"...enough experience to be arrogant, not enough to be humble"

econ professor explaining the difference between Senator Obama and McCain:

Obama as a classic interventionist who overestimates the government's power to control the economy. 'He's relatively young. He knows enough to be arrogant and not enough to be humble,' Froeb says. 'Whereas McCain knows enough to be humble. He sees a problem and he may understand that there isn't an immediate solution.'

Scariest words of the week

House Ways and Means Committee Chairman Charles B. Rangel (D-N.Y.) said his policy staff and Obama's have been working together for more than a month to craft a legislative agenda:

"This is my last chance," Rangel, 78, said of his opportunity to make a lasting legislative imprint. "This is the big one."

It looks like the Feds got this one right

Finding evidence that the antitrust agencies are helping the economy is notoriously difficult because the agencies challenge anticompetitive behavior, including mergers. But when they lose in court, nature provides us with a natural experiment that, in principle, should allow us to examine the effects of anticompetitive mergers, or at least mergers that were thought to be anticompetitive at the time. Today's WSJ follows up on 1989 merger between the only two hospitals in Roanoke, Virginia.

Nearly two decades later, the cost of health care in the Roanoke Valley -- a region in southwestern Virginia with a population of 300,000 -- is soaring. Health-insurance rates in Roanoke have gone from being the lowest in the state to the highest.

That's partly a reflection of Carilion's prices. Carilion charges $4,727 for a colonoscopy, four to 10 times what a local endoscopy center charges for the procedure. Carilion bills $1,606 for a neck CT scan, compared with the $675 charged by a local imaging center.

Carilion's market clout is manifest in other ways. With eight hospitals, 11,000 employees and $1 billion in assets, the tax-exempt hospital system has become one of the dominant players in the Roanoke Valley's economy. Its dozens of subsidiaries include businesses ranging from athletic clubs to a venture-capital fund.

These mergers affect the bargaining that goes on between hospitals and insurers. As our favorite textbook says, if the alternatives to agreement determine the terms of agreement, then a merger that can put a bigger hole in a provider network has the potential to raise price. These mergers make insurers more eager to reach agreement, and this often means higher prices paid to hospitals.

Things you should do, but probably don't

Advice from Nudge (book review), a new book summarizing research in Behavorial Economics:

• save more
• diversify your investments
• don’t invest much in your employer’s stock
• don’t pay points on mortgages
• buy insurance with the biggest deductible you can afford
• don’t pay for extended warranties

Antitrust suit against vertically integrated CVS

In 2006, when CVS, the second-largest retail pharmacy, acquired Caremark, a Pharmaceutical Benefits Manufacturer (PBM), there was speculation that Walgreen Co, the largest retail pharmacy, would be "jolted into action," to look for its own acquisition to avoid losing customers:

“If Walgreen eventually believes it’s losing volume to CVS from a loss of Caremark customers, they may need to step up their search,” said HSBC analyst Mark Husson.

Instead, Walgreen Co has sued CVS for blocking access to Caremark customers, like BlueCross:

Walgreen Co. says state law specifically forbids insurers from denying licensed pharmacies the right to participate in an insurance network. The company said a Shelby County Chancery Court judge ruled in January of this year in its favor when it sued BlueCross to get the rights to the network. Now, it's going after Caremark, saying the company continues to prevent Walgreen Co. from selling mail order and specialty drugs to BlueCross members.

...Walgreen Co.'s lawsuit says Caremark, since 2005, "intentionally engaged in this scheme to protect its unlawful, lucrative and favored position in (BlueCross') networks ..."

Printer Betrayal

Everyone's favorite economics text describes how the seemingly ridiculous prices of toner cartridges relative to printer prices is an indirect price discrimination scheme. Little did I know that the situation is even worse than I thought.

How do you know whether your printer needs a new cartridge? The printer tells you. Stop and think about that for a minute. What are your printer's incentives to be honest with you? Not too many. Wouldn't your printer be a little bit better off by perhaps shading the information it reports and telling you that you need to replace the cartridge before you really need to? I always thought my Brother HL-1440 looked a bit suspicious sitting there so quietly (it's always the quiet ones).

Here's an article from Slate discussing how your printer tricks you into thinking you need new toner and what you can do about it.

Dirty, low-down, lying printer! Or perhaps economics has infected my brain. Perhaps my printer is truly an altruist who is just extremely worried about me running out of toner when I am printing an extremely important document.

IFRS vs. GAAP

In past, we have blogged about managerial problems created when companies switch accounting standards. As US regulators debate whether to permit or require US firms to prepare financial statements using International Financial Reporting Standards (IFRS), a new paper concludes that net income computed with GAAP has a higher information content than net incomce computed under IFRS.

How to Really Stop White Collar Crime

I recently attended a session at the Academy of Management conference in which one of the papers presented concerned unethical behavior by corporations. The author argued that this type of behavior could not be explained by simple cost-benefit analysis. I thought, "Why not?" The benefits to a lot of these activities are pretty high and the probability of being caught seems fairly low. And, even if the individuals are caught and their extremely well-paid and talented legal team are unable to successfully defend them, what type of sentence awaits them? Probably a few years at a minimum security prison.

Things might be a little different if the penalties were stiffer, like this. According to the article, the former finance director of China Southern Airlines was accused of embezzling over $100 million dollars and was recently convicted. His sentence:

Chen, 59, was sentenced to death with a two-year reprieve by Guangzhou Intermediate People's Court.

What took them so long?

Alabama has given its 37,527 state employees a year to start getting fit — or they'll pay $25 a month for insurance that otherwise is free.

Other people's money: "emergency" medicine

If given a choice, it is not surprising that patients would choose the option that involves lower waiting time for an appointment.

Four in 10 of the patients flooding California's dwindling and overtaxed emergency rooms could be treated elsewhere, but can't wait for an appointment with their own doctor, according to a study released Tuesday.