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I study, both empirically and theoretically, the economic and financial consequences of corporate lobbying. Firms lobby politicians to increase their share of government contracts, but political competition creates firm-level risk, inflating their cost of capital and reducing their incentive to invest in research and development (R&D). I document an annual 6–8% return premium for stocks of high-lobbying firms, which compensates investors for political risk. An estimated model in which firms can lobby and innovate and investors are risk averse replicates key features of corporate lobbying in the U.S., including the well-established paradox that lobbying contributions are small relative to the policies at stake. The model predicts that if investors ceased seeking compensation for political risk, R&D investment would increase by 6% and the innovation rate by 0.4% points. The risk-premium costs of lobbying are quantitatively and economically important even if the resources “wasted” on lobbying are objectively small.

Building upon the evidence that the mafia increases the degree of vote concentration, we use data on regional elections in Sicily to estimate the impact of anti-mafia policies on electoral competition. We find robust evidence that the reassignment for social purposes of property and assets seized to the mafia reduces the degree of electoral concentration. This result supports the hypothesis that policies that create social value, such as the reallocation to social-driven organizations, are more effective than those targeted to public and political institutions.

Introduction Differences in academic qualifications are cited as the reason behind the documented gender gap in industry sponsorship to academic plastic surgeons. Gendered imbalances in academic metrics narrow among senior academic plastic surgeons. However, it is unknown whether this gender parity translates to industry payments. Methods We conducted a cross-sectional analysis of industry payments disbursed to plastic surgeons in 2018. Inclusion criteria encompassed (i) faculty with the rank of professor or a departmental leadership position. Exclusion criteria included faculty (i) who belonged to a speciality besides plastic surgery; (ii) whose gender could not be determined; or (iii) whose name could not be located on the Open Payment Database. Faculty and title were identified using departmental listings of ACGME plastic surgery residency programs. We extracted industry payment data through the Open Payment Database. We also collected details on H-index and time in practice. Statistical analysis included odds ratios (OR) and Pearson’s correlation coefficient (R). Results We identified 316 senior academic plastic surgeons. The cohort was predominately male (88%) and 91% held a leadership role. Among departmental leaders, women were more likely to be an assistant professor (OR 3.9, p = 0.0003) and heads of subdivision (OR 2.1, p = 0.0382) than men. Industry payments were distributed equally to male and female senior plastic surgeons except for speakerships where women received smaller amounts compared to their male counterparts (median payments of $3,675 vs $7,134 for women and men respectively, p<0.0001). Career length and H-index were positively associated with dollar value of total industry payments (R = 0.17, p = 0.0291, and R = 0.14, p = 0.0405, respectively). Conclusion Disparity in industry funding narrows at senior levels in academic plastic surgery. At higher academic levels, industry sponsorship may preferentially fund individuals based on academic productivity and career length. Increased transparency in selection criteria for speakerships is warranted.

A factor that complicates the posting of the journal entries related to the issue of bonds is that the amount of money received by the issuing company may be different from the face value of the bond. If the bond stated rate is higher than the market interest rate at the time of issue of the bond, the company can sell the bond at a premium; on the other hand, if the stated rate is lower than the market interest rate, the company will be forced to sell the bond at a discount. Another complicating factor is that the issuing company has to make interest payments at regular time intervals throughout the life of the bond and a final payment on the date of the maturity of the bond. Many students of Accounting, especially at the undergraduate level, find the journal entries related to the treatment of bond discounts and premiums very confusing, since they are spread over many years, spanning the entire life of the bond, unlike the numerous other journal entries covering the annual operating activities of the company. In this paper, some hints and guidelines are provided with the goal of helping the studentsrecord the journal entries correctly when bonds are sold at a discount or a premium.

