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Showing papers by "Gary S. Becker published in 2007"


Posted Content
TL;DR: In this paper, the authors developed a theory of demand for insurance that emphasizes the interaction between market insurance, self-insurance, and self-protection, and analyzed the effects of changes in prices, income, and other variables on the demand for these alternative forms of insurance.
Abstract: The article develops a theory of demand for insurance that emphasizes the interaction between market insurance, self-insurance, and self- rotection. The effects of changes in prices, income, and other variables on the demand for these alternative forms of insurance are analyzed using the state preference approach to behavior under uncertainty. Market insurance and self-insurance are shown to be substitutes, but market insurance and self-protection can be complements. The analysis challenges the notion that moral hazard is an inevitable consequence of market insurance, by showing that under certain conditions the latter may lead to a reduction in the probabilities of hazardous events.

1,370 citations


Journal ArticleDOI
TL;DR: In this paper, the authors model happiness as a measurement tool used to rank alternative actions and draw a parallel with a problem of optimal incentives, which allows them to apply statistical insights from agency theory to the study of happiness.
Abstract: We model happiness as a measurement tool used to rank alternative actions. Evolution favors a happiness function that measures the individual’s success in relative terms. The optimal function is based on a time‐varying reference point—or performance benchmark—that is updated over time in a statistically optimal way in order to match the individual’s potential. Habits and peer comparisons arise as special cases of such an updating process. This updating also results in a volatile level of happiness that continuously reverts to its long‐term mean. Throughout, we draw a parallel with a problem of optimal incentives, which allows us to apply statistical insights from agency theory to the study of happiness.

378 citations


Journal ArticleDOI
TL;DR: It is shown that monetary incentives would increase the supply of organs for transplant sufficiently to eliminate the very large queues in organ markets, and the suffering and deaths of many of those waiting, without increasing the total cost of transplant surgery by more than about 12 percent.
Abstract: We evaluate the introduction of monetary incentives in the market for live and cadaveric organ donations. We show that monetary incentives would increase the supply of organs for transplant sufficiently to eliminate the very large queues in organ markets, and the suffering and deaths of many of those waiting, without increasing the total cost of transplant surgery by more than about 12 percent. We build on the value-of-life literature and other parts of economic analysis to estimate the equilibrium cost of live transplants for kidneys and livers. We also show that market price for kidneys will be determined by the cost of live donations, even though most organs will come from cadavers.

310 citations


Journal ArticleDOI
01 Jul 2007
TL;DR: Health as human capital as discussed by the authors is an emerging field of human capital research, which focuses on the optimal investments in health by individuals, drug companies, and to a lesser extent by governments that follows on Grossman's analysis.
Abstract: The first major collection of articles on human capital (Schultz, 1962) contained discussions of education, on the job training, migration, and health. While literally thousands of articles and books followed on human capital dimensions of education and training, there have been many fewer discussions of health as human capital. This is partly because the contribution on health in this volume is not particularly insightful, but it is also because the concept of health as human capital relies on somewhat different concepts than does education or training. A major step forward occurred with Grossman’s work (Grossman, 1972) that modeled optimal investment in increasing longevity. This article stimulated a large literature, but nevertheless, articles on health as human capital have been only a small fraction of those on education and training. In fact, most of the economics literature on health discusses ways to improve the delivery of health care services, such as HMO’s or health savings accounts. Health care delivery is an important topic that interacts with considerations of health as human capital, but it is mainly a different topic. The emerging field of health as human capital builds on three interrelated developments to create a dynamic and evolving field. These developments are (i) The analysis of optimal investments in health by individuals, drug companies, and to a lesser extent by governments that follows on Grossman’s analysis, and also on the discussions in the insurance literature of self protection (see Ehrlich and Becker, 1972; and Ehrlich, 2000), and the literature on investments by pharmaceuticals. (ii) The value of life literature that analyzes how much people are willing to pay for improvements in their probabilities of surviving different ages (see, especially, Usher 1973; Rosen, 1988; and Murphy and Topel, 2006). (iii) The importance of complementarities in linking health to education and other types of human capital investments, and in linking investments in health to discount rates, to progress

