Author Archive

How definitive are Olympic results? The answer is as varied as the scoring systems the events employ. For many Olympic competitions a team tallies wins and losses–a set of nominal variables. Such variables are qualitative and considered to be of the lowest level of measurement. They ask a question (e.g. won?, lost?). The data answer the question with either true, represented by one, or false, represented by zero. Nominal categories must be mutually exclusive–one cannot both win and lose a particular game. The categories must also be fully exhaustive–a team must win or lose any game played. This method of determining a winner often satisfies spectators because outcomes are usually indisputable. Because a team’s record places equal value on all wins, it cannot be objectively compared across time periods. Opponents and skill levels change. Whether a current team is better than a previous team therefore becomes primarily a matter of opinion.

At the other end of the spectrum is the ratio scale. Two relevant examples are time and distance. Ratio variables have two simple criteria. First, zero has to represent nothing. The zero-minute-mile is eternally elusive and zero-meter javelin tosses denote a complete lack of ability. Second, when a value is doubled it must mean double the value. Four minutes is twice the duration of two minutes and six yards is twice the length of three yards. These results can be compared across time periods. Whether examining the luge, shot put, or high jump, today’s Olympians can be directly compared to those from the past. Ratio level measurement is necessary for world records.

Ordinal measurements lie somewhere between nominal and ratio scales. They can be put in order, but the distances between them contain no additional information. Judges give ordinal scores. Higher means better, but we cannot say how much better. Two additional points from judges today are not equivalent to two additional points from judges yesterday, last year, or in 1980. Fans have to accept that ordinal scores are subjective and cannot be compared across time (or even across judges).

So, to start a discussion about an event’s greatest athlete, choose an event judged on a nominal or ordinal scale. Debating one with a world record holder won’t give you much to talk about.

Health Economics
Course numbers:
UIC – ECON 215
Loyola – ECON 329
FULL SYLLABI:
UIC | Loyola

“America’s health care system is neither healthy, caring, nor a system.”

– Walter Cronkite

INTRODUCTION

This course will cover supply and demand for health services, the role of insurance in the health care industry, public policy issues, cost and quality regulation. Upon completion of this course you will be able to:

  • Use cost-benefit analysis to evaluate health related topics.
  • Apply economic principles to the production of health and health capital.
  • Use economic tools to analyze health insurance markets.
  • Understand the basics of the health care labor market.

REQUIRED TEXTS

The Economics of Health and Health Care, Seventh Edition
Sherman Folland, Allen C. Goodman, Miron Stano
ISBN-13: 978-0132773690

Irrationality in Health Care: What Behavioral Economics Reveals About What We Do and Why
Douglas E. Hough
ISBN-13: 978-0804777971

Here I briefly explain what my latest research project is about and where it is headed.

The number of bathrooms in a student’s house is highly correlated with his or her ACT scores. Why? When a house has a greater number of bathrooms, the property value of that house increases. When property values go up, so do property taxes. This leads to better funded local schools. Such schools produce students that do relatively better on standardized tests. Without controlling for more relevant variables, one might argue that more toilets lead to better test scores. This illustrates the importance of theory in the practice of statistics.

When discussing the difference between correlation and causation I am often asked, “But what if one event always occurs before the other one?” Often when I am flying, the pilot will flip on the “fasten your seatbelt” sign several minutes before the plane hits some turbulence. Based on the logic that causation can be shown if one event regularly occurs before another, I could conclude that pilots cause turbulence by turning on seatbelt lights.

A disproportionate amount of DUIs are given to people driving older vehicles. People who drive older vehicles tend to be poorer. Are the police actively looking to punish poorer people by targeting older cars when deciding which cars to pull over late at night? Not necessarily. An officer I know told me that someone driving without their headlights on after midnight is the most common signal of intoxication. Newer vehicles don’t allow for drivers to make this mistake because of automatic lighting systems. Simple statistics might lead one to conclude that police are biased against poorer drivers. A little insight tells us that wealthier drivers just have an additional protection against signaling intoxication.