A guiding principle in participatory action research collaborations is to strive for equity in relations between community and academic project partners. One promising way of assessing equity and power sharing in such partnerships is to trace and analyze financial resource allocation within them. This paper reports and assesses how nearly US$5 million in grant funding was allocated and spent between community and academic partners in a research, extension, and education project called Food Dignity in the United States. Findings from this analysis of extensive financial project records include that 36% of the funding was subawarded to the five community-based organization (CBO) partners, 40% supported the work of two univer­sity partners, and the remaining 24% was invested in developing and supporting the collaboration of many diverse partners on a wide range of project goals. Staff salary and fringe composed the single largest spending arena, making up about two-thirds of spending for CBOs and collaboration, and half for universities. However, had faculty salaries been paid from the grant, rather than by the partnering universities, then this component would have been much higher. Indirect costs and support for gradu­ate students were the next-biggest categories in academic budgets, while CBOs received and spent zero dollars in these arenas. Although this project has received a national award for community-campus partnerships, we find that, even within a narrow lens of an individual community-university partnership, our allocations underinvested in the research expertise, administrative costs, and capac­ity development needs of the CBOs. Using a wider lens that encompasses the systemic, institutional­ized inequities between community-based and university-based partners, we find that we pro­duced and reproduced inequities in our monetary resource allocations in at least four main ways: employment conditions, institutional support, capacity development, and autonomy, including control over funding. We call these systemic inequities academic supremacy and close with several institutional and individual recommendations for how to begin undoing them.

This article considers how trends in financing are changing governance at intergovernmental organizations (IGOs). Over the course of the twentieth century IGO funding rules changed in two important ways. First, they were altered to allow states greater control over the financial contributions they provide, allowing states to ‘earmark’ contributions. Second, funding rules made private actors eligible contributors, providing an important entry point for private actor influence. I focus on three primary effects of these changes on IGO governance: (1) how the increased reliance on earmarked contributions undermines traditional conceptions of multilateral governance; (2) how private actors are empowered by their ability to earmark resources as they emerge as major funders; and (3) on the surge in ‘minilateral’ governance associated with the rise of pooled funding mechanisms. I draw on delegation theory to illustrate these changes conceptually and provide examples from a wide variety of institutions within and outside the UN system. I conclude by outlining fruitful avenues for research on financing IGOs.

Purpose The purpose of this paper is to highlight the extent to which organised crime and the environment have altered in relation to money laundering and terrorist financing and to explore whether strategies to “follow the money” have been successful. Design/methodology/approach This paper is based on personal analysis and involvement as a practitioner in law enforcement and includes a broad literature review on the subject of terrorist financing and money laundering. Findings Money laundering, terrorist financing and economic crime activity are being disguised in the “noise” of business by specialists that have become very adept at their craft. Financial institutions and lawmakers have invested heavily in countering money laundering and terrorist financing. However, its real effectiveness is somewhat doubtful. Originality/value This paper serves to stimulate further discussion and research on how all actors can increase collaboration and co-operation to increase the effectiveness of disruption strategies associated with these classes of crime.

The study is motivated by the need to develop cost-effective tools to estimate the value and size of local food systems. Organizations in need of such evaluations often cannot afford the large price tag for the type of in-depth analysis they desire, and thus alternative, cost-effective methods are the next best choice. We use a recent evaluation of the Chicago foodshed to demonstrate one such cost-effective tool. Expansion of local sales constitutes import substitution, where local foods supplant existing imports. The proposed input-output (I/O) modeling method combines a “follow the money” approach with one that isolates total contributions of the local food systems, and uses an alternative definition of local foods. The approach modifies the underlying IMPLAN data and uses secondary data to account for other changes. The method is applied to a multicounty region comprising four states; the method’s limitations are also discussed. See the press release for this article.

We estimate the tax elasticity of dividends using two recent French re- forms: a hike in the dividend tax rate followed, five years later, by a cut. To follow the cash movements within the balance sheets of households and firms caused by these reforms, we use newly-accessible personal and cor- porate tax registries. Following the tax increase, the elasticity of dividends equals four and there is no shifting towards other personal income cate- gories. We find instead an increase in companies’ spending. After the tax decrease, payouts revert to their initial level, but not enough to offset the amounts received during the high-tax period.

This chapter turns to the bottom line of outsourced regeneration and self-regulation – the colossal financial riches made, following the money from government to the immediate companies and then through to their ultimate owners, often offshored in tax havens. A first section recaps on the variety of unnecessary costs imposed on the public sector through PFI procurement that would simply not be possible if the scheme was financed and procured directly through the public sector. A second section focuses on the complex yet lucrative financial deals done to raise the upfront investment that provide private banks, financial market traders and PFI investors with enormous, risk-free profits. A third section turns to the generous profit margins commanded by the construction and maintenance firms in these PFI schemes from the lack of genuine competition in the procurement process. A fourth section details how corporate consultants and the big four accountancy firms also financially benefit from advising and auditing on these schemes in ways that create real conflicts of interest. A final section that follows these different profitable financial flows through the MFN regeneration scheme.

