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Optimal Managed Competition Subsidies / Keaton S. Miller, Amil Petrin, Robert Town, Michael Chernew.
- Format:
- Book
- Author/Creator:
- Miller, Keaton S.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w25616.
- NBER working paper series no. w25616
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2019.
- Summary:
- When markets fail to provide socially optimal outcomes, governments often intervene through 'managed competition' where firms compete for per-consumer subsidies. We introduce a framework for determining the optimal subsidy schedule that features heterogeneity in consumer preferences and inertia, and firms with heterogeneous costs that can set prices and product characteristics in response to changes in the subsidy. We apply it to the Medicare Advantage program, which offers Medicare recipients private insurance that replaces Traditional Medicare. We calculate counterfactual equilibria as a function of the subsidies by estimating policy functions for product characteristics from the data and solving for Nash equilibria in prices. The consumer-welfare-maximizing budget-neutral schedule increases aggregate annual consumer welfare by $4.6 billion over the current policy and is well-approximated with a linear rule using market-level observables.
- Notes:
- Print version record
- February 2019.
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