Economic

In today's NY Times, there is an article about the Obama Administration's urge to root out medical fraud and there is an article about my electric utility's (LADWP) desire to raise my electricity prices in the name of fighting global warming. In today's LA Times, there is a lead article on the decline in investment in oil refining .

A few thoughts;

1. Detecting Medical Fraud -- The article mentions the deployment of "bounty hunters" who will root out this fraud. I would assume that econometrics nerds would follow Brian Jacob and Steve Levitt's approach on detecting teacher cheating and look for suspicious data patterns. A simple approach would be to estimate a count model of the number of times each doctor applies for reimbursement as a function of his attributes and his patient mix. Controlling for such observables, identify the outliers (the positive residuals). For this subset who have submitted "too many claims", one could then turn to the dollar amount claimed. Do these "suspect doctors" always put in claims for the same amount of money? Does the timing of the date when they put in their paperwork look suspicious? For this subset of doctors, the Government should invite them in for a work out where the doctor has to prove that his work is kosher. Credible punishment of a few identified guilty fraudsters could save us billions.

2. "Now, the Los Angeles Department of Water and Power, the largest municipal utility in the United States, is poised to pass a roughly 5 percent rate increase on electricity use. The proceeds would be earmarked for renewable energy purchases and programs, including one that would repay people or businesses that use solar panels to contribute to the power grid."

As a green, I support this but as a cynic I wonder whether this is a politically correct means for this over-staffed agency to keep its budget balanced so that fat labor union contracts continue on.

I did like Severin Borenstein's quotes in the article. To see what a tough job this is, take a look at this job description for managing LADWP. To get a sense of the union who plays a big role at LADWP take a look at this . Unions offer their members benefits but social costs rise and Los Angeles does not have a nimble power provider. As the real world changes, a supplier of key services must be ready to evolve.

3. The decline of oil refining in the U.S raises interesting issues that merit real academic research. What is the medium term future for cars? We see the growth of electric car production but we know that in the short term that most cars will run on gasoline. If oil refiners start to scale back their investment in new refining capacity and if the electric car is not a mature technology yet, what happens next when inevitable shocks such as OPEC or other wacky nations have shocks. If refining capacity is low, then the supply of gasoline could tighten up and slight shifts in demand could have wild price implications. Will this anticipated volatility of gas prices accelerate our economy's transition to electric cars?