Purpose Before the enactment of the Anti-Money Laundering and Anti-Terrorism Financing Act 2001 (AMLATFA), the fight against financial crime can be found in several statutes such as the Penal Code, Anti-Corruption Act 1997 and Companies Act 1965. It is generally accepted that by freezing and forfeiting the proceeds of the crime, it would give significant impact on the fight against financial crime. However, under these legislations, there were few shortcomings of the procedures on how the proceeds of the crime could be seized and forfeited. As such, the enactment of the AMLATFA is considered timely to overcome these problems. This paper aims to examine how the AMLATFA could be utilized to combat financial crime in Malaysia. Design/methodology/approach This paper mainly relies on statutes as its primary sources of information. As such, the relevant provisions under the Malaysian anti-money laundering laws that relate to measures for freezing, seizure and forfeiture of proceeds of the crime will be identified and analyzed. Findings The AMLATFA provides innovative tools for the law enforcement officials to follow the money trail, which will eventually lead to those who committed the financial crime. It also provides authorities with more powerful seizure and forfeiture measures. This is seen as a new law enforcement strategy to combat financial crime. It is believed that this approach is more effective than the traditional approach, which only punished the individual criminal but failed to diminish the criminal operations. However, it is vitally important to ensure that the effectiveness of the regime must not jeopardize the innocent third parties who could lose their money or any other proprietary interest due to the invocation of the forfeiture order. Originality/value This paper analyzes the new legal regime under the Malaysian anti-money laundering law that can be invoked to combat financial crimes activities. This paper would provide some guidelines into this particular area for legal enforcement authorities, academics, legal practitioners and policy makers, not only in Malaysia but also elsewhere.

Behavioural tracking is an increasingly discussed method of early detection of potential gambling-related problems. Recent research has focused predominantly on information derived from gambling transactions and communication logs. Even though payment behaviour establishes a direct link to the financial consequences of gambling, it had thus far not become subject to this field of research. This article uses transactional data generated by 2696 customers from the online gambling label bwin.com to investigate how far specific payment behaviours and specific payment methods enable a prospective differentiation between self-excluders and controls. The number and amount of deposits, the variance of withdrawals, the amount of funds subject to reversed withdrawals and the usage of mobile phone billing were found to be positively associated with self-exclusion; the number of active gambling months and the usage of electronic wallets and prepaid cards negatively. Customer age displayed a U-shaped relation,...

The chapter reflects upon the money–politics nexus in the Indian Parliament and parliamentary/electoral politics. It focuses attention on issues of corruption and on the effects of money on garnering resources for influence: election expenses, asset accumulation, and spending of MP Local Area Development Scheme (MPLADS). The chapter assesses how money is seen and spent, on and by women MPs. The concern here is to examine how money plays a part in the gendered life of Parliament. While corruption in an important issue for accountability, the chapter shows how it is constructed in gendered ways. While women garner fewer monetary resources than men, they are not particularly less corrupt, or more sensitive to the demands of their constituencies. At the same time, public commentary on women’s role as members of Parliament is particularly harsh and intolerant of their shortcomings—perhaps because women are burdened with expectations of care in the way that male politicians are not.

The essays collected in Uncommon Wealths in Postcolonial Fiction “follow the money” to illuminate literature’s keen awareness of the multiple and often conflicting meanings of wealth and commons in formerly colonized spaces.

Organized crime emerged suddenly on the political and law enforcement agenda in manyEuropean countries in the 1980s and 1990s. The increasing focus on financial aspects oforganized crime followed suit, but at a much slower pace. Anti-money laundering efforts wereactively promoted by some governments and organizations such as the Financial Action TaskForce (FATF),butwerealsoopposedbyotherparties,as somemeasures imposea highburdenoncertaineconomicsectors(seeforareview,e.g.,LeviandReuter2006;Levi2013;Kilchling2014; Halliday et al. 2014). These sustained anti-money laundering efforts gained newmomentum through the shocking terrorist attacks in New York (2001), Madrid (2004), andLondon (2005), and several recent incidents in European countries and abroad. Consequently,the discussion has been widened from organized crime (with a strong emphasis on drugtrafficking) to terrorism and terrorist funding, although these phenomena and the financialaspects of these phenomena may be quite different in several respects.The discussion on money laundering has a strong policy focus and is dominated byuntested assumptions about offenders and offender behavior, and the impact of criminalnetworks and criminal activities on society. Can organized crime activities and terrorism belumped together or should they be treated separately? What influence does money have onthese phenomena and is this differentfor different aspects such as investing money in criminalactivities, moving and laundering proceeds of crime, and investing money in legal economy?Whatis the impact ofmoney launderingonthe integrity of thefinancialsystem andonsocietyas a whole? Is it really a big threat and in what respect? Can money laundering be curbedthrough specific crime prevention strategies and investigation strategies (‘follow the money’)?And how should these new strategies be integrated in the law enforcement system?Empirical research into financial aspects of organized crime is very important to test theassumptions that are part of public debate, but are often taken for granted, not explicated, andput to the empirical test. Despite the importance of this task, academic researchers — with afew notable exceptions — have not paida lotof attention to these salientquestions. Therefore

