Essays on Incentives, Moral Hazard and Optimal Policy

Abstract

This collection of essays studies incentives and public policy in health care and labor markets. Chapter 1 investigates the causal effect of financial incentives on hos- pital discharge decisions. Making use of a kink in the German reimbursement system for hospitals, I employ a bunching design to tightly bound the effect of marginal pay on patients’ length of stay around zero. I discuss how the contrast between my result and the previous evidence is explained by differences in the institutional setting. In Chapter 2, I provide new evidence which improves our understanding of provider as well as patient behavior in response to incentives in health care. In particular, I show that a well-known piece of evidence in favor of moral hazard on the patient side with respect to health insurance coverage is better interpreted as limited attention behavior by doctors. Chapter 3 turns towards labor markets. It studies the impacts of heterogeneity in earnings potential on the optimal design of unemployment insurance and estimates the newly relevant parameters empirically.