Kurt Lavetti

Buying Loyalty: Theory and Evidence from Physicians

Skilled-services firms often lack full control over their key assets -- the relationships between their workers and clients. This problem can lead to investment holdups that distort labor market equilibria. We study how non-compete agreements (NCAs), which prohibit a worker from leaving a firm and then competing against it, can overcome this control problem. We show theoretically that NCAs reduce investment holdups and increase productive efficiency. These direct effects lead to higher worker earnings, larger returns to tenure, and longer job spells. However, NCAs also reduce the ex post bargaining power of workers, which can alter the structure of contracts. Using new survey data from physicians, we find that physicians with NCAs have contracts with output incentives that are more than twice as strong, they are over 40% more productive, earn 14% higher wages, and have within-job earnings growth that is 21 percentage points higher, despite being of the same average quality as physicians without NCAs. Decomposing earnings growth, we find that NCAs increase returns to both tenure and experience, suggesting that they promote general as well as firm-specific human capital investment. All of the effects increase in magnitude with the enforceability of state NCA laws.

The Estimation of Compensating Wage Differentials: Lessons From the Deadliest Catch

ABSTRACT I use longitudinal survey data from commercial fishing deckhands in the Alaskan Bering Sea to provide new insights on empirical methods commonly used to estimate compensating wage differentials and the value of statistical life (VSL). The unique setting exploits intertemporal variation in fatality rates and wages within worker-vessel pairs caused by a combination of weather patterns and policy changes, allowing identification of parameters and biases that it has only been possible to speculate about in more general settings. I show that estimation strategies common in the literature produce biased estimates in this setting, and decompose the bias components due to latent worker, establishment, and job-match heterogeneity. The estimates also remove the confounding effects of endogenous job mobility and dynamic labor market search, narrowing a conceptual gap between search-based hedonic wage theory and its empirical applications. I find that workers’ marginal aversion to fatal risk falls as risk levels rise, which suggests complementarities in the benefits of public safety policies. Supplementary materials for this article are available online.

Does Part D abet advantageous selection in Medicare Advantage

The use of risk-adjustment formulae in setting payments to Medicare Advantage (MA) plans reduces the potential for advantageous selection on factors included in the formulae, but can theoretically worsen overall selection if plans are able to target beneficiaries based on excluded factors. Since MA medical risk-adjustment excludes prescription drug utilization, demand for drugs can be exploited by plans to induce advantageous selection. We show evidence that the introduction of Medicare Part D provided a mechanism for MA plans to increase selection, and that consumers responded, increasing MA market shares among beneficiaries taking drugs associated with the strongest advantageous selection incentives. For the average Medicare beneficiary in our sample, we estimate that this change in advantageous selection following the introduction of Medicare Part D increased the probability of enrolling in an MA plan by about 7.1%.