David J. Balan

A Retrospective Analysis of the Clinical Quality Effects of the Acquisition of Highland Park Hospital by Evanston Northwestern Healthcare

Abstract In 2004, the Federal Trade Commission brought a legal action retrospectively challenging the 2000 acquisition of Highland Park Hospital by Evanston Northwestern Healthcare in Evanston, Illinois. A major issue in that case was whether the merger had resulted in improved clinical quality at Highland Park. In this paper, we describe the conceptual framework that guided our analysis of that issue and we report our findings. Specifically, we examine numerous quantitative measures of clinical quality. We find little evidence that the merger improved quality. We also discuss the applicability of our framework to the prospective analysis of unconsummated hospital mergers.

Ideological Persuasion in the Media

Media outlet owners can modify their outlets content so as to persuade audiences to adopt positions consistent with their preferred ideologies. In this paper, we assume that outlet owners value such persuasion, and therefore will engage in it at the cost of some reduction in profits. We compare the level and diversity of persuasion that occur under two regimes: one in which common ownership of media outlets is prohibited and the other in which it is permitted. We show that mergers between outlets whose owners have identical ideologies increase the level of persuasion, and mergers between outlets whose owners have different ideologies can increase or decrease the level of persuasion. We also show that unrestricted market competition does not necessarily generate diversity, that prohibiting monopoly control over the media does not guarantee diversity, and that, while rules prohibiting monopolization can sometimes promote diversity, in some circumstances these rules can also reduce diversity. This can occur because potential owners care about who will acquire an outlet if they do not.

Have Lazear-Style Implicit Contracts Disappeared?

A well-known theory (Lazear, 1979) argues that wage patterns in which younger workers are underpaid relative to marginal revenue product and older workers are overpaid relative to marginal revenue product can be understood as an implicit contract designed to combat principal-agent problems in environments where worker monitoring is costly. In this paper I argue that a number of recent developments (most notably the legal ban on mandatory retirement) have caused the formation of these implicit contracts between firms and young workers to decline (or cease). I derive testable implications of this hypothesis and test it using a Panel Study of Income Dynamics sample of prime-age, full-time, private sector, non-union male workers who are not self-employed. This is the group that, according to Lazears theory, is most likely to be party to these implicit contracts. The results are consistent with the hypothesis. In order to explore the question of whether the results from the main sample have some cause other than the hypothesized one, I perform the following exercise: I identify other groups in the data (both sub-groups of the main (male) sample and a separate female sample); determine what the hypothesis predicts for those groups; and then perform tests similar to those performed on the main sample to see how well the hypothesis holds up. The results from the male sub-groups do not support the hypothesis, but do not strongly refute it. This lack of support may indicate that the hypothesis is false, but it also may be due to the crudeness of the method for assigning workers to the different sub-groups. The results from the female sample support the hypothesis, but the strength of this support depends on the regression specification used.

Improved Products at Same Cost, Lower Sales and Lower Welfare

We analyze the effect of product quality on the output of a high-quality dominant firm facing a low-quality competitive fringe. We show that profit maximizing output decreases with product quality when the dominant firms marginal cost is lower than that of the fringe, is independent of quality when marginal cost is the same for all firms, and is increasing in quality when the dominant firms costs are higher than those of the fringe. The driving force behind this result is that an increase in product quality does not cause a parallel shift in the dominant firms residual demand, but rather causes it to pivot. This, in turn, causes the dominant firms marginal revenue curve to rotate, rather than shift outwards, resulting in inwards movement around the equilibrium output when the dominant firms marginal cost is lower than the fringes. Equally strikingly, higher quality at the same marginal cost may result in all consumers being weakly worse off, with some being strictly worse off. Similar results can be obtained without a competitive fringe, but only under some more restrictive conditions.

I'm Mad as Hell and I'm Not Going to Take this Anymore: On Indignation and Health Care

This paper begins with the assumption that patients become indignant when they are denied care at their preferred provider -- even if the denial is justified under the patients insurance policy -- and consequently take actions that impose costs upon their insurers or employers. I develop a simple model to explore the effects of such patient indignation on provider prices and profits, as well as on the number of uninsured and total social welfare.

Mistreating Workers isn't Always Efficient

In this paper we develop a simple model in which some employees are thieves and will steal from their employers if given the opportunity. Firms can counter this threat through practices such as locking employees inside their factories or requiring them to submit to searches. We show that the number of locked firms will be (weakly) greater than the number that would be chosen by a social planner. The reason is that in contrast to the social planner, an individual honest worker (i.e., a non-thief), when deciding whether to switch from a locked to an unlocked firm, does not take account of the fact that an additional honest worker in an unlocked firm raises the unlocked firm wage for everyone else. We also show that, under certain conditions, a ban on locked factories can increase total welfare, and under other (more stringent) conditions can increase the total welfare of honest workers.

Sometimes it's Better to Just Let them Shirk

In their famous 1984 paper, Shapiro & Stiglitz developed what has become the canonical efficiency wage model. In their model, all workers are paid an efficiency wage, and no one shirks. Their model is based on the assumption that shirking workers are completely unproductive. In this paper, I relax that assumption, and treat the effective labor provided by shirkers as a parameter that can range from zero (shirkers produce no effective labor) to one (shirkers and non-shirkers are equally productive). I show that when shirking workers are sufficiently unproductive the Shapiro & Stiglitz equilibrium applies, but when they are sufficiently productive everyone shirks in equilibrium. For intermediate levels of shirker productivity, some workers shirk in equilibrium, and some do not. I also perform comparative statics exercises where I show how changes in labor demand and changes in the relative productivity of shirkers affect employment, wages, and output. These exercises may have implications for the cyclicality of wages, and for the effects of technological progress.

On Morality and Economic Performance

Morality exerts an important influence on the behavior of economic actors, and behavior largely determines economic performance. Yet morality has received remarkably little attention from economists. In this paper, I explicitly incorporate morality into a simple static general equilibrium model in which people choose between productive and rent-seeking activities. Specifically, I explore the effect of changes in the joint distribution of ability and morality on performance. The model yields the following comparative statics results: (i) performance improves when more people are highly moral, and this effect is greater when the increase in the number of highly moral people is concentrated among those who are highly able; and (ii) performance may increase or decrease when more people are highly able, but performance increases by more (or decreases by less) when the increase in the number of highly able people is concentrated among those who are highly moral. These results have applications to the question of why some countries are rich and others are poor, and also to the issue of school vouchers. The paper concludes with a discussion of ways in which the framework could be extended in future research.