Study Review

Question 1

What is the Abecedarian Study

Answer 1

The Abecedarian study looked at disadvantaged children. It looked at how a stimulating environment could prevent the development of mild mental retardation in children.

Question 2

How many cohorts were studied?

Answer 2

There were 4 cohorts of disadvantaged children studied.

Question 3

How many stages of intervention

Answer 3

There were two stages of intervention

Question 4

Use Rent Control In a Simple Diagram

Answer 4

View Slides from study guide

Question 5

Define Price Ceiling

Answer 5

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.

Question 6

Define Price Floor?

Answer 6

Price Floor prohibits prices from going below a certain minimum.

Question 7

What are the three Approaches to estimate the value of statistical life?

Answer 7

The three approaches are:

1. Labor Market Choices
2. Product Purchase
3. Government Policies

Question 8

Explain Labor market choices and product purchase decisions and what they infer about VSL?

Answer 8

They infer VSL from tradeoffs between money and risks. Assesses VSL between 5 million and 12 million.

Question 9

What is the product purchase decision approach?

Answer 9

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.

Question 10

Explain the Government Policies Approach in VSL?

Answer 10

This approach uses decisions about policies and estimates the value that government places on lives saved or years of life gained.

Question 11

Define Risk Premium?

Answer 11

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.

Question 12

What are some problems with the VSL Approach in the labor markets?

Answer 12

1. People have to love their job.
2. Hedonic preferences can make it hard to find comparable jobs.
3. Labor markets work at a margin and not a average .
4. Workers may misjudge the level of risk.
5. 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.

Question 13

What are the four issues that Brought notes with the VSL?

Answer 13

1. The overlooked opportunity cost
   
   • As life nears its end, value for someone rich could be VERY high. Should the government pay for that?
2. Differential treatment of known versus statistical life.
   
   • People will pay more to save a particular person than some statistical unit
3. 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.
4. Individual versus social willingness to pay
   
   • Basing VSL on currently alive people ignores impact on future generations

Question 14

What solution does Broughel Propose?

Answer 14

Broughel proposes the use of a financial approach based no life’s productive contributions.

Question 15

List some differences in VSL estimates by various govt organizations?

Answer 15

1. Could be because of mode of death
2. differences in demographic group. Politically-may be ethically problematic
3. VSL has increased over time.

Question 16

What are the types of discounting scenarios in Rational Addiction?

Answer 16

1. Exponential Discounting
2. Naive hyperbolic discounting
3. Sophisticated Hyperbolic discounting + authoritarian commitment

Question 17

What are the important Assumptions of Rational addiction?

Answer 17

1. Time consistency of preferences
2. Perfect information about the nature of using substances- people are aware of their ability to become addicted.
3. Later authors would relax to the perfect information assumption.

Question 18

What are some implications of Rational Addiction Theory?

Answer 18

1. The long-run price elasticity of demand is greater than short run price elasticity of demand.
2. This is not an accurate test of rational addiction

Question 19

Why do empirical economists like rational addiction model?

Answer 19

They like it because it motivates functional form to statistically estimate with specific interpretations on key parameter estimates

Question 20

Main Points of Rosenberg (2020)

Answer 20

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.

Question 21

Continuation of Rosenberg Sweet Points

Answer 21

“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.”

Question 22

What are excise taxes?

Answer 22

Excise taxes are major tools that can reduce consumption of bad goods in a population.

Question 23

Explain Cigarette Price Elasticities

Answer 23

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.

Question 24

What is the heart of Rosenbergs critique?

Answer 24

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…

Question 25

Difference between implicit and explicit budget constraints.

Answer 25

1. Implicit functions let V be the maximum value that a decision maker is willing to pay for one more QALY
2. Explicit functions are a fixed amount of funding for treating the conditions that the interventions are hoping to solve.

Question 26

What are the two ways in which an intervention is dominated?

Answer 26

Interventions can be in a strict sense or a dominated sense

Question 27

Explain the difference between strict and extended domination

Answer 27

Strict sense means that you make a comparison to see if one thing is more expensive than another. Extended sense refers to when the Incremental Cost Effective Ratio is higher than that of the next most effective treatment.

Question 28

What is the Dynamic Model used in the Methadone benefit/cost simulation by Zarkin et al 2005?

