Council of Economic Advisers

About: Council of Economic Advisers is a government organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Productivity & Gibbs sampling. The organization has 52 authors who have published 63 publications receiving 1613 citations. The organization is also known as: United States Council of Economic Advisers & CEA.

Paying for Health Insurance: The Trade-Off between Competition and Adverse Selection

Abstract: We use data on health plan choices by employees of Harvard University to compare the benefits of insurance competition with the costs of adverse selection. Moving to a voucher-type system induced significant adverse selection, with a welfare loss of 2 to 4 percent of baseline spending. But increased competition reduced Harvard's premiums by 5 to 8 percent. The premium reductions came from insurer profits, so while Harvard was better off, the net effect for society was only the adverse selection loss. Adverse selection can be minimized by adjusting voucher amounts for individual risk. We discuss how such a system would work. Governments are increasingly turning to market forces as a way to limit the cost of social insurance. Traditionally, social insurance programs were operated as nonmarket goods; governments mandated participation in a central program, collected revenues to finance the program, and ran the insurance system. There was no role for competition among suppliers in providing the basic benefit. As the costs of social insurance have increased, however, the centralized model of social insurance is coming under increasing strain. In the United States, for example, recent proposals have called for replacing the Medicare program with a health care voucher for the elderly [Aaron and Reischauer 1995; Cutler 1996]. The voucher would guarantee people a basic insurance plan, but the plans would be privately run. Competition among plans would generate plan premiums and enrollments. Similarly, longstanding proposals for Social Security reform have called for replacing the current system with a system of individual accounts, where people would make saving, investment, and annuitization decisions on their own [Advisory Council on Social Security 1996; Feldstein 1996]. The trend is not just domestic. In the United Kingdom the National Health Service has moved to encourage more competition in recent years, with the establishment of hospital "trusts" that bid for patients and partially fixed payments to physicians,

Futures Prices in Supply Analysis

Abstract: Empirical work on agricultural supply functions typically makes use of product prices from past time periods. This approach has the important advantage that it avoids the problems created by the simultaneous determination of supply and demand, since past prices are predetermined. But the approach has the important drawback that theory does not reveal exactly which past prices to use. The simplest procedure, use of last year's price, assumes farmers to be unduly naive in the formation of expectations. The more sophisticated lagged-price procedures following the work of Nerlove create econometric problems (Brandow, Nerlove 1958c, Griliches). Some are also liable to the charge of "theoretical ad-hockery" (Griliches, p. 42ff). As an alternative approach to estimating supply elasticity, this paper is an attempt to exploit the theoretically well-grounded hypothesis that the price of a futures contract for next year's crop reflects the market's estimate of next year's cash price.1 Since the appropriate price for supply analysis is the price expected by producers at the time when production decisions are being made, a futures price at this time is a good candidate for a directly observable measure of product price in supply analysis. In the context of crop supply, there are several problems to be faced in the use of futures prices. First, "the market's" estimate as given by a futures price reflects the expectations of nonfarm speculators as well as crop producers, and it reflects directly the expectations only of those crop producers who themselves make futures transactions. Second, there is the issue of which futures contract is most appropriate. Third, at what date should the futures price be observed? With respect to the first issue, the use of a futures price can be justified by the hypothesis of rational expectations as developed by John Muth. Under rational expectations, there is no reason for farmers to have different price expectations from futures speculators, nor for farmers who make no futures transactions to have expectations different from those who do. If the price expectations of those out of the futures market differ from the futures price, there is great incentive for them to enter. Thus, those out of the market likely have price expectations similar to the market price of futures.2 The second issue should cause no serious problem so long as the futures contract pertains to the new crop. Of course, even old-crop cash prices are influenced by expectations concerning the new crop. But the cash-futures basis changes from year to year and secularly as the cost of storage (which includes interest) changes. The present analysis uses the first futures price after the crop is in. The third problem is most difficult because it is not clear exactly when the production decision is made. There may not be any preharvest date at which a farmer can be said to have made irrevoca-

The Minimum-Cost Dairy FeedAn Application of “Linear Programming”

Abstract: HE main purpose of this paper is to test a method of determining the least expensive combination of feeds which meets, or surpasses, each of several stated requirements. The "linear programming" techniques recently developed by Koopmans,l Dantzig,2 and others, are used to provide a definitive solution of this problem. I want to make clear at the start that I do not pretend to be an expert on animal feeding. It is quite possible that the rations indicated by this analysis may be found unacceptable by practical feeders. If so, it is because the requirements used to illustrate this method do not adequately cover feed essentials. I would welcome any suggestions for improving the stated requirements. But the method of analysis used here is, in my opinion, exact. If the prices and nutritive values of all available feeds are known, that method will unfailingly indicate the least expensive combination of feeds meeting whatever requirements may be determined to be acceptable.