Competition Leverage: How the Demand Side Affects Optimal Risk Adjustment

We study optimal risk adjustment in imperfectly competitive health insurance markets when high-risk consumers are less likely to switch insurer than low-risk consumers. First, we find that insurers still have an incentive to select even if risk adjustment perfectly corrects for cost differences among consumers. Consequently, the outcome is not efficient even if cost differences are fully compensated. To achieve first best, risk adjustment should overcompensate for serving high-risk agents to take into account the difference in mark- ups among the two types. Second, the difference in switching behavior creates a trade off between efficiency and consumer welfare. Reducing the difference in risk adjustment subsidies to high and low types increases consumer welfare by leveraging competition from the elastic low-risk market to the less elastic high-risk market. Finally, mandatory pooling can increase consumer surplus even further, at the cost of efficiency.health insurance;risk adjustment;imperfect competition;leverage

Selective Contracting and Foreclosure in Health Care Markets

We analyze exclusive contracts between health care providers and insurers in a model where some consumers choose to stay uninsured. In case of a monopoly insurer, exclusion of a provider changes the distribution of consumers who choose not to insure. Although the foreclosed care provider remains active in the market for the non-insured, we show that exclusion leads to anti-competitive effects on this non-insured market. As a consequence exclusion can raise industry profits, and then occurs in equilibrium. Under competitive insurance markets, the anticompetitive exclusive equilibrium survives. Uninsured consumers, however, are now not better off without exclusion. Competition among insurers raises prices in equilibria without exclusion, as a result of a horizontal analogue to the double marginalization effect. Instead, under competitive insurance markets exclusion is desirable as long as no provider is excluded by all insurers.health insurance;uninsured;selective contracting;exclusion;foreclosure;anti-competitive effects

Competition for Traders and Risk

Abstract: The financial crisis has been attributed partly to perverse incentives for traders at banks and has led policy makers to propose regulation of banks’ remuneration packages. We explain why poor incentives for traders cannot be fully resolved by only regulating the bank’s top executives, and why direct intervention in trader compensation is called for. We present a model with both trader moral hazard and adverse selection on trader abilities. We demonstrate that as competition on the labour market for traders intensifies, banks optimally offer top traders contracts inducing them to take more risk, even if banks fully internalize the costs of negative outcomes. In this way, banks can reduce the surplus they have to offer to lower ability traders. In addition, we find that increasing banks’ capital requirements does not unambiguously lead to reduced risk-taking by their top traders.optimal contracts;remuneration policy;imperfect competition;financial institutions;risk

On the Interpretation of the Age Distribution of Star Clusters in the Small Magellanic Cloud

We re-analyze the age distribution (dN/dt) of star clusters in the Small Magellanic Cloud (SMC) using age determinations based on the Magellanic Cloud Photometric Survey. For ages younger than 3x10^9 yr the dN/dt distribution can be approximated by a power-law distribution, dN/dt propto t^-beta, with -beta=-0.70+/-0.05 or -beta=-0.84+/-0.04, depending on the model used to derive the ages. Predictions for a cluster population without dissolution limited by a V-band detection result in a power-law dN/dt distribution with an index of ~-0.7. This is because the limiting cluster mass increases with age, due to evolutionary fading of clusters, reducing the number of observed clusters at old ages. When a mass cut well above the limiting cluster mass is applied, the dN/dt distribution is flat up to 1 Gyr. We conclude that cluster dissolution is of small importance in shaping the dN/dt distribution and incompleteness causes dN/dt to decline. The reason that no (mass independent) infant mortality of star clusters in the first ~10-20 Myr is found is explained by a detection bias towards clusters without nebular emission, i.e. cluster that have survived the infant mortality phase. The reason we find no evidence for tidal (mass dependent) cluster dissolution in the first Gyr is explained by the weak tidal field of the SMC. Our results are in sharp contrast to the interpretation of Chandar et al. (2006), who interpret the declining dN/dt distribution as rapid cluster dissolution. This is due to their erroneous assumption that the sample is limited by cluster mass, rather than luminosity.Comment: 8 pages, 4 figures, accepted for publication in Ap

A New Formation Channel for Double Neutron Stars Without Recycling: Implications for Gravitational Wave Detection

