Thursday, January 24, 2013

The RAND Health Insurance Experiment

The RAND Health Experiment, carried out between 1974 and 1981, randomly assigned more than 2,000 families to different health insurance plans. These plans differed between free care and almost no co-payment. The project pioneered the way for field experiments in economics and Aviva Aron-Dine, Liran Einav, and Amy Finkelstein present a detailed summary and re-examination of the findings in a new NBER working paper, "The RAND Health Insurance Experiment, Three Decades Later":
This landmark and pioneering study was uniquely ambitious, remarkably sophisticated for its time, and entrepreneurial in the design and implementation of the then-new science of randomized experiments in the social sciences.

The importance of the findings from this large field-experiment cannot be overstated:
one of the central contributions of the RAND experiment is robust: the rejection of the null hypothesis that health spending does not respond to the out-of-pocket price
In other words, people react to costs, even when they consider their own health. (Remember, this was an almost revolutionary finding some 30 years ago!)

To quote the working paper once more, "it seems useful to remind a younger generation of economics of the details, and limitations, of the original work." Do read this.

Tuesday, January 15, 2013

Corrupt politicians

Yesterday, an Austrian court sentenced former Minister of Interior and MEP Ernst Strasser to four years in jail after being convicted of bribe-taking.

Recent economic research shows that corrupt politicians decrease overall welfare. In an analysis of 460 estimates of corruption on economic growth, Campos, Dimova, and Saleh find "negative and significant effects of corruption on growth [...] which seem to be stronger in academic than in nonacademic studies." (p15)

These effects may hit the poorest in society stronger. Using Indian data, Matthieu Chemin estimates that the election of a convicted criminal leads to an about 19 percent drop in consumption of the poorest in that area. (An older, ungated version is here.) Criminal politicians are perhaps more common in India than in Austria, Chemin quotes the Election Commission of India which states that 1,500 of nearly 14,000 candidates in the 1996 parliamentary election had criminal records.