June 5, 2015

What's still wrong in economics (and health economics) research

Some weeks ago I was posting on "Evidence-based economics going mainstream" , in fact the title was only taken from the book by Thaler and it is strictly a desideratum. Unfortunately what we are used every week in the university seminars is more related to Chicago style economics: Optimization +Equilibrium = Economics.
The struggle to bring academic discipline back down to earth is an unfinished business. Let's take for example this paper: Can Health Insurance Competition Work? Evidence from Medicare Advantage. The author achieves this conclusion:
We estimate that private plans have costs around 12% below fee-for-service costs, and generate around $50 in surplus on average per enrollee-month, after accounting for the disutility due to enrollees having more limited choice of providers. Taxpayers provide a large additional subsidy, and insurers capture most of the private gains.
Is this a conclusion?. What are the gains? Monetary gains? Does it make any sense to compare an outdated system like fee-for service with another outdated one such as "managed competition"?
Improving health is the goal, and nobody can answer to this question with this methodologic approaches. Understanding the bounded rationality, heuristics and biases of individuals is fundamental to assess any policy. As Thaler says in his book:
Moreover, much of what economists do is to collect and analyze data about how markets work, work that is largely done with great care and statistical expertise, and importantly, most of this research does not depend on the assumption that people optimize. Two research tools that have emerged over the past twenty-five years have greatly expanded economists’ repertoire for learning about the world. The first is the use of randomized control trial experiments, long used in other scientific fields such as medicine. The typical study investigates what happens when some people receive some “treatment” of interest. The second approach is to use either naturally occurring experiments (such as when some people are enrolled in a program and others are not) or clever econometrics techniques that manage to detect the impact of treatments even though no one deliberately designed the situation for that purpose. These new tools have spawned studies on a wide variety of important questions for society.
There is a long way forward in economic (and health economics) research.

PS. It's not a surprise that they have forgotten a key paper on the topic by R. Frank.

PS. Must see:

The exhibition Barcelona Haggadot reunites for the first time in more than six centuries an extensive selection of these splendid works of the Catalan Gothic period that were dispersed around the world when the Jews were expelled.

Barcelona, the seat of a monarchy and a hub of Mediterranean trade, had an urban ethos that was receptive to the most innovative artistic influences in the opening decades of the 14th century. At this juncture in the Gothic era, the city’s workshops constituted a highly active centre for the production of Haggadot, manuscripts that contain the ritual of the Passover meal, which were commissioned by families living in the Call (Jewish quarter) in Barcelona and in other Jewish communities. Jews and Christians alike worked on Haggadot and shared the same style and iconographic models.

PS. Victor Grifols has recently deceased. This obituary explains clearly his commitment with health, ethics and business. RIP