Monday, October 21, 2013

PPACA, Provider Immigration, and Rigged Rent Contests

Tyler Cowen has a piece in the NY Times on the near future of the Patient Protection and Affordable Care Act. Knowing that Cowen is a finely tuned engine of economic analysis, readers should be unsurprised to find that the Grey Lady article wastes no ink decrying trifling implementation hiccups, instead pointing straight to a few of the deep structural flaws in the design of the legislation.

He follows up at Marginal Revolution (link here) with a half-buried bullet:
I did not have enough space to talk about more immigration for physicians and nurses, liability reform, and other supply-side reforms. They are very important.
Tyler is a prodigious reader. Prodigious. I can count on one hand the number of times I've seen him in person without a book in his hand. No joke, the guy reads more in one day than the median US citizen does in a year. Despite this, I strongly doubt he's read EE more than a couple of times. It is therefore quite unlikely that he ran across what I wrote on Friday. To recap, I argued that if there's persistent, legislated real wage differentials across borders, marginally liberalized immigration policy for high skill services without general immigration relief might possibly create what I would have called "scalpel drain" had I been more mentally adroit. The key difference between scalpel drain and old-fashioned brain drain is geographical scope of practice. A nurse cannot practice medicine from afar the same way an IT professional can write code halfway around the world. And under asymmetrical price controls, wages don't accurately reflect relative scarcity. This could be bad. Maybe not giant Twinkie bad, but still pretty bad.

Here's the interesting thing: the forward induction on this game is tough to nail down. Cowen's a superb chess player, and he knows as well as anyone paying half a dram of attention (much better, actually) that the ACA was never intended to be anything even close to approaching a steady-state equilibrium in the delivery of medicine in the US. He's better than you at ignoring all the political jawboning and kayfabe to peer through the smoky aperture into the likely states of the world down the cobblestone path of stochastic political waffling. And so far as I can tell, he's mum on how the rent contest over medical professionals will change as the demographic hammer prepares to strike hospitals' anvils.

I want you to think for a moment about how rent contests work, particularly with respect to very roundabout production. In this case, the prize is a relatively comfortable position as a nurse catering to wealthy American patients in a finely-appointed hospital and earning considerable wage premiums to do so (more so for nurses than for doctors, what with all the malpractice insurance and forgone wages during school and whatnot). If you're lucky enough to land in a magnet hospital, you'll recognize your surroundings more as a resort than a hospital. That's the payoff. The probability of earning the prize arises from a mixed strategy based on how many medical professionals you think the US will admit in the future and how many other people you think will also be competing for that payoff. From there, the comparative statics are a matter of a little intuitive mental math. Would you dedicate several years to your life on the chance you might someday earn higher wages? If I know my audience, I can guess that the answer is "yes". Folks with high discount rates aren't well-known for frequenting economics blogs.

But here's the snotty kicker: a very large part of the probability of earning that delicious rent is bound in foreign perceptions of American political dysfunction. If you're a 17 year old high school kid in Gdansk with stars in your eyes about  packing up your bindle and heading to the States to put that BSN to work ministering to the ill in Dayton and you see news filled with porcine, icy-eyed legislators throwing expansive public temper tantrums, you might seriously think twice about making what amounts to a very specific long-term human capital investment that has a relatively barren domestic BATNA. If and when the ports open up for more nurses to report for work, there may well be too few ready migrants to staff the wards of both America and the hospitals abroad. Without the regime uncertainty, a mild rent contest might well spur a bit of nursing professional overproduction, encouraging enough entry that the home markets will stay solvent (for lack of a better word).

Of course, the other option for foreign wage boards is to raise the statutory wages, which is marginally better for economic efficiency, but wouldn't do much to cure the third-party disease that is eating the bones of US health care delivery.
Medicine is not euvoluntary. Immigration is not euvoluntary. Labor is not euvoluntary. All three together? Yikes!

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Do you have suggestions on where we could find more examples of this phenomenon?