Canadian policy

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Suppose your health insurance becomes more generous, decreasing the proportion of the cost of care for which you are responsible. At the same time, your premium goes up to cover the extra costs faced by your insurer. In standard theory you are better off because you face less financial uncertainty, but you will also tend to consume too much health care because the price you pay is lower than the cost of your treatment. Standard theory suggests that insurance should be designed to optimally trade-off these benefits and costs. But standard theory assumes rationality: suppose instead people systematically make errors when choosing how much health care to consume. Does it make a difference to how we think about health insurance?

In a recently released NBER working paper, “Behavioral hazard in health insurance,” Katherine Baicker, Sendhil Mullainathan, and Joshua Schwartzstein consider behavioral biases that lead people to (specifically, and with loss of generality) underutilize health care. How should we think about designing health insurance in the presence of such biases?

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Yesterday Federal Agricultural Minister Gerry Ritz uttered insane lies about dairy supply management:

I would make the argument that I don’t see those inflated prices, certainly, depending on where you buy,” Ritz told a joint news conference with Alberta Agriculture Minister Evan Berger and Saskatchewan Agriculture Minister Bob Bjornerud.

I received a flyer in my mailbox last night when I got back to my apartment and I opened it up and it’s from Canadian Tire. They’ve got four litres of milk for $4.19. That’s completely comparable to the American price that we’re always being beat up over.

Canadian Tire Econometrics aside, consumers are of course harmed by high prices driven by quantity restrictions. Click here to see a graph showing how much higher our prices are than the EU, US, or New Zealand (all of which all of which except New Zealand [*] also have some sort of supply management, Canada’s is just more severe).
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Bill C-10, the Conservative Party’s controversial, to put it mildly, crime bill, requires the government to use evidence when making policy decisions. Sadly, though, this evaluation of evidence is to take place five years after the policy is put in place, placing the cart before the horse:

9. (1) Within five years after this section comes into force, a comprehensive review of the provisions and operation of this Act, including a cost-benefit analysis of mandatory minimum sentences, shall be undertaken by any committee of the Senate, of the House of Commons or of both Houses of Parliament that may be designated or established for that purpose.

When asked to cite studies supporting C-10, Minister of Justice Rob Nicholson responded that provisions in the bill are based on “personal observations.”

Canadians should demand a government which bases policy on evidence, not anecdotes and hysteria.

(The full text of the Bill can be found here.)

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Local linear sharp RD estimate: -0.12%, z=-0.05.

Filed under: Exercises in rigorous, pointless causal analyis.

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Stephen Gordon laments British Columbians’ failure to ratify the HST, which will reduce our standard of living in B.C. for many years.The case in favour of the HST was overwhelming and no expert opposed the HST in public. Which people voted against their own best interests?

The Globe and Mail’s Chris Hannay presents some graphs showing proportion voting for the HST against certain demographic characteristics at the electoral district level. Districts with higher incomes tended to vote to keep the HST:


and a similar pattern holds for education: unconditionally, districts with more educated people were more likely to vote to keep the HST. Hannay implies that these effects are really the same effect: more educated people also tend to earn more, so the education—vote correlation is just another way of seeing that higher income people voted in their class interest.

An alternate explanation draws on my post from a couple of days ago on education and beliefs that economists understand the effects of taxation on the economy: uneducated people tend to place low weight on expert analysis, certainly including economic analysis. The direct impact of the HST on prices was easy for everyone to observe—they’re printed on cash register receipts. But the indirect effects, the effects on changes in embedded prices, were hard to observe. The HST was not in place long enough to observe effects on investment and growth. One had to yield to expert opinion to draw the correct conclusion that the HST is good policy.

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Copyright © 2014 M. Christopher Auld