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"opportunity costs"
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The Cyclicality of the Opportunity Cost of Employment
The flow opportunity cost of moving from unemployment to employment consists of forgone public benefits and the forgone consumption value of nonworking time. We construct a time series of the opportunity cost of employment using detailed microdata and administrative or national accounts data to estimate benefits levels, eligibility, take-up, consumption by labor force status, hours, taxes, and preference parameters. The opportunity cost is procyclical and volatile over the business cycle. The estimated cyclicality implies far less unemployment volatility in leading models of the labor market than that observed in the data, irrespective of the level of the opportunity cost.
Journal Article
Estimating a cost-effectiveness threshold for health care decision-making in South Africa
Abstract
Cost-effectiveness thresholds are important decision rules that determine whether health interventions represent good value for money. In low- and middle-income countries, the World Health Organization (WHO) one to three times per capita gross domestic product (GDP) per disability-adjusted life years (DALYs) averted has been the most widely used threshold for informing resource allocation decisions. However, in 2016, the WHO withdrew recommendations for using this threshold, creating a significant vacuum in South Africa and many countries that rely on results of cost-effectiveness analyses for making resource allocation decisions. This study estimates a cost-effectiveness threshold that reflects the health opportunity cost of health spending in South Africa using a three-step approach. First, marginal returns to health spending was estimated as health spending elasticity for crude death rates using a fixed effect estimation approach. Second, the opportunity cost of health spending was estimated as DALYs averted. Finally, a cost per DALY averted threshold was estimated as the inverse of the marginal product of health spending. We show that 1% of total health spending in 2015 (equivalent to approximately ZAR 1.54 billion/USD 120.7 million) averted 1050 deaths, 34 180 years of life lost, 5880 years lived with disability and 40 055 DALYs. The cost-effectiveness threshold was estimated at approximately ZAR 38 500 (USD 3015) per DALY averted, ∼53% of South Africa’s per capita GDP in 2015 (ZAR 72 700/USD 5700) and lower than the previously recommended one to three times per capita GDP. As South Africa moves towards implementing universal health coverage reforms through National Health Insurance by 2025, the adoption of a threshold that reflects health opportunity costs will be crucial for ensuring efficiency in the allocation of scarce resources. This study provides useful insight into the magnitude of the health opportunity cost of health spending in South Africa and highlights the need for further research.
Journal Article
Slack Time and Innovation
The relationship between slack resources and innovation is complex, with the literature linking slack to both breakthrough innovations and resource misallocation. We reconcile these conflicting views by focusing on a novel mechanism: the role slack time plays in the endogenous allocation of time and effort to innovative projects. We develop a theoretical model that distinguishes between periods of high- (work weeks) versus low- (break weeks) opportunity costs of time. Low-opportunity cost time during break weeks may induce (1) lower quality ideas to be developed (a selection effect); (2) more effort to be applied for any given idea quality (an effort effect); and (3) an increase in the use of teams because scheduling is less constrained (a coordination effect). As a result, the effect of an increase in slack time on innovative outcomes is ambiguous, because the selection effect may induce more low-quality ideas, whereas the effort and coordination effect may lead to more high-quality, complex ideas. We test this framework using data on college breaks and on 165,410 Kickstarter projects across the United States. Consistent with our predictions, during university breaks, more projects are posted in the focal regions, and the increase is largest for projects of either very high or very low quality. Furthermore, projects posted during breaks are more complex, and involve larger teams with diverse skills. We discuss the implications for the design of policies on slack time.
The online appendices are available at
https://doi.org/10.1287/orsc.2018.1215
.
Journal Article
The Value of Nothing: Asymmetric Attention to Opportunity Costs Drives Intertemporal Decision Making
This paper proposes a novel account of impatience: People pay more attention to the opportunity costs of choosing larger, later rewards than to the opportunity costs of choosing smaller, sooner ones. Eight studies show that when the opportunity costs of choosing smaller, sooner rewards are subtly highlighted, people become more patient, whereas when the opportunity costs of choosing larger, later rewards are highlighted this has no effect. This pattern is robust to variations in the choice task, to the participant population, and to whether the choices are incentivized or hypothetical. We argue that people are naturally aware of the opportunity costs of delayed rewards but pay less attention to those associated with smaller, sooner ones. We conclude by discussing implications for theory and policy.
Data, as supplemental material, are available at
https://doi.org/10.1287/mnsc.2016.2547
.
This paper was accepted by Yuval Rottenstreich, judgment and decision making
.
Journal Article
When does a supplier tolerate resellers’ opportunistic behaviors? Transaction benefit and cost perspectives
Purpose
The purpose of this study is to examine tolerance of channel partners’ opportunistic behaviors as a viable governance mechanism and to test contingent transaction benefit and cost factors to determine tolerance of opportunistic behaviors.
