYTimes notes:

The Wal-Mart work force reflects a growing fear of many employers that the people who work for them are increasingly at risk for health problems. Many of Wal-Mart's employees are obese, the company says, and a result is rapidly rising numbers of cases of diabetes or heart disease. The prevalence of these diseases among Wal-Mart employees is increasing much faster than the national average, it says.

"The low-income population generally is not as healthy and does not engage as much in preventive care," said Diane Rowland, executive director of the Kaiser Commission on Medicaid and the Uninsured. A risk that a company like Wal-Mart faces, especially when it competes with smaller retailers that offer no insurance at all, Ms. Rowland said, is attracting too many workers who want the job primarily for the health coverage.

Wal-Mart's health care costs are rising faster than their revenues. Other companies are trying to shift some of the cost of health care onto their workers but Wal-Mart's workers are already paying more than the national average so Wal-Mart may try to reverse adverse selection by adjusting their work and benefit package. An internal memo suggests that:

...the company could require all jobs to include some component of physical activity, like making cashiers gather shopping carts. It also recommends redesigning and expanding benefits to appeal to a different type of worker, someone more interested in buying a home, say, than in getting health insurance.

Wal-Mart will probably be pilloried for this sort of thinking but you can hardly blame them when the workers are engaging in almost the identical actions in reverse. The more fundamental problem is the tying of insurance to work, a problem for which I am afraid there no win-win solution.

Wednesday, October 26, 2005

Coase Colored Glasses

German corporations killing children in Uganda? From the Commons Blog:

Scandalous behaviour by corporates and governments
Posted by Kendra Okonski · 13 October 2005 · DDT/Malaria ~Environmental Risk ~European Union ~Precautionary Principle

At the Campaign for Fighting Diseases website, Richard Tren, director of Africa Fighting Malaria, writes that German chemical company Bayer has supported the European Union's threats against Uganda should the country decide to use DDT in its malaria control programme.

Not only is this scandalous -- it is a major conflict of interest. Tren points out that "[A Bayer representative] sits on the board of the World Health Organization's Roll Back Malaria (RBM) coalition - as do other commercial contractors to US Agency for International Development (USAID)."

Tren is a signatory to the Kill Malarial Mosquitoes Now (KMMN) declaration, what Tren calls "A new coalition which has emerged in the US to focus the minds of USAID in their malaria control efforts."

Sunday, October 16, 2005


The bad idea behind our failed health-care system.

This is a great article (very interesting and highly readable) that talks about how our inflated perception of the role moral hazard plays in health insurance has led to the failure of our health system in comparison to those countries who don't share our obsession with moral hazard. Best paragraph from the article IMO:

The moral-hazard argument makes sense, however, only if we consume health care in the same way that we consume other consumer goods, and to economists like Nyman this assumption is plainly absurd. We go to the doctor grudgingly, only because we’re sick. “Moral hazard is overblown,” the Princeton economist Uwe Reinhardt says. “You always hear that the demand for health care is unlimited. This is just not true. People who are very well insured, who are very rich, do you see them check into the hospital because it’s free? Do people really like to go to the doctor? Do they check into the hospital instead of playing golf?”

Thursday, October 13, 2005


I was listening to NPR the other morning and they were interviewing someone who was part of a group that recently broke with the AFL-CIO.

This woman said that the group she represented was going to stop trying to recruit employees of a single business and instead widen their search to entire communities. For example, she said they would try to unite all the child care workers or all the janitors, in a whole community.

What I am wondering is if the good effects of a union outweigh the bad effects on the economy? It seems to me that a group of people who are controlling the price of their services in a community would set those prices higher than consumers would be willing to pay for them if there was competition in that sector.

Would the point of a Union of Childcare workers in Cache Valley be to protect those child care workers from (exploitation- or i don't know what) or to reduce competition and use the union as a way to raise their prices and make more money?

Tuesday, October 11, 2005

Game Theory Nobel Prize

“Thomas C. Schelling, economics professor emeritus at Harvard University, yesterday was named co-recipient of the 2005 Nobel Memorial Prize in Economic Sciences for his use of game theory analysis to improve understanding of conflict and cooperation in everything from price competition to nuclear arms negotiations.”

This article about the Nobel Prize winners has a very interesting application of game theory. The whole article can be found at the Boston Globe’s website:

Coase Colored Glasses

A nice piece on rights from Don Boudreaux at Cafe Hayek.

Our 'Most Important Right'?
Don Boudreaux

I learned today, listening to this NPR interview of David Rakoff, that the U.S. Department of Justice asks people seeking to become citizens of the United States "What is the most important right granted to United States citizens?" (See also here.) The answer is "The right to vote."

Not the right to be free from arbitrary arrest and to the writ of habeas corpus; not the right to acquire, use, transfer, and be secure in the possession of property; not freedom of speech; not the right to a trial by jury – no. The right to vote. The right to yank a lever in a booth on intermittent occasions, along with thousands or millions of other people, the collective outcome of which is the election of a handful of power-mad, glib dissemblers who specialize in picking each of our pockets, transferring the booty to special-interest groups, and persuading us that we are strengthened, enriched, and raised to glory by it all.

Some right.

Monday, October 10, 2005

All Gov't Employees Are Overpaid!

I think that all those who work for Uncle Sam are way over paid! Prof. Simmons' remarks today got me thinking about this a lot. Let's look a key issue.


I don't know of any gov't employee who has efficiency running through his veins. They don't do it. Why? They don't have too. There is no incentive to gain a profit, so there is no incentive to work hard and reach those unreachable goals (which is accomplished in the private sector all the time). Fear lurks under the desks and in the coffee mugs of those gov't employees. The guy in charge of helping the homeless on the street of a growing metropolis fears the idea of getting all the homeless off the street. When this is done, he will be the one who will be homeless looking for a job. When all the hungry children are feed. When crime has disappeared. When all the orphans have homes. When all the drugs are gone. Need I go on? When unemployed are now employed. When workers have their crazy demands met.

By making gov't run efficiently, people will lose their jobs and feelings will be hurt. People typically value their jobs and are working not so efficient to keep that job. Or they will just blow out of proportion reality and the severity of the problem.

The Doctrine of Preemption

Nothing's been posted in a while. You can figure out what this has to do with Law and Economics