Answer 28

• Simulates life paths for 1,000,000 people
• When individuals start in the model at age 18, they may or may not be using heroin. From 18 onward, the model generates simulated life paths for each person based on the outcome of a series of transitions.
• parameter estimates would typically require a mean and a measure of variance for continuous variables and an average proportion for proportions
• The transition probabilities are drawn from a statistical distribution, and the moments of that distribution are either from data or parameter estimates in the literature. Transition probabilities bw model states from month to month and include personal attributes

Question 29

What did the transition probabilities in the Dynamic Model Reveal?

Answer 29

• It was found that men are more likely than women to use heroin and more likely to resume heroin use after stopping.

Question 30

What are the strengths of the Dynamic Model?

Answer 30

• Allows researchers to position what if scenarios

- cheaper and quicker than gathering data under each scenario

Question 31

What are the limitations of the model?

Answer 31

• Does not capture realities such as costs to the patient

- Relies on making assumptions for some parameters

Question 32

Cost Benefit Analysis Notes

Answer 32

CBA) estimates the equivalent money value of the benefits and costs – typically to ‘society’ - of projects, interventions or programs to determine whether they are worthwhile.CBA measures the benefits and costs of projects in money terms.
This often requires that we place dollar values on years of life or improvements in health and well-being.

Question 33

Cost Benefit Analysis Continued

Answer 33

The most fundamental question in economic evaluation
•Whose costs? Whose outcomes? Whose benefits?
•Academic economists often take the societal perspective
•At a practical level, only ‘first-order’ costs and benefits are frequently measured

Question 34

Cost Benefit Analysis Continued

Answer 34

Societal perspective includes the costs and benefits to all members of society.
It should exclude pure transfers that are ‘zero-sum’, because they are, well, zero sum and both parties are included in society
Some things are very difficult to value but are first order to key stakeholders in the program:
Nebulous things like choice, fear, certainty, safety, comfort
Health! Life!

The costs and benefits are difficult to value for certain stakeholders. Examples:
Children’s time in school programs
The utility cost of re-entry programs for offenders

Question 35

Difference between Cost benefit, Cost Effectiveness and Cost Analysis

Answer 35

1. Cost Benefit asks the question is it worth it, everything is monetized and similar to the Return-on-Investment, used In Business.
2. Cost Effectiveness Analysis, this asks what is the trade-off and outcome is measured in natural units and the Cost-utility analysis may use QALYs
3. Cost Analysis asks the question what does it costs and more powerful and useful than you think.

Question 36

What is the Cost effectiveness analysis

Answer 36

• What is the cost of achieving each incremental change in outcome using a particular intervention, strategy, treatment, or program?
• Almost can be expressed as bang-for-buck (the answer is really expressed as buck-per-bang)
• Outcome expressed in natural units or QALY
• Not expressed in dollar terms. This is opposite of the cost benefit analysis where everything is monotonized.

Question 37

What does QALY mean?

Answer 37

Quality of Adjusted Life and means Used frequently by health economists because the convert health states into the same metric
E.g., Instead of number of years in a wheelchair, convert it into a QALY
•To construct a QALY, each year of life is given a statistical weight, q

Question 38

Quality Adjusted Life Expectancy is the discounted sum of the product quality weights q of each year times the likelihood of survival to each year. The qaly weight is q, the time span takes time t from 0 to end (e); prob is the probability of surviving to the next year.
Need to estimate delta – the discount factor, the QALY weight, and the probability of surviving to the each year

Question 39

Measuring Quality

Answer 39

Difficult because the researcher and/or study subject are comparing 2 (often hypothetical), dissimilar states of the world
•Survey – e.g using visual analog scale (see right)
•Standard gamble:
•researcher offers a certain health state C versus a gamble of perfect health with probability p vs death with probability (1-p)
•The p that makes the respondent indifferent between C and the gamble is p* - this is the estimate of q
•Time trade off
•Similar to standard gamble
•Choose b/w living for t years with C and then dying vs living with perfect health but for less time k and then dying
•The k* that makes the respondent indifferent is the estimate of q

Problem with a survey: survey-takers are asked to consider health states one at a time. The result is a ranking of health states that does not necessarily reflect the intensity of respondents’ preferences. Respondents tend to evenly spread the rankings even if one or two are particularly intense
Person trade-off: ask people how many outcomes of one kind they consider equivalent in social value to X outcomes of another kind