Affiliation:
1. Stanford University and National Bureau of Economic Research
2. New York University and National Bureau of Economic Research
Abstract
Abstract
In setting prices for physician services, Medicare solicits input from a committee that evaluates proposals from industry. The committee itself comprises members from industry; we investigate whether this arrangement leads to regulatory capture with prices biased toward industry interests. We find that increasing a measure of affiliation between the committee and proposers by one standard deviation increases prices by 10%. We then evaluate whether employing a biased committee as an intermediary may nonetheless be desirable, if greater affiliation allows the committee to extract information needed for regulation. We find industry proposers more affiliated with the committee produce less hard evidence in their proposals. However, on soft information, we find evidence of a trade-off: private insurers set prices that more closely track Medicare prices generated under higher affiliation.
Publisher
Oxford University Press (OUP)
Subject
Economics and Econometrics
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