Essays in Public Economics

Chapter 1 investigates whether physicians' financial incentives influence health care supply, technology diffusion, and resulting patient outcomes. In 1997, Medicare consolidated the geographic regions across which it adjusts payments for physician services, generating area-specific price shocks that are plausibly exogenous with respect to health care demand. Areas with higher payment shocks experience significant increases in health care supply. On average, a 2 percent increase in payment rates leads to a 5 percent increase in care provision per patient. Elective procedures such as cataract surgery respond twice as strongly as less discretionary services like dialysis. Higher reimbursements also increase the pace of technology diffusion, as non-radiologists acquire magnetic resonance imaging scanners more readily when prices increase. The magnitudes of our empirical findings imply that changing provider incentives explain up to one third of recent growth in spending on physician services. The incremental care has no significant impacts on mortality, hospitalizations, or heart attacks. In chapter 2, we analyze bargaining between health care providers and private insurers in the shadow of large public insurance programs. Using several distinct sources of variation in Medicares payment rates, we find robust evidence that private insurers adapt to Medicare pricing. The relationship between private and public prices is both significantly positive and significantly less than one-for-one. The results reject both the strong view that private insurers mimic Medicare and views that emphasize cost-shifting as the predominant feature of these markets. Private responses to Medicare payments are larger in states with more competitive insurance markets. The evidence is consistent with models in which Medicares payment rates serve as a basis for negotiations between insurers and provider networks. Chapter 3 revisits the standard user cost model of housing prices and concludes that the predicted impact of interest rates on prices is much lower once the model is generalized to include mean-reverting interest rates, mobility, prepayment, elastic housing supply, and credit-constrained home buyers. The modest predicted impact of interest rates on prices is in line with empirical estimates, and suggests that lower real rates can explain only one-fifth of the rise in prices from 1996 to 2006.Economic