306 citations


Journal ArticleDOI
TL;DR: The connection between income and happiness is by no means trivial, however as discussed by the authors argues that beyond subsistence level, the positive effect of a permanent change in income tends to be short lived, and the satisfaction derived from a given level of income is sharply dependent on how it compares to the income of peers.
Abstract: The principal motivating factor in our lives is the pursuit of happiness. In most cultures, when seeking this end, individuals place a high priority on income, and spend much of their waking time procuring this intermediate goal. The connection between income and happiness is by no means trivial, however. Two critical factors come into play. First, beyond subsistence level, the positive effect of a permanent change in income tends to be short lived. We rapidly become accustomed to a more expensive lifestyle. A common name for this feature is habit formation. Second, the satisfaction derived from a given level of income is sharply dependent on how it compares to the income of peers. See, for example, Andrew B. Abel (1990), Becker (1996), and William A. Brock and Steven N. Durlauf (2001) for a demonstration of the influence of habits and peer comparisons over behavior, and see Shane Frederick and George Loewenstein (1999) for a review of the underlying psychology. Habits and peer comparisons mean that an individual is not concerned mainly with her absolute level of income, but rather with the difference between her income and a benchmark that changes over time. In recent years, economists have become increasingly interested in this fact. This interest has been both applied (i.e., the study of habits and peer influences over behavior and the analysis of happiness surveys) and theoretical (i.e., a search for biological foundations). But unlike other more developed areas of economics, these two approaches remain fairly separate from each other. In particular, the existing theoretical work is motivated only by the most basic empirical observations. And the existing applied work, for the most part, has not been influenced by theoretical results. In this essay, we seek to reduce the distance between these two literature strands. In particuHabits, Peers, and Happiness: An Evolutionary Perspective

83 citations


ReportDOI
TL;DR: In this article, the authors provide the first rational and systematic analysis of the incentives behind end-of-life care, and calibrate the ex-post value of hope associated with treatments for HIV patients to be as much as five times higher than standard estimates of treatment value.
Abstract: Medical care at the end of life, estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit and systematic analysis exists on the incentives that determine end of life health care spending. There exists no positive theory that attempts to explain the high degree of end-of life spending and why differences across individuals, populations, or time occur in such spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing theoretical and empirical analysis of the value of life do not apply, and often under-values, the value of life near its end and terminal care. We argue that several factors drive up the value of life near its end including the low opportunity cost of medical spending near ones death, the value of hope including living into new innovations, and potential positive effect of on the value of life from being frail. We calibrate the ex-post value of hope associated with treatments for HIV patients to be as much as five times as high as standard estimates of treatment value.

34 citations


Posted Content
TL;DR: In this article, the authors provide the first rational and systematic analysis of the incentives behind end-of-life care, and stress the low opportunity cost of medical spending near ones death, the importance of keeping hope alive in a terminal care setting, the larger social value of a life than estimated in private demand settings, as well as the insignificance in quality of life in lowering its value.
Abstract: Medical care at the end of life, which is often is estimated to contribute up to a quarter of US health care spending, often encounters skepticism from payers and policy makers who question its high cost and often minimal health benefits. It seems generally agreed upon that medical resources are being wasted on excessive care for end-of-life treatments that often only prolong minimally an already frail life. However, though many observers have claimed that such spending is often irrational and wasteful, little explicit and systematic analysis exists on the incentives that determine end of life health care spending. There exists no positive theory that attempts to explain the high degree of end-of life spending and why differences across individuals, populations, or time occur in such spending. This paper attempts to provide the first rational and systematic analysis of the incentives behind end of life care. The main argument we make is that existing estimates of the value of a life year do not apply to the valuation of life at the end of life. We stress the low opportunity cost of medical spending near ones death, the importance of keeping hope alive in a terminal care setting, the larger social value of a life than estimated in private demand settings, as well as the insignificance in quality of life in lowering its value. We derive how an ex-ante perspective in terms of insurance and R&D alters some of these conclusions.

17 citations


Posted Content
TL;DR: In this paper, the authors model happiness as a measurement tool used to rank alternative actions and draw a parallel with a problem of optimal incentives, which allows them to apply statistical insights from agency theory to the study of happiness.
Abstract: We model happiness as a measurement tool used to rank alternative actions. Evolution favors a happiness function that measures the individual's success in relative terms. The optimal function is based on a time-varying reference point - or performance benchmark - that is updated over time in a statistically optimal way in order to match the individual's potential. Habits and peer comparisons arise as special cases of such an updating process. This updating also results in a volatile level of happiness that continuously reverts to its long-term mean. Throughout, we draw a parallel with a problem of optimal incentives, which allows us to apply statistical insights from agency theory to the study of happiness.

15 citations