Private sector participation in education has both changed and intensified in recent years, engendering dramatic shifts in policies and schooling practices. These shifts have garnered the attention...

The United States has always defined itself in terms of great optimism and progress. For long periods, that self-definition was accurate. It no longer is. Robert J. Gordon’s magisterial economic history, The Rise and Fall of American Growth, describes 1870-1970 as the miracle century that improved the real standard of living tenfold. For the future, says Gordon, the United States faces an anemic growth rate of less than a third of a percent per year, and — even worse — only the richest tier will see growth. For tax, the realistic expectations of slow future growth mean a high danger of collapse in our ability to run deficits or borrow money well within the decade. Federal creditors have been extraordinarily generous to the U.S. government, accepting interest below the expected rate of inflation. They have assumed that federal debt is risk free. If our creditors lose faith in our ability to repay debt, or believe that we will just pay it off with inflated paper, then the debt will no longer be treated as risk free. The loss of faith will probably not be just a squeeze but a collapse. The increasing inequality of America means we must follow the money to reach the broad taxable capacity. We need to increase the efficiency of tax and shift the burden of tax to richer taxpayers — not with higher rates, but by better descriptions of their economic resources.

The need to absorb windfalls gains and manage them appropriately has been discussed extensively by academics and policy makers alike. We explore the role of the financial sector in intermediating these windfalls. Controlling for the level of financial development, inflation, GDP growth and country fixed-effects, we find a relative decline in financial sector deposits in countries that experience an unexpected natural resource windfall as measured by shocks to exogenous world prices. Moreover, we find a similar relative decline in lending, which is mostly due to the decrease in deposits. The smaller role for the financial sector in intermediating resource booms is accompanied by a stronger role of governments in channeling resources into the economy, mostly through higher government consumption.

Democratization should reduce incentives to engage in corruption, by expanding the size of the winning coalition, heightening transparency, increasing accountability to the electorate, and multiplying the number of veto points required for a corrupt deal. Yet many young, consolidated democracies, such as South Korea, have recorded higher levels of perceived corruption following democratization.I argue that the apparently higher level of corruption accompanying democratization results from overdependence on perception surveys to measure corruption. As democratization frees the press, more stories of graft lead the public to higher levels of perceived corruption without any corresponding rise in real corruption. A more effective measurement strategy is to objectively “follow the money,” by focusing on outflows of rents and any related personal receipt of favors by relevant officials. Applied to the Korean case, contrary to popular perceptions of increased corruption, objective measurement of elite corruption reveals that democratization produced a sharp reduction in the corrupt exchange of rents through industrial restructuring programs, bank lending, and government procurement contracts.

The business of selling cigarettes is increasingly concentrated in the hands of five tobacco companies that collectively control almost 90% of the world's cigarette market, four of which are publicly traded corporations. The economic activities of these cigarette manufacturers can be monitored through their reports to shareholders and other public documents. Reports for 2008 show that the revenues of these five companies exceeded $300 billion, of which more than $160 billion was provided to governments as taxes, and that corporate earnings of the four publicly traded companies were over $25 billion, of which $14 billion was retained after corporate income taxes were paid. By contrast, funding for domestic and international tobacco control is not reliably reported. Estimated funding for global tobacco control in 2008, at $240 million, is significantly lower than resources provided to address other high-mortality global health challenges. Tobacco control has not yet benefited from the innovative finance mechanisms that are in place for HIV/AIDS, tuberculosis and malaria. The Framework Convention On Tobacco Control (FCTC) process could be used to redirect some of the earnings from transnational tobacco sales to fund FCTC implementation or other global health efforts.

