Essays on the Economics of Health Care Markets

Abstract

This doctoral dissertation studies competition in health care markets and the labor market consequences of health behavior. The focus is on examining how the special characteristics of health care markets and the provider incentives affect the market structure, health care qualities, prices, and social welfare. The dissertation consists of an introductory chapter and four separate essays. The introductory chapter discusses the special features of health care markets, research questions, and methods and data used and provides an overview of the main results and policy implications. The first three essays are theoretical contributions and the fourth is empirical. The first essay studies price and quality competition in markets with public and private providers. We show that equilibrium qualities are often inefficient, but under some conditions on the consumer valuation distribution, equilibrium qualities coincide with the first best. The second essay extends the analysis to consider qualities with multiple attributes. I show that additional assumptions on the per-unit production cost of quality are required for the equilibrium qualities to be efficient. The results of the first two essays reveal which properties on the consumer preference distribution and the per-unit production costs have been driving the results in the previous literature. The third essay studies how regulation of health care payment schemes and licensing affect health care providers’ entry and health care quality decisions when some patients have inaccurate quality perceptions. I show that entry licensing combined with a regulated prospective payment scheme may be preferable to an unregulated entry and a more complicated provider reimbursement scheme. Providing better information about provider quality may also have different direct and indirect effects depending on whether patients underreact or overreact to health care quality. The fourth essay analyzes linkages between the different durations of being overweight and long-term labor market outcomes. We find that being persistently overweight in early adulthood drives lower subsequent long-term earnings for women and men. The potential mechanism seems to be different for women and men. For women, the earnings penalty is related to their weaker labor market attachment. For men, the earnings penalty is not related to their labor market attachment and instead is related to something that erodes their earnings power on the labor market throughout their life cycle. Keywords: Competition, prices, quality, public and private firms, multi-dimensional product differentiation, regulation, entry, mixed payment schemes, overweight, obesity, long-term labor market outcomes, labor market attachment.