www.antolin-davies.com The purpose of this simulation is to create a competitive market and to observe the market as it achieves equilibrium. In this experiment, you will experience real market forces. The same human traits and behaviors that govern real markets exist in the simulation. What are artificial are your surroundings. The market forces are real. 1
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The purpose of this simulation is to create a competitive market and to observe the market as it achieves equilibrium.
The purpose of this simulation is to create a competitive market and to observe the market as it achieves equilibrium. In this experiment, you will experience real market forces. The same human traits and behaviors that govern real markets exist in the simulation. - PowerPoint PPT Presentation
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www.antolin-davies.com
The purpose of this simulation is to create a competitive market and to observe the market as it achieves equilibrium.
In this experiment, you will experience real market forces. The same human traits and behaviors that govern real markets exist in the simulation.
What are artificial are your surroundings. The market forces are real.
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The Players and the Goals
In this experiment, there are CONSUMERS and INSURERS.
INSURERS sell INSURANCE.
CONSUMERS buy FOOD and INSURANCE.
2
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Consumers
Each consumer has $20 to spend.
A unit of food costs $1.
3
$20
The more food the consumer eats, the happier the consumer becomes.
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Consumers: The Catch
Each consumer faces some risk of badness.
4
vs.
If badness befalls the consumer, the consumer loses all of the purchased food.
If badness does befall the consumer, the 15 units of food disappear, each insurance contract pays $1. The consumer automatically buys food and the consumer is somewhat happy.
Concerned that some consumers do not have enough insurance coverage, the law stipulates that an insurer may not sell fewer than 50 contracts to a buyer unless the buyer has already purchased at least 50 contracts (from any insurer) this round.
Source: Bureau of Labor Statistics (www.economy.com)
-800%
-600%
-400%
-200%
0%
200%
400%
600%
Colle
ge Tu
ition
Med
ical
Car
e
Hous
ing
Food
Gaso
line
New
Car
s
1 GH
z of
Com
putin
g Po
wer
Grow
th in
Pric
es, 1
980-
2006
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$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Federal Outlays per Person Price of Medical Care
Source: Bureau of Labor Statistics and Bureau of Economic Analysis (www.economy.com).
Price Indices (1954=400)
From 1954 to 2009, the cost of the Federal government (on a per person basis) rose 2800%.
Over the same period, the cost of medical care rose only 2000%.
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But, the cost of health care is only half of the picture.
What has been happening to the quality of health care?
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How do we measure the quality of health care?
1. What is “quality?”
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2. How do we account for health care that has become routine but didn’t exist in the past (e.g., pre-natal care)?
3. How do we weigh qualities across different types of care (e.g., glasses vs. heart transplant)?
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How does one measure the quality of health care?
An easy and composite measure of the effectiveness of health care is the mortality rate.
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Some health care may have little or no impact on the mortality rate (e.g., orthodonture).
But, it is not unreasonable to assume that the qualities of other types of health care grow at similar rates.
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0.0
5.0
10.0
15.0
20.0
25.0
30.0
1960
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Infant Mortality per 1,000 Live Births
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Source: Statistical Abstract of the United States, 2008, Table 77.
From 1960 to 2006, infant mortality fell 70%.
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Source: Statistical Abstract of the United States, 2008, Table 110.
0.0
10.0
20.0
30.0
40.0
50.0
60.0
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
Deaths by Influence and Pneumonia (per 100,000 population)Deaths by Influenza and Pneumonia (per 100,000 population)
From 1960 to 2004, deaths due to influenza and pneumonia fell 60%.
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7.5
8.0
8.5
9.0
9.5
10.0
1960
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Deaths per 1,000 People
Source: Statistical Abstract of the United States, 2008, Table 77.
From 1960 to 2006, the mortality rate fell by 15%.
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1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
1960
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Mill
ions
Actual Deaths in the Current Year Deaths at the 1960 Mortality Rate
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Source: Derived from Statistical Abstract of the United States, and the Bureau of Economic Analysis.
What does increased cost of health care buy us?
400,000 lives saved annually
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But, what about the uninsured?
They aren’t sharing in this increased quality of health care.
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0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
70
Source: Income, Poverty, and Health Insurance Coverage in the U.S.: 2006, US Census Bureau.
The percentage of the population that is uninsured has remained stable over time.
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Source: Bureau of Labor Statistics, Census Bureau
Insured
Uninsured (15% of the population)
How many Americans are uninsured?
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Insured
Claim to be Uninsured but
Aren't
Medicaid or SCHIP Eligible
Uninsured
72
Source: Bureau of Labor Statistics, Census Bureau
(12% of the population)
How many Americans are uninsured?
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Insured
Claim to be Uninsured but
Aren't
Medicaid or SCHIP Eligible
Uninsured Less Than 4 Months
18 to 34 and Childless
Uninsured
73
Source: Bureau of Labor Statistics, Census Bureau
(4% of the population)
How many Americans are uninsured?
If we count one-third of this group, the uninsured are between 6% and 8% of the population depending on whether or not we count this group.
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0%
5%
10%
15%
20%
25%
30%
Under 18 18 to 24 25 to 34 45 to 44 45 to 54 55 to 64
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Source: Income, Poverty, and Health Insurance Coverage in the U.S.: 2006, US Census Bureau.
The percentage of uninsured adults is highest among in the years of peak health.
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-2%
-1%
0%
1%
2%
3%
4%
5%
6%
Under 18 18 to 24 25 to 34 35 to 44 45 to 54 55 to 64
Change in % of Uninsured 1999 to 2006
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Source: Income, Poverty, and Health Insurance Coverage in the U.S.: 2006, US Census Bureau.
The growth in the uninsured is commensurate with the hypothesis that, as the price of health care rises, the more healthy willingly choose not to be insured.
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A free choice to purchase is a vote, but with three important differences.
Political vote: One size fits all.Free market vote: Multiple sizes for multiple
recipients.
Political vote: Speed of change is driven by the election cycle.Free market vote: Speed of change is driven
by the accounting cycle.
Political vote: Signal is distorted because the vote is for a “bundle” of issues embodied by one candidate.
Free market vote: Signal is clear because the vote is for a specific issue. 76
Voting for the “right” amount of insurance
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Can one place a value on a human life?(and, if yes, is it wrong to do so?)
Yes, it is possible.No, it is not wrong to do so.
Almost everyone does it almost every day.
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ExampleInstalling and requiring children to use seatbelts on school buses will reduce the number of child travel deaths. But, it will cost (on average) $2.5 million for every child’s life we save.
Should we install seatbelts on school buses?
The naïve response is: “Yes! You can’t put a value on a child’s life.”
The correct response is: “What do we give up by spending money on seatbelts?”
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Spend $2.5 million on: # Lives Saved Annually
Seatbelts on school buses 1Airbags in cars 3Heart transplants 13Malaria prevention 975Midwife training in third world 310,000HIV tests for sex workers 715,000