The Global Context Lecture 10 Global Corporate Social Responsibility.
Lecture 2. Compensation and responsibility
description
Transcript of Lecture 2. Compensation and responsibility
![Page 1: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/1.jpg)
Lecture 2. Compensation and responsibility
Erik Schokkaert (KULeuven, Department of Economics)
![Page 2: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/2.jpg)
Structure
1. Responsibility and compensation in a quasi-linear model: optimal income redistribution in a first best setting
2. Another application: distribution mechanism (prospective financing mechanisms) in the health care sector
3. From first best-solutions to social orderings
![Page 3: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/3.jpg)
1. Responsibility and compensation in a quasi-linear setting (BOSSERT en FLEURBAEY, Social Choice and Welfare, 1996)
![Page 4: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/4.jpg)
Responsibility and compensation the responsibility cut: (ai
R, aiS)
EIER (equal income for equal R): full compensation
ETES (equal transfer for equal S): strict compensation
![Page 5: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/5.jpg)
An impossibility and a possibility Th 1. In general, EIER and ETES are
incompatible. Th. 2. If the pre-tax income function is
additively separable in C- and S-variables,
then, there is a natural solution satisfying both EIER and ETES
![Page 6: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/6.jpg)
How to proceed from here?
IMR WIMR ETES ETUS ETRS
GSS
WGSS
EIER X
EIUR
EIRR
![Page 7: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/7.jpg)
Strengthening and relaxing EIER
![Page 8: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/8.jpg)
GSS => WGSS => EIER => EIUR => EIRR
![Page 9: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/9.jpg)
Strengthening and relaxing ETES
![Page 10: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/10.jpg)
IMR => WIMR => ETES => ETUS => ETRS
![Page 11: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/11.jpg)
Characterizations
IMR WIMR ETES ETUS ETRS
GSS X X X
WGSS X X X
EIER X X X
EIUR
EIRR
![Page 12: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/12.jpg)
The egalitarian-equivalent solution
IMR WIMR ETES ETUS ETRS
GSS X X X EE
WGSS X X X
EIER X X X
EIUR
EIRR
pre-tax income she would earn with reference talent
uniform transfer to satisfy the budget contraint
![Page 13: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/13.jpg)
The conditional-egalitarian solution
IMR WIMR ETES ETUS ETRS
GSS X X X EE
WGSS X X X
EIER X X X
EIUR
EIRR CE
responsibility part"guaranteed income"
![Page 14: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/14.jpg)
CharacterizationsIMR WIMR ETES ETUS ETRS
GSS X X X X EE
WGSS X X X AEE
EIER X X X
EIUR X ACE
EIRR CE
average over all levels of talent
average over all levels of effortresponsibility part
![Page 15: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/15.jpg)
2. Designing prospective financing schemes in the health care sector Incentive problems in health care - examples:
financing of hospitals or practices of doctors financing schemes for regions and sickness funds
Two "extreme" solutions: reimbursement of expenditures (e.g. fee for service) prospective financing
Trend towards prospective financing and benchmarking: advantage: incentives for cost control danger: incentives for risk selection
Solution? Risk adjustment
![Page 16: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/16.jpg)
EXAMPLE 1: REGIONAL DISTRIBUTION MECHANISM
Central government
Citizen Regional authority
Local "health" tax?
Financial contribution
Subsidy
![Page 17: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/17.jpg)
EXAMPLE 2: REGULATED COMPETITION WITH RISK ADJUSTMENT
Solidarity fund
Consumer Managed careorganisation
Premium Contribution
Solidaritycontribution
Premium subsidy
![Page 18: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/18.jpg)
Basic idea
In practice: risk-adjusted premium subsidies often derived from observed expenditures
In principle: risk-adjusted premium subsidies based on “acceptable costs”: “costs generated in delivering a specified basic benefits package, containing only medically necessary and cost-effective care” (Van de Ven and Ellis, 2000)
Therefore: many factors, which do have an influence on observed expenditures, should NOT be used for calculating the risk-adjusted premium subsidies
![Page 19: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/19.jpg)
QUESTIONS: what variables should be included in the RA-
system? how to design a prospective financing system?
