Study Review Flashcards
What is the Abecedarian Study
The Abecedarian study looked at disadvantaged children. It looked at how a stimulating environment could prevent the development of mild mental retardation in children.
How many cohorts were studied?
There were 4 cohorts of disadvantaged children studied.
How many stages of intervention
There were two stages of intervention
Use Rent Control In a Simple Diagram
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Define Price Ceiling
Price ceiling refers to a limit on how much a seller can charge for a product for example, how much a landlord can charge for rent.
Define Price Floor?
Price Floor prohibits prices from going below a certain minimum.
What are the three Approaches to estimate the value of statistical life?
The three approaches are:
- Labor Market Choices
- Product Purchase
- Government Policies
Explain Labor market choices and product purchase decisions and what they infer about VSL?
They infer VSL from tradeoffs between money and risks. Assesses VSL between 5 million and 12 million.
What is the product purchase decision approach?
This approach it looks at and estimates the amount of money necessary to compensate people for accepting higher risk/willing to pay to reduce risk and then project from that how much a person would value a statistical life.
Explain the Government Policies Approach in VSL?
This approach uses decisions about policies and estimates the value that government places on lives saved or years of life gained.
Define Risk Premium?
The risk premium is the rate of return on an investment over and above the risk-free or guaranteed rate of return. An example of risk premium would be the extra salary or wage earned for doing a risky job.
What are some problems with the VSL Approach in the labor markets?
- People have to love their job.
- Hedonic preferences can make it hard to find comparable jobs.
- Labor markets work at a margin and not a average .
- Workers may misjudge the level of risk.
- The VSL may be overestimated if the risk premium also compensates for non-fatal risks – it’s very difficult to control for these nonfatal risk considerations. Not all tiger attacks are fatal (though with one swipe of a paw, a tiger can kill a horse.
What are the four issues that Brought notes with the VSL?
- The overlooked opportunity cost
- As life nears its end, value for someone rich could be VERY high. Should the government pay for that?
- Differential treatment of known versus statistical life.
- People will pay more to save a particular person than some statistical unit
- Anomalies from the time value of money.
- Value grows as income grows, so the future will always be worth more if value is inferred based on what people are willing to pay for them.
- Individual versus social willingness to pay
- Basing VSL on currently alive people ignores impact on future generations
What solution does Broughel Propose?
Broughel proposes the use of a financial approach based no life’s productive contributions.
List some differences in VSL estimates by various govt organizations?
- Could be because of mode of death
- differences in demographic group. Politically-may be ethically problematic
- VSL has increased over time.
What are the types of discounting scenarios in Rational Addiction?
- Exponential Discounting
- Naive hyperbolic discounting
- Sophisticated Hyperbolic discounting + authoritarian commitment
What are the important Assumptions of Rational addiction?
- Time consistency of preferences
- Perfect information about the nature of using substances- people are aware of their ability to become addicted.
- Later authors would relax to the perfect information assumption.
What are some implications of Rational Addiction Theory?
- The long-run price elasticity of demand is greater than short run price elasticity of demand.
- This is not an accurate test of rational addiction
Why do empirical economists like rational addiction model?
They like it because it motivates functional form to statistically estimate with specific interpretations on key parameter estimates
Main Points of Rosenberg (2020)
To claim that your model can assess the welfare of real addicts, you need to show that they can actually face a decision problem sufficiently similar to X that Y is their optimal choice, in reality as well as theory.
Continuation of Rosenberg Sweet Points
“At best, we can say that real humans with addictions are behaving ‘as-if’ they are implementing the optimal solution to an analytically simple decision problem we are quite certain they do not face.”
What are excise taxes?
Excise taxes are major tools that can reduce consumption of bad goods in a population.
Explain Cigarette Price Elasticities
Cigarette price elasticity ranges from 0.2 to just than greater than 1.0. This interprets to that with a elasticity of 0.2 a 10% increase in price is associated with a 2% decrease in quantity demanded.
What is the heart of Rosenbergs critique?
Becker et al are asking economists to search the entire space of formalized choice problems
until they find a problem (a) whose optimal solution matches the thing they want to explain and (b) whose assumptions seem related to intuitions, anecdotes and stylized
facts concerning the behavior at hand.
Kind of like the joke about the near-sighted man who is looking for his keys at night…