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on Network Economics |
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Issue of 2017‒09‒10
three papers chosen by Pedro CL Souza Pontifícia Universidade Católica do Rio de Janeiro |
| By: | Kate Ho (Columbia University); Robin Lee (Harvard University Department of Economics) |
| Abstract: | Why do insurers choose to exclude medical providers, and when would this be socially desirable? We examine network design from the perspective of a profit-maximizing insurer and a social planner to evaluate the welfare effects of narrow networks and restrictions on their use. An insurer may engage in exclusion to steer patients to less expensive providers, cream-skim enrollees, and negotiate lower reimbursement rates. Private incentives for exclusion may diverge from social incentives: in addition to the standard quality distortion arising from market power, there is a “pecuniary” distortion introduced when insurers commit to restricted networks in order to negotiate lower rates. We introduce a new bargaining solution concept for bilateral oligopoly, Nash-in-Nash with Threat of Replacement, that captures such bargaining incentives and rationalizes observed levels of exclusion. Pairing our framework with hospital and insurance demand estimates from Ho and Lee (2017), we compare social, consumer, and insurer-optimal hospital networks for the largest non-integrated HMO carrier in California across several geographic markets. We find that both an insurer and consumers prefer narrower networks than the social planner in most markets. The insurer benefits from lower negotiated reimbursement rates (up to 30% in some markets), and consumers benefit when savings are passed along in the form of lower premiums. A social planner may prefer a broader network if it encourages the utilization of more efficient insurers or providers. We predict that, on average, network regulation prohibiting exclusion has no significant effect on social surplus but increases hospital prices and premiums and lowers consumer surplus. However, there are distributional effects, and regulation may prevent harm to consumers living close to excluded hospitals. |
| Keywords: | health insurance, narrow networks, selective contracting, hospital prices, bargaining, bilateral oligopoly |
| JEL: | C78 I11 L13 |
| Date: | 2017–09 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2017-067&r=net |
| By: | Benjamin Bernard; Agostino Capponi; Joseph E. Stiglitz |
| Abstract: | This paper develops a framework to analyze the consequences of alternative designs for interbank networks, in which a failure of one bank may lead to others. Earlier work had suggested that, provided shocks were not too large (or too correlated), denser networks were preferred to more sparsely connected networks because they were better able to absorb shocks. With large shocks, especially when systems are non-conservative, the likelihood of costly bankruptcy cascades increases with dense networks. Governments, worried about the cost of bailouts, have proposed bail-ins, where banks contribute. We analyze the conditions under which governments can credibly implement a bail-in strategy, showing that this depends on the network structure as well. With bail-ins, government intervention becomes desirable even for relatively small shocks, but the critical shock size above which sparser networks perform better is decreased; with sparser networks, a bail-in strategy is more credible. |
| JEL: | D85 E44 G21 G28 L14 |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23747&r=net |
| By: | FUJII Daisuke; SAITO Yukiko; SENGA Tatsuro |
| Abstract: | Recent empirical evidence has revealed that firm age is one of the key determinants for firm growth, while other literature points out the importance of customer-supplier networks for firm growth. This paper investigates how the inter-firm transaction network evolves over the firm lifecycle and its relationship with firm growth using large-scale firm network data in Japan. Old firms are large in size and well connected compared to young firms. In particular, older firms are connected to other older firms exhibiting positive assortativity of age. Younger firms tend to add and drop links more frequently, and the stability of a transaction link increases with its duration of active relationships, implying gradual learning of link-specific productivity over time. Moreover, firm's sales growth is positively related with the expansion of transaction partners in various measures, conditional on firm age. This suggests that the observed relationship between firm age and firm growth may be due to the lifecycle pattern of building inter-firm networks. |
| Date: | 2017–08 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:17110&r=net |