What is Amazon up to and why? Amazon reported $24 billion in annual revenue, from their 2009 year-end financial results. The Media/book category delivered $5.96 billion, or 1/4 of their total revenue. That’s considerably more than any of the largest companies in the traditional print or digital book business. Barnes and Noble/B Dalton collected $4.52 billion (2008), while Borders/Waldenbooks combined revenue was $3.11 billion (2008). Amazon’s book revenue steadily increases, while Borders and Barnes and Nobel continue to decrease. What strategies and values are fueling this growth? What is their vision and where have they put their money? Amazon has a demonstrated history of consistent behavior since their start-up in 1995, with big visions, long-term strategies, dedicated to streamlining, surgically eliminating costs, prolific innovations, strategic investments, and an obsession over the customer. We’ll track Amazon’s M&A investments in book publishing and digital to see exactly what they are doing to learn where they may be going. It is wise to stay current on one of the most influential companies in the world.

The Disadvantaged Business Enterprise (DBE) component of federal transportation programs creates important competitive advantages for firms considered to be socially and economically disadvantaged. Every recipient of federal transportation funds must set annual and contract goals targeting the DBE share of contract dollars. All firms owned by women and minorities are presumed to be socially disadvantaged and can become certified DBEs. DBE programs have been subject to legal and political controversy since they were enacted in 1982. This article is based on data of 5,385 contracts' worth $1.94 billion awarded by 423 recipients of the Federal Aviation Administrations fund in FY 2004. Findings show that race-conscious rather than race-neutral goals are predominantly used, that DBEs are greatly overutilized as subcontractors given the goals airports have set, and that the principal DBE group beneficiary of the awards is White women. Policy recommendations are offered.

PurposeThe purpose of this paper is to explore the various typologies and methods used to cloak assets following the placement stage of money laundering.Design/methodology/approachTechniques used to hide assets and cloak ownership, ranging from simple nominee arrangements through to complex financial transactions are explored.FindingsThere are a myriad of methods available to money launderers to cloak their assets.Research limitations/implicationsMore work needs to be done on the issue of information gateways.Practical implicationsAssets are cloaked to obfuscate the trail and make it difficult for law enforcement to “follow the money”. Understanding the methodologies used is the first step to understanding the problem.Originality/valueA number of cases from Canada, the USA and Australia were studied, as well as reference material advisors use for asset protection.

Expanding the principles of the universal provision of telecommunications services to encompass elementary and secondary schools and libraries, lawmakers paved the way for the creation of the E-Rate program by passing the Telecommunications Act in 1996. The E-Rate program aims to bridge the digital divide in advanced telecommunications by offering services to eligible schools and libraries for educational purposes at discounted rates. Currently in its sixth cycle, the E-Rate program has provided nearly US$13 billion in discounts to eligible organizations. The program has inspired much controversy and criticism, yet studies provide evidence that the program is effectively helping to enhance the provision of services to traditionally disadvantaged communities. This study challenges these claims and presents empirical evidence that suggests E-Rate resources are not systematically allocated to underprivileged, rural states where funds would most effectively help to bridge the digital gap in access to telecommunications technologies.

After the 1975 fiscal crisis, New York City mayors experienced a highly constrained fiscal environment monitored by the state. This study examined expenditure policies of each postfiscal crisis mayor (Ed Koch, David Dinkins, and Rudolph Giuliani), analyzed the extent of mayoral choice each mayor exercised in this new environment, and asked four questions concerning ways they allocated their resources. Conclusions were (a) postfiscal crisis mayors could not exclusively control their external environments in terms of revenues and were heavily influenced and constrained by the national political scene; (b) notwithstanding external fiscal and political forces, all postfiscal crisis mayors strived to fulfill their own political agendas in the way they spent their dollars and often succeeded; (c) Mayor Dinkins found it difficult to sustain redistributive functions given lack of control over external factors; and (d) since the fiscal crisis, forces for economic development versus forces for redistribution have split the electorate.

Migrant networks are an important catalyst for promoting FDI flows between countries. Migrants also send increasingly large remittances to their home countries. This paper considers how these two capital flows are related, specifically examining how remittance flows respond to the amount of FDI inflows to a country. Using a panel of 118 countries over 1980–2010, we estimate a random effects model and find a positive and significant effect of FDI flows on remittances, while controlling for other standard determinants of remittance flows. We account for the potential endogeneity of FDI to remittances by utilizing a two-stage Instrumental Variables approach. These findings suggest that FDI complements remittances, rather than crowding out emigrant investment to the home countries. We find the relationship is strongest for low income countries, highlighting the importance of remittances as a source of investment capital in these countries.

