Testing a Roy Model with Productivity Spillovers: Evidence from the Treatment of Heart Attacks

Productivity spillovers are often cited as a reason for geographic specialization in production. A large literature in medicine documents specialization across areas in the use of surgical treatments, which is unrelated to patient outcomes. We show that a simple Roy model of patient treatment choice with productivity spillovers can generate these facts. Our model predicts that high-use areas will have higher returns to surgery, better outcomes among patients most appropriate for surgery, and worse outcomes among patients least appropriate for surgery. We find strong empirical support for these and other predictions of the model, and decisively reject alternative explanations commonly proposed to explain geographic variation in medical care.

Fiscal Shenanigans, Targeted Federal Health Care Funds, and Patient Mortality

The federal government spends billions of dollars each year on programs designed to increase the resources available to hospitals that serve the poor. This paper explores the intended and unintended effects of such targeted funds. First, how do these funds distort the behavior of state and local governments who wish to appropriate the funds for other uses? Second, to the extent that these funds do increase resources in the targeted hospitals, do patients benefit? We use the rapid and uneven growth in Medicaid Disproportionate Share Hospital (DSH) payments across states and hospitals to answer these questions. We identify states that were most able to appropriate DSH funds and show that, while DSH payments to public hospitals in these states were systematically diverted, DSH payments to other hospitals and in other states were not diverted. Additional resources that were made available to hospitals (rather than appropriated by the state) were associated with significant declines in infant and post-heart attack mortality. A range of evidence suggests that these improvements were due to better hospital care. Overall, our analysis implies that public subsidies can be an effective mechanism for improving medical care and outcomes for the poor, but that the impact is limited by the ability of state and local government to divert the targeted funds.

Technology adoption from hybrid corn to beta blockers

In his classic 1957 study of hybrid corn, Griliches emphasized the importance of economic incentives and profitability in the adoption of new technology, and this focus has been continued in the economics literature. But there is a distinct literature with roots in sociology emphasizing the structure of organizations, informal networks, and ““change agents.”” We return to a forty-year-old debate between Griliches and the sociologists by considering state-level factors associated with the adoption of a variety of technological innovations: hybrid corn and tractors in the first half of the 20th century, computers in the 1990s, and the treatment of heart attacks during the last decade. First, we find that some states consistently adopted new effective technology, whether hybrid corn, tractors, or effective treatments for heart attacks such as Beta Blockers. Second, the adoption of these new highly effective technologies was closely associated with social capital and state-level 1928 high school graduation rates, but not per capita income, density, or (in the case of Beta Blockers) expenditures on heart attack patients. Economic models are useful in identifying why some regions are more likely to adopt early, but sociological barriers -- perhaps related to a lack of social capital or informational networks -- can potentially explain why other regions lag far behind.

Technology Adoption From Hybrid Corn to Beta Blockers

In his classic 1957 study of hybrid corn, Griliches emphasized the importance of economic incentives and profitability in the adoption of new technology, and this focus has been continued in the economics literature. But there is a distinct literature with roots in sociology emphasizing the structure of organizations, informal networks, and "change agents." We return to a forty-year-old debate between Griliches and the sociologists by considering state-level factors associated with the adoption of a variety of technological innovations: hybrid corn and tractors in the first half of the 20th century, computers in the 1990s, and the treatment of heart attacks during the last decade. First, we find that some states consistently adopted new effective technology, whether hybrid corn, tractors, or effective treatments for heart attacks such as Beta Blockers. Second, the adoption of these new highly effective technologies was closely associated with social capital and state-level 1928 high school graduation rates, but not per capita income, density, or (in the case of Beta Blockers) expenditures on heart attack patients. Economic models are useful in identifying why some regions are more likely to adopt early, but sociological barriers -- perhaps related to a lack of social capital or informational networks -- can potentially explain why other regions lag far behind.

The Quality of Health Care Providers

Obtaining better information on the quality of health care providers is one of the most pressing issues in health policy today. In this paper we (1) develop a new method for measuring quality of care that overcomes the key limitations of available quality measures, and (2) apply this method to estimating the quality of hospital care for elderly patients with heart disease. Our approach optimally combines information from all available current and past quality indicators in order to more accurately estimate and forecast each provider's quality level. For patients with heart disease, the method is able to predict and forecast differences in patient outcomes across hospitals remarkably well - far better than existing methods. Our approach also provides an empirical basis for choosing among potential quality indicators. In particular, we find that differences across hospitals in short-term mortality rates following a heart attack, adjusted for patient demographics, are excellent indicators of quality of care: They vary dramatically across hospitals, are persistent over time, are highly correlated with alternative quality indicators, and are highly correlated with mortality rates that adjust more extensively for patient severity. Thus, comparing quality of care across providers may be far more feasible than many now believe.

Abortion as Insurance

This paper views abortion access as an insurance policy that protects women from unwanted pregnancies. Within this framework, we present a theoretical model where greater access provides value in the form of insurance against unwanted births and also reduces the incentive to avoid pregnancy. This model predicts that legalized abortion should lead to a reduction in the likelihood of giving birth. It also predicts that if abortion access becomes relatively inexpensive (including both monetary and psychic costs), then pregnancies would rise and births would remain unchanged or may even rise as well. We review the evidence on the impact of changes in abortion policy mainly from the United States and find support for both predictions. Then we test these hypotheses using recent changes in abortion policy in several Eastern European countries. We find that countries which changed from very restrictive to liberal abortion laws experienced a large reduction in births, highlighting the insurance value. Changes from modest restrictions to abortion available upon request, however, led to no such change in births despite large increases in abortions, indicating that pregnancies rose as well. These findings are consistent with the incentive effect implications of our model.

Abortion Legalization and Child Living Circumstances: Who is the "Marginal Child?"

We estimate the impact of changes in abortion access in the early 1970s on the average living standards of cohorts born in those years. In particular, we address the selection inherent in the abortion decision: is the marginal child who is not born when abortion access increases more or less disadvantaged than the average child? Legalization of abortion in five states around 1970, followed by legalization nationwide due to the 1973 Roe v. Wade decision, generates natural variation which can be used to estimate the effect of abortion access. We find that cohorts born after abortion was legalized experienced a significant reduction in a number of adverse outcomes. Our estimates imply that the marginal child who was not born due to legalization would have been 70% more likely to live in a single parent family, 40% more likely to live in poverty, 50% more likely to receive welfare, and 35% more likely to die as an infant. These selection effects imply that the legalization of abortion saved the government over $14 billion in welfare expenditures through 1994.