“Mandated Benefits, Entrepreneurhip and Talent Misallocation” by Zhigang Feng
Economics Seminar
Authors:
Zhigang Feng
University of Illinois at Urbana-ChampaignD. Chivers
University of Illinois at Urbana-ChampaignA. Villamil
University of Illinois at Urbana-Champaign
This paper studies the macroeconomic effects of three ways of financing health care on the allocation of occupational talent in an economy. The three policies are employer provided health insurance (EHI), health exchanges, and universal health coverage. EHI is a mandated benefit, which distorts occupational choice by driving a wedge between marginal utility and the cost of the benefit. Two types of misallocations occur. Some highly skilled individuals with adverse health shocks leave entrepreneurship while individuals with intermediate skills but favorable health shocks opt to mange firms. The effects of the policies on firm size, productivity, GDP, earnings and welfare depend on assets, managerial ability, health care shocks, and endogenous factor prices. Risk aversion and the discount factor are also important parameters. Agents are heterogeneous and welfare effects, which may be positive or negative, vary significantly with assets and ability.