![Page 20: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/20.jpg)
Reinterpretation of the Bossert-Fleurbaey model (Schokkaert, Dhaene, Van de Voorde, HE 1998; Schokkaert and Van de Voorde, JHealth Econ 2004) health care expenditures: total amount of premium subsidies:
ω (= )
monetary gain made on a patient i:
responsibility cut:
)a(fx ii
iii x
)a,a(fx Ri
Cii
i
i
![Page 21: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/21.jpg)
"Cost efficiency"
NEUTRALITY: for any two individuals i and j with
consequence:
it holds that
jiCj
Ci ,aa
Rj
Ri
Cj
Ci aa,aa:j,i
ji
![Page 22: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/22.jpg)
"Solidarity"
NO INCENTIVES FOR RISK SELECTION: for any two individuals i and j with
consequence:
it holds that
jiRj
Ri ,aa
Cj
Ci
Rj
Ri aa,aa:j,i
ji
![Page 23: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/23.jpg)
Theorems
Proposition 1. If the medical expenditure function can be written ( ) as
then the following mechanism satisfies NIRS and NEUT:
NOTE. If , then
i)a(h)a(g)a,a(f R
iCi
Ri
Ci
k
Ck
Cii )a(g
n)a(g
n
i
ix k
Rk
Cii )a(h
n)a(g
![Page 24: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/24.jpg)
An impossibility result
Proposition 2. If the medical expenditure function is not additively separable in the variables aC and aR, then NO risk adjustment scheme can satisfy both NIRS and NEUT.
![Page 25: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/25.jpg)
Alternative solutions? Keep NIRS, drop NEUT: egalitarian-
equivalent solutions
![Page 26: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/26.jpg)
Keep NEUT, drop NIRS: conditional-
egalitarian solutions
![Page 27: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/27.jpg)
Empirical illustration:
- individual data for 321,111 Belgian insured (no self-employed)
- RIZIV-reimbursements for 1995 (medicines are not included)
- per capita reimbursed health expenditures: 38.299 BEF (949 Euros)
![Page 28: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/28.jpg)
a. treatment of omitted variables the conventional approach neglects the
effects of the R-variables in
therefore, the estimates of the effects of the C-variables are biased, if there is correlation between C- and R-variable
)a,a(fx Ri
Cii
![Page 29: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/29.jpg)
![Page 30: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/30.jpg)
![Page 31: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/31.jpg)
b. non-separable specifications introduction of multiplicative effects in the
specification: age * loyalty to general practitioner medical supply * disability
no longer additively separable: conditional egalitarian approach introduces incentives for risk selection
![Page 32: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/32.jpg)
![Page 33: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/33.jpg)
![Page 34: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/34.jpg)
A general remark
it is possible to neutralize the effect of responsibility variables for the computation of the premium subsidies
advisable to distinguish explicitly two stages: do the econometric work as carefully as possible
– specify the best explanatory model set up an explicit discussion about the ethical (or
political) choices
![Page 35: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/35.jpg)
3. From first best to social orderings: Fleurbaey (2005) BASIC ASSUMPTIONS:
rejection of welfarism: subjective satisfaction is not the ultimate criterion ("responsibility for subjective happiness")
rejection of perfectionism: preferences of the population should be respected
reducing income inequalities is good, provided this has no adverse consequences on health
![Page 36: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/36.jpg)
Some notation every individual has a particular health-
consumption bundle zi = (hi , ci ). Perfect health denoted by h*.
every individual i has well-defined monotonic preferences Ri over these bundles
how to define social preferences R over allocations z = (z1,…,zn )?
social preferences will depend on population profile of individual preferences, hence R(R)
![Page 37: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/37.jpg)
Feasible allocations every individual i is endowed with a mapping
wi (hi ), defining her income after all taxes and transfers except health-related ones
every individual is endowed with a mapping mi (hi ), describing how much of medical expenses must be made in order to bring her to health state hi
individual budget constraint:
)h(m)()h(w)(c iiiii
iiiiiii S)h(mT)h(wc
![Page 38: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/38.jpg)
Pareto-principle and independenceRESPECT OF INDIVIDUAL PREFERENCES
BASE SOCIAL PREFERENCES ON INDIVIDUAL PREFERENCESIN A VICINITY OF INDIVIDUALS' CURRENT SITUATION
![Page 39: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/39.jpg)
![Page 40: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/40.jpg)
Pigou-Dalton condition (revised)
traditional Pigou-Dalton condition makes sense only in a unidimensional world
extension to multidimensional setting may come in conflict with the Pareto condition
cares a lot abouthealth
does not care much about health
![Page 41: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/41.jpg)
RESTRICT APPLICATION OF PIGOU-DALTON PRINCIPLETO SITUATIONS WHERE THE TWO INDIVIDUALS HAVE THESAME PREFERENCES OR ARE BOTH AT A PERFECT HEALTHLEVEL
![Page 42: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/42.jpg)
"FULL-HEALTH EQUIVALENT INCOMES"
In normal circumstances
![Page 43: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/43.jpg)
![Page 44: Lecture 2. Compensation and responsibility](https://reader035.fdocuments.in/reader035/viewer/2022062423/568148f7550346895db61688/html5/thumbnails/44.jpg)
Relationship with WTP?
full-health equivalent consumption = actual consumption – "sacrifice" for better health
willingness-to-pay = "sacrifice" for better health + productivity gain due to better health
if productivity gain = 0, then
FHEC = Actual consumption - WTP