Class Size and Class Heterogeneity

We study how class size and composition affect the academic and labor market performances of college students, two crucial policy questions given the secular increase in college enrollment. We rely on the random assignment of students to teaching classes. Our results suggest that a one standard deviation increase in the class-size would result in a 0.1 standard deviation deterioration of the average grade. Further, the effect is heterogenous as female and higher income students seem almost immune to the size of the class. Also, the effects on performance of class composition in terms of gender and ability appears to be inverse U-shaped. Finally, a reduction of 20 students (one standard deviation) in one's class size has a positive effect on monthly wages of about 80 Euros (115 USD) or 6% over the average.class size, heterogeneity, experimental evidence, academic performance, wages

How does Risk-selection Respond to Risk-adjustment? Evidence from the Medicare Advantage Program

Medicare administers a traditional public fee-for-service (FFS) plan while also allowing enrolles to join government-funded private Medicare Advantage (MA) plans.We model how selection and differential payments - the value of the capitation payments the firm receives to insure an individual minus the counterfactual cost of his coverage in FFS - change after the introduction of a comprehensive risk adjustment formula in 2004. Our model predicts that firm screening efforts along dimensions included in the model ("extensive-margin" selection) should fall, whereas screening efforts along dimensions excluded ("intensive-margin" selection) should increase. These endogenous responses to the risk-adjustment formula can in fact lead differential payments to increase. Using individual-level administrative data on Medicare enrollees from 1994 to 2006, we show that while MA enrollees are positively selected throughout the sample period, after risk adjustment extensive-margin selection decreases whereas intensive-margin selection increases. We find that differential payments actually rise after risk-adjustment, and estimate that they totaled $23 billion in 2006, or about six percent of total Medicare spending.Health Care Markets

Who\u27s In, Who\u27s Out? Policy to Address Job Rationing During Recession

In response to the Great Recession, the federal government spent hundreds of billions of dollars in tax and other interventions in the labor market as part of the stimulus and follow-up policies. Policymakers traditionally have based their policies on Keynesian theories that recessions are driven by inadequate demand, so that increasing government spending will increase demand for economic activity and workers. However, these theories guide how much to spend, not how to design the spending. As a result, despite this massive outlay of funds, the theory for the form that labor income taxes and related policies should change during recessions is surprisingly poorly developed. Instead of drawing on Keynesian macroeconomic theories, we draw on the microeconomics literature on how labor markets function during recessions-in particular, the literature on matching unemployed workers with firms. Insights from microeconomics help answer why there are too few jobs and which workers gain employment. The Article draws two counterintuitive conclusions for maximizing social welfare during slack labor markets during and after recessions. First, subsidize nonemployment. This draws marginal workers out of the labor force, creating space for those who really need jobs. Second, subsidize employers for hiring, not the employees themselves. The problem during recessions is having too few jobs. Econometric evidence shows that statutory incidence matters for economic incidence during recessions; subsidizing employers creates more jobs, while subsidizing employees confers benefits on those who already won the job lottery. Policy during and after the Great Recession often did not follow these recommendations

Class Size and Class Heterogeneity

We study how class size and class composition affect the academic and labor market performance of college students, two crucial policy questions given the secular increase in college enrollment. Our identification strategy relies on the random assignment of students to teaching classes. We find that a one standard deviation increase in class-size results in a 0.1 standard deviation deterioration of the average grade. Further, the effect is heterogeneous as it is stronger for males and lower income students. Also, the effects of class composition in terms of gender and ability appear to be inverse U-shaped. Finally, a reduction of 20 students (one standard deviation) in one's class size has a positive effect on monthly wages of about 80 Euros (115 USD) or 6% over the average.

How does Risk Selection Respond to Risk Adjustment? Evidence from the Medicare Advantage Program

Governments often contract with private firms to provide public services such as health care and education. To decrease firms' incentives to selectively enroll low-cost individuals, governments frequently "risk-adjust" payments to firms based on enrollees' characteristics. We model how risk adjustment affects selection and differential payments---the government's payments to a firm for covering an individual minus the counterfactual cost had the government directly covered her. We show that firms reduce selection along dimensions included in the risk-adjustment formula, while increasing selection along excluded dimensions. These responses can actually increase differential payments relative to pre-risk-adjustment levels and thus risk adjustment can raise the total cost to the government of providing the public service. We confirm both selection predictions using individual-level data from Medicare, which in 2004 began risk-adjusting payments to private Medicare Advantage plans. We find that differential payments actually rise after risk adjustment and estimate that they totaled $30 billion in 2006, or nearly eight percent of total Medicare spending.