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ECO 550 Assignment 4 Long-Term Investment Decisions


ECO 550 Assignment 4 Long-Term Investment Decisions fin571

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ECO 550 Assignment 4 Long-Term Investment Decisions
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This 0 page Study Guide was uploaded by an elite notetaker on Wednesday November 11, 2015. The Study Guide belongs to fin571 at Kaplan University taught by in Fall 2015. Since its upload, it has received 19 views.

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Date Created: 11/11/15
LongTerm Investment 1 LongTerm Investment Decisions Name ECO550 Instructor s Name Date LongTerm Investment 2 LongTerm Investment Decisions Government Regulation and its Involvement in Market Economy In a free market economy buyers and sellers freely trade with each other according to their own selfinterest and the laws of supply and demand Competitive market forces efficiently allocate resources The role of government is limited to controlling the law and order of a country but most people agree that society needs some form of government regulation and public policy in order to balance public and private interests and promote economic growth One major reason for government involvement in a market economy is externalities Externalities come about when economic activity has an unintended effect on a third party that is not directly involved in a transaction Jack Welsh Management Institute 2013 Externalities can be negative or positive to society Examples of negative externalities are damage to the ecosystem loss to the tourism industry etc The fundamental problem with a negative externality is how to measure the full social cost associated with economic activity A positive externality happens when the production or consumption of a good or service benefits a third party who did not pay for that benefit Education for example benefits society as much as it benefits the individual Educated people tend to spur higher productivity for companies create new inventions and generate taxes from salaries Intervention of Government in the Market Process in the US The use of private goods and public goods would be the rationale for the US government to intervene in the market process Private goods are exclusionary and limited in the sense that when you use them other people cannot An example would be LongTerm Investment 3 food and clothing And because these kinds of goods are limited it can induce competition among consumers Public goods on the other hand do not induce competition among consumers They are funded by the government They are products and services that everyone can use For example national defense police and fire protection public television and radio does not reduce the availability or benefit to use When someone else is in use of it Public goods are therefore nonexclusionary meaning that it is impossible to prevent the benefits of the public good from spreading to others Who are also in need of it The US government must fund things that are in society s best interest overall The government aims for a project that has net positive benefits from a costbenefit perspective For example to build a public road that Will provide faster access to the interstate private property can be taken by eminent domain Those Who travel on an everyday basis Will gain from a faster connection but those private property owners Will lose their land and may not even receive compensation equal to the land s value including personal memories A public good or service should be supplied up to the amount Where marginal social cost equals marginal social benefit Social benefits are maximized When each government project or public investment39s ratio of marginal social benefits MSB equals its ratio of marginal social costs MSC across all programs Jack Welsh Management Institute 2013 The government can make use of the same economic tools as the private sector If MSBMSC is greater than 1 net marginal benefits to society can be achieved through publicsector expansion If MSBMSC is less than 1 resources are being wasted Effective government practice in the market process requires a comparison of marginal social benefit of a public good LongTerm Investment 4 against the marginal social cost Merger SelfExpansion Strategy and Complexities Hospital mergers are clearly presenting antitrust concerns which convey the more compelling strategies that hospitals are using to offset federal antitrust concerns used by the federal agencies Federal Trade Commission FTC and Department of Justice DOJ FTC and DOJ s likelihood of contesting a merger is now based on the merging hospitals39 ability to provide strong evidence of substantial savings resulting from a merger Further evidence indicates that states are taking on increasing authority for the oversight of hospital mergers This federalism trend suggests that consumer protection for hospital mergers may be enhanced through a combination of federal and state oversight measures Traditional antitrust analysis of horizontal consolidations has focused on increased market power which results from rising market share Mergers have been considered illegal if they resulted in market power increases great enough to allow non transitory increases in hospital prices Spang Bazzoli amp Arnould 2001 Health care restructuring has not been limited to hospitals Health insurers have also undergone a series of mergers with increases in concentration Hospitals and physicians argue that buyerside monopolies or monopsonies should be scrutinized for anticompetitive effects Antitrust law is concerned about monopsony as well as monopoly since both can depress output and impair allocative efficiency First the geographic market for insurance is often considered national or regional rather than local making it hard for any insurer to achieve dominance as defined by antitrust law Second LongTerm Investment 5 barriers to entry by new competitors in insurance markets are thought to be low making it hard to prove that even a dominant insurer will abuse its position Third physicians and hospitals may not have the legal right to challenge conduct by insurers that harms consumers Hammer amp Sage 2003 Economists generally believe that the exercise of bilateral monopoly typically harms rather than helps consumers Convergence Between the Interests of Stockholders and Managers Health care markets are widespread with principal agent relationships The principalagent theory is used to explain agency issues These inefficiencies or issues include the quality of care in the relationship between hospital and patient and the internal organization ie relationship between the hospital and its main departments Courts have begun to question whether private insurers adequately advance the interests of consumers generally or whether they represent narrower constituencies such as their enrollees the employers who sponsor coverage or merely themselves There are a several types of agency relationship issues that arise in hospitals ie the relationship between the hospital and the patient the hospital board and medical specialists and the hospital board and departments In the relationship between a hospital and a patient the patient has to rely on the specialized knowledge of the doctor and there is an asymmetry in information about the treatment of the health problem It is difficult for the patient to measure the performance of the hospital and the hospital might thereby prefer to optimize its own utility function minimizing its costs which may come at the cost of the utility of the patient In the relationship between the hospital and its departments it is useful to describe the hospital organization It has been said that hospitals have a functionalistic LongTerm Investment 6 structure surgeons in the surgery department clinical chemistry in the laboratories etc Ludwig Van Merode amp Groot 2010 For instance Dutch hospitals are organized as a functionalistic organization of medical disciplines and facilitating departments Which implies that it is difficult to realize integration Antitrust law requires a clearer framework for evaluating agency failures and the regulatory response to them as a source of overall market failure in health care Antitrust oversight of hospital payer relations has extended to public insurance programs such as Medicare or Medicaid for the simple fact that those programs pay administered rather than negotiated rates LongTerm Investment 7 References Hammer Peter J amp Sage William M 2003 HealthAffairs Critical Issues in Hospital Antitrust Law Retrieved from httpcontenthealthaffairsorgcontent22688full Jack Welsh Management Institute 2013 Managerial Economics Government in the Market Economy Retrieved from httpj ackwelchstrayeredusitesdefaultfilessamplelecturessamplelectureM ANAGERIALECONpdf Ludwig M Van Merode F and Groot W 2010 Principal agent relationships and the efficiency of hospitals The European Journal of Health Economics Retrieved from httpWWWncbinlmnih govpmcarticlesPMC2860099 Spang Heather R Bazzoli Gloria J and Amould Richard J 2001 HealthAffairs Hospital Mergers And Savings For Consumers Exploring New Evidence Retrieved from httpcontenthealthaffairsorgcontent204150full


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