A Theory of Certificate of Need Laws and Health Care Spending

I just published a paper on CON laws and spending in Contemporary Economic Policy. As frequent readers of this blog will know, CON laws in 34 states require healthcare providers in 34 US states to get permission from a state board before opening or expanding, and one goal of the laws is to reduce health care spending. The contribution we aim for in this paper is to lay out a theoretical framework for how these laws affect spending.

There have been many empirical papers on this, typically finding that CON laws increase spending, but the only theory explaining why has been simple supply and demand. Health care markets are hard to model for a few reasons, but one big one is that most spending is done through insurers, so the price consumers pay is typically quite a bit lower than the price producers receive. This leads to “moral hazard”- i.e. overuse and overspending by consumers. Normally economists hate monopolies because they lead to underproduction, so in a market with overuse its fair to ask (as Hotelling did about nonrenewable resources)- could two market failures (moral hazard overuse and monopoly underuse) cancel each other out?

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College Major, Marriage, and Children

The American Community Survey began in 2000, and started asking about college majors in 2009, surveying over 3 million Americans per year. This has allowed all sorts of excellent research on how majors affect things like career prospects and income, like this chart from my PhD advisor Doug Webber:

See here for the interactive version of this image

But the ACS asks about all sorts of other outcomes, many of which have yet to be connected to college major. As far as I can tell this was true of marriage and children, though I haven’t searched exhaustively. I say “was true” because a student in my Economics Senior Capstone class at Providence College, Hannah Farrell, has now looked into it.

The overall answer is that those who finished college are much more likely to be married, and somewhat more likely to have children, than those with no college degree. But what if we regress the 39 broad major categories from the ACS (along with controls for age, sex, family income, and unemployment status) on marriage and children? Here’s what Hannah found:

Every major except “military technologies” is significantly more likely than non-college-grads to be married. The smallest effects are from pre-law, ethnic studies, and library science, which are about 7pp more likely to be married than non-grads. The largest effects are from agriculture, theology, and nuclear technology majors, each about 18pp more likely to be married.

For children the story is more mixed; library science majors have 0.18 fewer children on average than non-college-graduates, while many majors have no significant effect (communications, education, math, fine arts). Most majors have more significantly more children than non-college graduates, with the biggest effect coming from Theology and Construction (0.3 more children than non-grads).

In this categorization the ACS lumps lots of majors together, so that economics is classified as “Social Sciences”. When using the more detailed variable that separates it out, Hannah finds that economics majors are 9pp more likely than non-grads to be married, but don’t have significantly more children.

I love teaching the Capstone because I get to learn from the original empirical research the students do. In a typical class one or two students write a paper good enough that it could be published in an academic journal with a bit of polishing, and this was one of them. But its also amazing how many insights remain undiscovered even in heavily-used public datasets like the ACS. We’ve also just started to get good data on specific colleges, see this post on which schools’ graduates are the most and least likely to be married.

Post Tenure Agenda

To get anywhere new, you need to step off the treadmill

Before tenure, most academics need to publish their work in peer-reviewed journals if they want to keep their jobs. After tenure, most can publish their work anywhere or nowhere and still keep their jobs. This is a dramatic change in incentives, and you’d think it would lead to dramatic changes in behavior, particularly in a field like economics that studies incentives. In some ways it does- most professors spend less time on research after tenure. But if they do keep doing research, it is generally the same kind they did before- it seems surprisingly rare for economists to change what kind of research they do in response to their changed incentives.

On Monday the President of Providence College told me I’ve been promoted to tenured Associate Professor. I spent much of the last 10 years focused on publishing the 26 academic articles that got me here. So now I’m wondering, what do I change when freed from constraints? I’m planning a pivot toward higher-risk, longer time-horizon, potentially higher-reward research:

Different venues– publish things where people will read them, not where its most prestigious. More white papers, working papers, open access. More blog posts and popular articles, more books– not everything needs to be a peer-reviewed academic paper.

Different topics and methods– focus on work that might have policy impact even if it doesn’t publish well. Do more replications, forecasting and related work that moves us toward being a real science that establishes real truths, even if it doesn’t publish well and might anger some people. Make a point of posting data and code publicly so that its easy for others to use.

New skills– develop generalist skills or a 2nd specialty, ideally in a young/developing field like metascience or superforecasting. Breakthroughs are more likely to come that way, especially for someone not at the top of their 1st field. Create slack so that when big opportunities or needs arise, I’m not “too busy” working on old articles to do anything about it (like I was with Covid in February 2020, Bitcoin mining in 2011, et c). Of course, many of the directions I’m considering (prediction markets, consulting, angel investing, hanging around the state house) might never be “research” even if they do pan out.

The GMU economists are good role models here, though they are such outliers now that people don’t realize they often started their careers focused on publishing journal articles (admittedly some weird ones). For instance, Bryan Caplan’s first book came out 4 years after he got tenure. I’d like to hear more examples of people whose research changed for the better after tenure if you have them. I’d also like to hear about the projects you wish someone not concerned about career risk would take on.

I’m happy to be an Associate Professor at Providence College. While I wouldn’t mind hitting some higher rungs of the academic career/prestige ladder (full professor, endowed chair, NBER invitations, et c), I don’t view these as incentives strong enough to distort my choices the way needing to get a job and get tenure did. Now the goal is simply to do the best work I’m capable of, as I see it. As you can tell I’m pulled in a lot of different directions about what this will look like, but I hope that within 5 years it will be clear I’m doing quality work beyond standard applied microeconomics I’ve been exclusively focused on till now. If not, you’ll have this post to hold over me.

“I consider the “wasting of tenure” to be one of the aesthetic crimes one can commit with a wealthy life, and yet I see it all the time” –Tyler Cowen