Prof. Adam Martin explains how the drug war has altered incentives for both drug buyers and sellers, leading them to favor higher potency drugs. This is what economists call the potency effect.

Prof. Angela Dills discusses the economics of drug prohibition.

It takes an entire civilization to build a toaster. Designer Thomas Thwaites found out the hard way, by attempting to build one from scratch: mining ore for steel, deriving plastic from oil … it’s frankly amazing he got as far as he got. A parable of our interconnected society, for designers and consumers alike.

An energy crisis plagues the Western world. Diminishing supplies and increasing transportation costs are driving up prices. Fuel sources are drying up. Many fear that the current way of life will become unsustainable. Families spend escalating proportions of their income on simple amenities such as heating their homes.

The previous paragraph may accurately depict the modern world. However, it was written about Europe in the sixteenth century. In Before the Industrial Revolution, Carlo Cipolla explains that timber remained the primary fuel of Europeans until the late 1600s. Only when coal was increasingly used as a substitute did timber prices began to diminish. So why did the Europeans wait so long to start burning coal? The answer is that at low prices it simply wasn’t worth the time or effort to extract the coal from the ground. When timber prices rose, coal sellers could undercut the price and still make a profit. This is the law of supply–as the price increases, more people are willing to supply a good.

High oil prices lead to talk about increased consumer costs and windfall producer profits while the most promising aspect is often ignored. Necessity is indeed the mother of invention (and innovation). The resolution to our generation’s fuel problems will most undoubtedly be the same solution as four centuries ago: the development of new energy sources. The need to develop new energy wasn’t there when oil was relatively cheap. High oil prices incentivize the development of new competitive energy sources and methods.

Even the commode is not immune from economic activity. I find two examples especially interesting.

The law of demand states that as something becomes more expensive, people choose to consume less of it. Electronic towel dispensers are a perfect example of this concept involving non-monetary prices. Pulling our own paper towels is no great task, so why do these machines exist? I suggest towels from automated Washroom Signmachines purposely cost more to users by requiring more time per sheet. Because of the higher price, the restroom operator knows that fewer towels will be taken per wash. As fewer towels are consumed, less restocking occurs, and eventually the room operates at a lower cost.

Similarly, bathroom attendants make hand-washing more costly. If you choose to tip bathroom attendants, handwashing becomes more expensive. Attendants can also make those who do not tip feel uncomfortable or annoyed, thereby raising their costs. For both groups, handwashing costs more, so people choose to have less of it. Economic reasoning allows us to see the public health implications associated with letting an attendant set up shop.

There is another interesting story here. To see it, you need to note that handwashing and trips to the lavatory are complements (items consumed together). Theory states that as the price of a complement good (handwashing) increases, people will demand less of the original good (stops at the loo). The punch line is that washroom attendants drive people to use bathrooms less frequently, which is rough news for our poor bladders.

Hockey has a strange system to determine who makes the playoffs. Each team receives two points for every match they win, zero points for every match they lose in regulation and one point for each game that they lose in overtime. This point total, not overall record, determines which teams make the playoffs.

For simplicity, let’s assume in any given match that each team has an equal chance of winning. The expected value for any regulation match is one point (the average of the winner’s two points and the loser’s zero) and the expected value for any overtime match is one and a half points (the winner gets two, the loser gets one).

In-conference matches involve one team trying to gain ground on the other. The expected value is not important. In this situation, teams only care about the expected gain (or loss) in points relative to their opponent. An overtime win results in a net gain of one point while a regulation win awards a net gain of two.

Teams from different conferences don’t compete with each other for playoff spots. So while teams playing within their conference care about expected gain, teams playing outside their conference care about expected value. If teams try to maximize these values, they will prefer for conference games to end in regulation and non-conference games to go into overtime. This affects third period strategies in close games. More importantly, it provides plenty of incentive for unspoken collusion between teams in different conferences.