Essays in Environmental and Healthcare Market Design

Abstract

This thesis studies the design of government intervention in environmental and healthcare markets. The first chapter, joint with Karl M. Aspelund, studies how asymmetric information inf luences the performance and design of government-established markets for conservation. Market mechanisms aim to deliver environmental services at low cost. However, this objective is undermined by participants whose conservation actions are not marginal to the incentive — or “additional” — as the lowest cost providers of environmental services may not be the highest social value. We investigate this potential market failure in the world’s largest auction mechanism for ecosystem services, the Conservation Reserve Program, with a dataset linking bids in the program’s scoring auction to satellite-derived land use. We use a regression discontinuity design to show that three of four marginal winners of the auction are not additional. Moreover, we find that the heterogeneity in counterfactual land use introduces adverse selection in the market. We then develop and estimate a joint model of multi-dimensional bidding and land use to quantify the implications of this market failure for the performance of environmental procurement mechanisms and competitive offset markets. We design alternative auctions with scoring rules that incorporate the expected impact of the auction on bidders’ land use. These auctions increase efficiency by using bids and observed characteristics to select participants based on both costs and expected additionality. The second chapter explores the observation that healthcare is often allocated without prices, sacrificing efficiency in the interest of equity. Wait times then typically serve as a substitute rationing mechanism, creating their own distinct efficiency and distributional consequences. I study these issues in the context of the Veterans Health Administration (VA) healthcare system, which provides healthcare that is largely free but congested, and the Choice Act, a large-scale policy intervention that subsidized access to non-VA providers to reduce this congestion. Using variation in Choice Act eligibility in both patient-level and clinic-level difference-in-differences designs, I find that the price reduction for eligible veterans led to substitution away from the VA, an increase in overall healthcare utilization and spending, and reduced wait times at VA clinics in equilibrium. I then use the policy-induced price and wait time variation to estimate the joint distribution of patients’ willingness-to-pay and willingness-to-wait. I find that rationing via wait times redistributes access to healthcare 3to lower socioeconomic status veterans, but at a large efficiency cost (-24%). This equity-efficiency trade-off is steep: rationing by wait times is an inefficient form of redistribution across a range of equity objectives. By contrast, I find that a coarsely targeted, modest increase in copayments increases consumer surplus by more than the Choice Act, at lower cost to the VA, while disproportionately benefitting low-income veterans. The third chapter, joint with Abigail Ostriker, investigates the effects of regulations designed to correct a wedge between privately- and socially-optimal construction in areas at risk of flooding in Florida. Using a spatial regression discontinuity around regulatory boundaries and an event study around the policy’s introduction, we document that floodplain regulation reduces new construction in high-risk areas and mitigates damages at homes constructed under flood-safe building standards. Embedding these effects in a model of the housing market, we find the policy reduces damages to the socially-efficient level, but incurs higher costs than a first-best corrective tax. Improved targeting of the existing policy achieves 94% of first-best welfare gains, or $7,567 per newly-constructed house.

JEL Codes: D4, D6, D8, H2, H5, I1, I3, Q2, Q5