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How Initial Conditions Can Have Permanent Effects: The Case of the Affordable Care Act

Florian Scheuer () and Kent Smetters

American Economic Journal: Economic Policy, 2018, vol. 10, issue 4, 302-43

Abstract: We document that states that experienced website glitches in the ACA's first year faced higher average costs that persisted into future years. These dynamics are inconsistent with the standard strategic-pricing model, which requires non-localized common knowledge about market conditions, but are consistent with price-taking. Initial conditions can have a permanent effect—including convergence to a Pareto-dominated, stable equilibrium—under conditions that we show are plausible in this setting. Changing the fine from a fixed amount to a fraction of equilibrium prices increases the likelihood of reaching a Pareto-efficient equilibrium without increasing the equilibrium fine collected.

JEL-codes: H51 H75 I13 I18 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pol.20140204
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