Health Economics Program Meeting

April 19, 2013
Michael Grossman and Theodore Joyce of City University of New York's Graduate Center, Organizers

Yin-Chi Wang, Chinese University of Hong Kong, and Ping Wang, Washington University and NBER

Barrier to Health and Poverty Trap

Why have some poor countries been able to take off while others are still stuck in the poverty trap? Wang and Wang observe that with similar or higher levels of educational attainment, trapped countries tend to have poorer health conditions compared to the initially poor countries that later take off. Also, improving health conditions in poor countries usually involves large scale investment, where such resources can be easily mis-allocated. They construct a dynamic general equilibrium model with endogenous health and knowledge accumulation, allowing for health-related institutional barriers to affect individual incentives and equilibrium outcomes. They then calibrate the model to fit: 1) the U.S. economy (as a benchmark); 2) a representative trapped economy, based on the average economic performance and economic conditions of 41 countries that are still in the poverty trap; 3) a group of trapped economies with richer institutional data (Bangladesh, Kenya, and Nigeria); and 4) two initially poor countries that later took off (China and India). The results show that, although low among all countries in this study, the U.S. economy still has a health-related institutional barrier of around 15 percent. The trapped economies all have large barriers ranging from 50 to 73 percent under which the incentive to invest in health is severely reduced. For China and India, the magnitudes of the barriers are large (about twice as much as the United States but only half of trapped economies on average) but not enough to throttle the willingness to invest in health. This study thereby advances our understanding of the role played by barriers to health in poverty trap.

Resul Cesur, University of Connecticut; Erdal Tekin, Georgia State University and NBER; and Aydogan Ulker, Deakin University

Air Pollution and Infant Mortality: Evidence from the Expansion of Natural Gas Infrastructure (NBER Working Paper No. 18736)

One of the consequences of rapid economic growth and industrialization in the developing world has been deterioration in environmental conditions and air quality. While air pollution is a serious threat to health in most developing countries, environmental regulations are rare, and the determination to address the problem is weak because of ongoing pressure to sustain robust economic growth. Under these constraints, natural gas, as a clean, abundant, and highly-efficient source of energy, has emerged as an increasingly attractive source of fuel, which could address some of the environmental and health challenges faced by these countries without undermining their economies. Cesur, Tekin, and Ulker examine the impact of air pollution on infant mortality in Turkey, using variation across provinces and over time in the adoption of natural gas as a cleaner fuel. Their results indicate that the expansion of natural gas infrastructure has caused a significant decrease in the rate of infant mortality in Turkey. In particular, a one percentage point increase in the rate of subscriptions to natural gas services would cause the infant mortality rate to decline by about 4 percent, which could result in 383 infant lives saved in 2011 alone. These results are robust to a large number of specifications. Finally, they use supplemental data on total particulate matter and sulfur dioxide to produce direct estimates of the effects of these pollutants on infant mortality using natural gas expansion as an instrument. Their elasticity estimates from the instrumental variable analysis are 1.39 for particulate matter and 0.68 for sulfur dioxide.

Hans van Kippersluis, Erasmus University Rotterdam, and Titus Galama, University of Southern California

Why the Rich Drink More but Smoke Less: The Impact of Wealth on Health Behaviors

Wealthier individuals engage in healthier behavior. Kippersluis and Galama seek to explain this phenomenon by developing a theory of health behavior, and exploiting both lottery winnings and inheritances to test the theory. They distinguish between the direct monetary cost and the indirect health cost (value of health lost) of unhealthy consumption. The health cost increases with wealth and the degree of unhealthiness, leading wealthier individuals to consume more healthy and moderately unhealthy, but fewer severely unhealthy, goods. The empirical evidence suggests that differences in health costs may indeed provide an explanation for behavioral differences, and ultimately health outcomes, between wealth groups.

Andrea Chung, Carnegie Mellon University, and Martin Gaynor and Seth Richards-Shubik, Carnegie Mellon University and NBER

Subsidies and Structure: The Lasting Impact of the Hill-Burton Program on the Hospital Industry

Chung, Gaynor, and Richards-Shubik study the effect of public subsidies from the Hospital Survey and Construction Act of 1946, known as the Hill-Burton program, on the capacity and organization of the hospital industry, and the extent to which these subsidies crowded out for-profit hospitals. Using panel data at the county level, the authors estimate the program's impact on the number of hospital beds per capita, both in total and by ownership type. They find that the program generated substantial increases in capacity that were highly persistent, with growth continuing for over 15 years. However, there was substantial crowd-out of capacity at for-profit hospitals, which offset 30 percent of the growth in beds at nonprofit and public hospitals in the early years after counties received funding. The authors also estimate effects on the number of hospitals by ownership type, on utilization in terms of admissions per capita, and on expenditures in the Medicare program. Instrumental variables estimates of the effect on the number of beds support their main results.

John Romley, University of Southern California, and Neeraj Sood, University of Southern California and NBER

Identifying the Health Production Function: The Case of Hospitals

Estimates of the returns to medical care may reflect not only the efficacy of more intensive care, but also unmeasured differences in patient severity and the productivity of health-care providers across markets. Romley and Sood use several instruments that are plausibly orthogonal to heterogeneity among producers, as well as patients. They analyze area-level care intensity areas and 30-day survival among Medicare patients treated for heart attack, congestive heart failure, and pneumonia. They find that the intensity of care is endogenous for two out of three conditions analyzed, even when focusing on patients for whom unobserved-to-the-researcher heterogeneity in health status is plausibly limited (out-of-state patients admitted on an emergency basis.) Specifically, the elasticity of 30-day mortality with respect to care intensity increases in magnitude from -0.32 to -1.17 for pneumonia and from -0.20 to -0.58 for congestive heart failure, when instrumental variables are used. This finding is consistent with the hypotheses that care intensity at hospitals increases with patient severity, and/or decreases with hospital productivity.

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