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Politics give you Gas

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A recent working paper from the IMF- Political Price Cycles in Regulated Industries: Theory and Evidence. Here’s the conclusion;

“This paper presented a model of industry regulation where information asymmetries and the government-regulator’s interest in being re-elected may generate a political cycle in the regulated price. Quarterly data covering 32 countries during 1978–2004 provided strong evidence of the occurrence of a political cycle in gasoline prices.

Our model characterizes the behavior of the government-regulator as an attempt to maximize an objective function comprised of the social welfare in the regulated market and the government’s chance of being reelected. The social welfare function follows a stochastic process in which the weights attributed to consumers’ utility and firms’ profits are determined by a shock at the beginning of an election period. This shock may reflect changing political alliances or economic conditions exogenous to the regulated market. Because this shock is not immediately observable to consumer-voters, the incumbent government-regulator may have incentives to set a price below the welfare-maximizing price to signal its pro-consumer nature and thus attract more votes in the upcoming election. In fact, our model derives equilibrium regulation strategies in which some types of government-regulator will lower the regulated price in an election period, thus generating a political price cycle in the regulated industry.


Could bad weather be responsible for U.S. corruption?

Asks Peter T. Leeson and Russell S. Sobel in the following paper; Weathering Corruption

Abstract; Could bad weather be responsible for U.S. corruption? Natural disasters create resource windfalls in the states they strike by triggering federally-provided natural disaster relief. Like windfalls created by the .natural resource curse.and foreign aid, disaster relief windfalls may also increase corruption. We investigate this hypothesis by exploring the effect of FEMA-provided disaster relief on public corruption. The results support our hypothesis. Each additional $1 per capita in average annual FEMA relief increases corruption nearly 2.5 percent in the average state. Eliminating FEMA disaster relief would reduce corruption more than 20 percent in the average state. Our findings suggest that notoriously corrupt regions of the United States, such as the Gulf Coast, are notoriously corrupt because natural disasters frequently strike them. They attract more disaster relief making them more corrupt.

Related;

Disaster Relief: Type I & Type II Errors

May be report cards like this could help.

The U.S. Retail Sector Since the Mid-1970's

much of the information needed to understand the competitive dynamics of local retail markets simply does not exist in a form usable by researchers.

That's from Ronald S. Jarmin, Shawn D. Klimek, and Javier Miranda of the U.S. Bureau of the Census, who in "The Role of Retail Chains: National, Regional, and Industry Results", use the Longitudinal Business Database -- individual retail location level data -- to assess the composition and structure of the retail industry since 1976. They're talking about the lack of product and price information, but note that the LBD does contain establishment payroll and employment, though not revenues or profits. Still, the data they analyze yield interesting conclusions:

Thus, we see that large metropolitan retail markets are characterized by fewer competitors per capita than rural and micropolitan county markets, but that competition in metropolitan markets is marked by higher firm turnover, and that this higher turnover is more pronounced among chain store retailers.

[Emphasis added]


Even more interesting is a presentation they gave in 2004 summarizing the paper. I liked slide 19 -- "Absolute Drop in Number of “Local” Stores" -- best. It notes that "The absolute number of single unit (SU) establishments has gone down. Between 1976 and 2000 the number of SUs has dropped by 2.53%." However, "Marked differences [exist] across CBSAs. Metro areas increased by 1.62% but Micropolitan and Rural areas experienced a drop of 12.40% and 17.65% respectively."

100% Employer Paid Health Insurance

Here's an interesting Discussion Paper from the Census' Center for Economic Studies: Contributions to Health Insurance Premiums: When Does the Employer Pay 100 Percent? by Alice Zawacki and Amy Taylor. The abstract:

We identify the characteristics of establishments that paid 100 percent of health insurance premiums and the policies they offered from 1997-2001, despite increased premium costs. Analyzing data from the MEPS-IC, we see little change in the percent of establishments that paid the full cost of premiums for employees. Most of these establishments were young, small, singleunits, with a relatively high paid workforce. Plans that were fully paid generally required referrals to see specialists, did not cover pre-existing conditions or outpatient prescriptions, and had the highest out-of-pocket expense limits. These plans also were more likely than plans not fully paid by employers to have had a fee-for-service or exclusive provider arrangement, had the highest premiums, and were less likely to be self-insured. [Emphasis added]

The dataset provides information on establishments and on the health insurance plans offered by each "The MEPS – IC collects data on premiums for single and family coverage, contributions by employers and employees, provider type, plan enrollment, deductibles, and copayments."

In essence, firms that contribute 100% of premia are more likely to offer higher-priced plans, but these same plans offer some contraints -- more need for referrals, higher out-of-pocket expenses, lower coverage of pre-existing conditions, and lower coverage of outpatient prescriptions. (Granted, the absolute differences don't seem all that large, even where they are statistically significant).

Which leads me to ask, what's going on here? For firms that pay 100%, higher premia appear to be buying plans with -- on average -- slightly smaller benefits. The authors note this is partly due to firm size -- smaller firms are more likely to cover 100% than larger firms. So there might be some scale effects on costs.

But the analysis also notes that 100% employer paid plans have FAR lower self-insured indemnification -- 13% of plans instead of 29% -- meaning that liability for excess medical costs is shifted from employer to health insurer far more frequently when employers are paying 100% of the premium than otherwise. In other words, employers paying 100% less frequently need to buy stop-loss insurance, and more frequently shift the risk of excess coverage to insurance companies within the health insurance contract. I'd say that's what they're paying the extra dough for, but that's just a hunch.

Interesting stuff.

(Alternate copy of the paper here).

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