We report on a new evolutionary path leading to the formation of close double neutron stars (NS), with the unique characteristic that none of the two NS ever had the chance to be recycled by accretion. The existence of this channel stems from the evolution of helium-rich stars (cores of massive NS progenitors), which has been neglected in most previous studies of double compact object formation. We find that these non-recycled NS-NS binaries are formed from bare carbon-oxygen cores in tight orbits, with formation rates comparable to or maybe even higher than those of recycled NS-NS binaries. On the other hand, their detection probability as binary pulsars is greatly reduced (by about 1000) relative to recycled pulsars, because of their short lifetimes. We conclude that, in the context of gravitational-wave detection of NS-NS inspiral events, this new type of binaries calls for an increase of the rate estimates derived from the observed NS-NS with recycled pulsars, typically by factors of 1.5-3 or even higher.Comment: Accepted for publication in ApJ Letters; 5 pages, 1 figure, 2 tables. Two new paragraphs and one formula adde

A runaway collision in a young star cluster as the origin of the brightest supernova

Supernova 2006gy in the galaxy NGC 1260 is the most luminous one recorded \cite{2006CBET..644....1Q, 2006CBET..647....1H, 2006CBET..648....1P, 2006CBET..695....1F}. Its progenitor might have been a very massive ($>100$ \msun) star \cite{2006astro.ph.12617S}, but that is incompatible with hydrogen in the spectrum of the supernova, because stars $>40$ \msun are believed to have shed their hydrogen envelopes several hundred thousand years before the explosion \cite{2005A&A...429..581M}. Alternatively, the progenitor might have arisen from the merger of two massive stars \cite{2007ApJ...659L..13O}. Here we show that the collision frequency of massive stars in a dense and young cluster (of the kind to be expected near the center of a galaxy) is sufficient to provide a reasonable chance that SN 2006gy resulted from such a bombardment. If this is the correct explanation, then we predict that when the supernova fades (in a year or so) a dense cluster of massive stars becomes visible at the site of the explosion

The Evolution of Globular Clusters in the Galaxy

We investigate the evolution of globular clusters using N-body calculations and anisotropic Fokker-Planck (FP) calculations. The models include a mass spectrum, mass loss due to stellar evolution, and the tidal field of the parent galaxy. Recent N-body calculations have revealed a serious discrepancy between the results of N-body calculations and isotropic FP calculations. The main reason for the discrepancy is an oversimplified treatment of the tidal field employed in the isotropic FP models. In this paper we perform a series of calculations with anisotropic FP models with a better treatment of the tidal boundary and compare these with N-body calculations. The new tidal boundary condition in our FP model includes one free parameter. We find that a single value of this parameter gives satisfactory agreement between the N-body and FP models over a wide range of initial conditions. Using the improved FP model, we carry out an extensive survey of the evolution of globular clusters over a wide range of initial conditions varying the slope of the mass function, the central concentration, and the relaxation time. The evolution of clusters is followed up to the moment of core collapse or the disruption of the clusters in the tidal field of the parent galaxy. In general, our model clusters, calculated with the anisotropic FP model with the improved treatment for the tidal boundary, live longer than isotropic models. The difference in the lifetime between the isotropic and anisotropic models is particularly large when the effect of mass loss via stellar evolution is rather significant. On the other hand the difference is small for relaxation- dominated clusters which initially have steep mass functions and high central concentrations.Comment: 36 pages, 11 figures, LaTeX; added figures and tables; accepted by Ap

Progenitors of Supernovae Type Ia

Despite the significance of Type Ia supernovae (SNeIa) in many fields in astrophysics, SNeIa lack a theoretical explanation. The standard scenarios involve thermonuclear explosions of carbon/oxygen white dwarfs approaching the Chandrasekhar mass; either by accretion from a companion or by a merger of two white dwarfs. We investigate the contribution from both channels to the SNIa rate with the binary population synthesis (BPS) code SeBa in order to constrain binary processes such as the mass retention efficiency of WD accretion and common envelope evolution. We determine the theoretical rates and delay time distribution of SNIa progenitors and in particular study how assumptions affect the predicted rates.Comment: 6 pages, 6 figures, appeared in proceedings for "The 18th European White Dwarf Workshop

Expected Coalescence Rate of Double Neutron Stars for Ground Based Interferometers

In this paper we present new estimates of the coalescence rate of neutron star binaries in the local universe and we discuss its consequences for the first generations of ground based interferometers. Our approach based on both evolutionary and statistical methods gives a galactic merging rate of 1.7 10$^{-5}$ yr$^{-1}$, in the range of previous estimates 10$^{-6}$ - 10$^{-4}$ yr$^{-1}$. The local rate which includes the contribution of elliptical galaxies is two times higher, in the order of 3.4 10$^{-5}$ yr$^{-1}$. We predict one detection every 148 and 125 years with initial VIRGO and LIGO, and up to 6 events per year with their advanced configuration. Our recent detection rate estimates from investigations on VIRGO future improvements are quoted.Comment: talk given at the GWDAW9 (Annecy, 2004) to be published in CQ