Design/methodology/approach
Through the theoretical lenses of governance value analysis and transaction cost economics, this study theorizes that a supplier’s tolerance of its reseller’s opportunistic behaviors should depend on transaction benefit factors (e.g. new product creativity and marketing program creativity) and transaction cost factors (e.g. performance ambiguity and opportunity cost). The author empirically tests the moderation model using data from a large-scale survey of 141 mobile phone suppliers in South Korea.
Findings
The empirical results largely support the predictions on the moderating effects. For transaction benefit factors, marketing program creativity increases the supplier’s tolerance, while new product creativity does not increase the supplier’s tolerance. For transaction cost factors, the supplier’s concerns about opportunity cost increase the level of tolerance, while performance ambiguity of a business partner decreases the tolerance level.
Research limitations/implications
Theorizing opportunistic behaviors as a policy variable subject to benefit-cost assessment rather than an assumption provides new insights to interfirm governance research.
Originality/value
To the best of the author’s knowledge, this study is the first kind to consider transaction benefit and cost factors together in a single contingency framework in tolerance research. Also, this research provides a new perspective on a microlevel marketing factor (i.e. creativity) as an influential factor in governance mechanisms.
Journal Article
A New Budget Allocation Framework for the Expected Opportunity Cost
In this paper, we present a new budget allocation framework for the problem of selecting the best simulated design from a finite set of alternatives. The new framework is developed on the basis of general underlying distributions and a finite simulation budget. It adopts the expected opportunity cost (EOC) quality measure, which, compared to the traditional probability of correct selection (PCS) measure, penalizes a particularly bad choice more than a slightly incorrect selection, and is thus preferred by risk-neutral practitioners and decision makers. To this end, we establish a closed-form approximation of EOC to formulate the budget allocation problem and derive the corresponding optimality conditions. A sequential budget allocation algorithm is then developed for implementation. The efficiency of the proposed method is illustrated via numerical experiments. We also link the EOC and PCS-based budget allocation problems by showing that the two are asymptotically equivalent. This result explains, to some extent, the similarity in performance between the EOC and PCS allocation procedures observed in the literature.
The online appendix is available at
https://doi.org/10.1287/opre.2016.1581
.
Journal Article
Pressure injury in Australian public hospitals: a cost-of-illness study
Pressure injuries (PI) are largely preventable and can be viewed as an adverse outcome of a healthcare admission, yet they affect millions of people and consume billions of dollars in healthcare spending. The existing literature in Australia presents a patchy picture of the economic burden of PI on society and the health system. The aim of the present study was to provide a more comprehensive and updated picture of PI by state and severity using publicly available data.
A cost-of-illness analysis was conducted using a prevalence approach and a 1-year time horizon based on data from the existing literature extrapolated using simulation methods to estimate the costs by PI severity and state subgroups.
The treatment cost across all states and severity in 2012-13 was estimated to be A$983 million per annum, representing approximately 1.9% of all public hospital expenditure or 0.6% of the public recurrent health expenditure. The opportunity cost was valued at an additional A$820 million per annum. These estimates were associated with a total number of 121 645 PI cases in 2012-13 and a total number of 524 661 bed days lost.
The costs estimated in the present study highlight the economic waste for the Australian health system associated with a largely avoidable injury. Wastage can also be reduced by preventing moderate injuries (Stage I and II) from developing into severe cases (Stage III and IV), because the severe cases, accounting for 12% of cases, mounted to 30% of the total cost.
Journal Article
Utracone przychody – wycena stref ochrony gatunkowej ptaków
Forest management implements and shapes the non-productive functions of the forest. The implementation of functions related to nature conservation often contributes to the reduction of the production function. Therefore, it is important to estimate the extent of lost benefits in order to provide a more comprehensive estimate of the total costs of nature conservation. The aim of the study was to estimate the alternative costs in the forest districts of the Regional Directorate of State Forests (RDSF) in Poznań resulting from the functioning of year-round protection zones around protected bird nests in the forest area. As follows from the analyses carried out, the estimated alternative costs of this form of nature protection are significant and amount to a total of PLN 4,166,493.54 in 2023 (PLN 10.36/ha/year for 1 ha of forest area and PLN 2,192.94/ha/year for 1 ha of protected area).
Journal Article
Do Working Men Rebel? Insurgency and Unemployment in Afghanistan, Iraq, and the Philippines
Most aid spending by governments seeking to rebuild social and political order is based on an opportunity-cost theory of distracting potential recruits. The logic is that gainfully employed young men are less likely to participate in political violence, implying a positive correlation between unemployment and violence in locations with active insurgencies. The authors test that prediction in Afghanistan, Iraq, and the Philippines, using survey data on unemployment and two newly available measures of insurgency: (1) attacks against government and allied forces and (2) violence that kill civilians. Contrary to the opportunity-cost theory, the data emphatically reject a positive correlation between unemployment and attacks against government and allied forces (p <.05 percent). There is no significant relationship between unemployment and the rate of insurgent attacks that kill civilians. The authors identify several potential explanations, introducing the notion of insurgent precision to adjudicate between the possibilities that predation on one hand, and security measures and information costs on the other, account for the negative correlation between unemployment and violence in these three conflicts.
Journal Article