Book review: Duncan Campbell-Smith. Allen Lane, 2008, 744 pp., £ 25 (hb), ISBN: 9781846140686

A straightforward mechanism has been devised to track the electricity from each generating unit to each load-serving entity, so far limited primarily by the need to obtain comparable information from neighboring regions.

Over the last 15 years there has been a quiet revolution in law enforcement. Instead of simply closing rackets that generate illegal income, the central objective has become to attack criminal profits after they have been earned. The underlying theory is that this will eliminate both the motive and the capital for further crimes. The principal legal instruments take the form of tougher regulations to hamper the infiltration of criminal money into the legitimate economy, and of sweeping asset-seizure laws to help take away from criminals the profits of their crimes. This paper examines the origins of the policy, finding its roots in myth and misunderstanding about the nature and operation of the criminal marketplace. It critically scrutinizes the rationalizations by which the policy is justified. It raises questions about how illicit profits can be measured, and how their presumed damage to the legitimate economy can actually be assessed. It dissects the methods through which a follow-the-money policy is implemented, attempting to determine criteria by which success of such a policy could possibly be judged. It looks at the incidental costs of the proceeds-of-crime approach, for example the skewing of law enforcement priorities, egregious violations of civil rights and potentially serious damage to the integrity of the tax system. Finally it suggests an alternative approach, well grounded in history and proven in experience, that would achieve the fundamental objective of taking away from criminals the profits of crime without the dangers attendant on the current follow-the-money fad.

On 3 August 1996, the National Gambling Impact Study Commission Act became law and established the nine-member National Gambling Impact Study Commission. Passed by unanimous voice vote in both the U.S. Senate and House of Representatives, the gambling commission was the congressional response to a gambling industry whose influence threatened to overwhelm not only state and local governmental decision making but also the objectivity of the court system via test cases to expand gambling. This article examines the potential influence of the gambling industry and its lobbyists. There exist significant congressional fears that the gambling industry could be sufficiently powerful to change U.S. policy and the economy (locally, regionally, and nationally).

Foreign banks pulled significant funding from their U.S. branches during the Great Recession. We estimate that the average-sized branch experienced a 12 percent net internal fund “withdrawal,” with the fund transfer disproportionately bigger for larger branches. This internal shock to the balance sheets of U.S. branches of foreign banks had sizable effects on their lending. On average, for each dollar of funds transferred internally to the parent, branches decreased lending supply by about forty to fifty cents. However, the extent of the lending effects was very different across branches, depending on their precrisis modes of operation in the United States.

"Illegal logging is perceived to pose significant obstacles to the achievement of sustainable management of forests in the tropics. Equally importantly, it gives rise to or supports other undesirable outcomes--networks of corruption, generating significant volumes of 'black' money and fuelling speculation, crime, or trafficking. However, illegal logging of tropical timber is not homogeneous and its characteristics depend, among others, on the supplying markets, at the national or the international scales. Available approaches to reduce illegal logging, at different levels of governance, in the producing and consuming countries are reviewed and their potential contribution is assessed."

I suspect that our collective search for villains - for someone to blame - has distracted us and our political leaders from addressing the fundamental causes of our nation's health-care crisis. All of the actors in health care - from doctors to insurers to pharmaceutical companies - work in a heavily regulated, massively subsidized industry full of structural distortions. They all want to serve patients well. But they also all behave rationally in response to the economic incentives those distortions create. Accidentally, but relentlessly, America has built a health-care system with incentives that inexorably generate terrible and perverse results. Incentives that emphasize health care over any other aspect of health and well-being. That emphasize treatment over prevention. That disguise true costs. That favor complexity and discourage transparent competition based on price or quality.1 I. INTRODUCTION In health care, as in everything else, money matters. Of course, money is not the only thing that matters - but it matters a lot - perhaps more than all the other factors combined. What we pay for and how we pay for it profoundly affects the care that is provided (and not provided), the settings in which care is provided (and not provided), and the lives and fortunes of those providing and receiving the care and those presented with the bill. If all were well with the health care system, the observations in the prior paragraph would be of no particular significance. Thus, no one would be much interested in the observation that auto mechanics, plumbers, actors, bicycle messengers, and newspaper reporters also respond to economic incentives - and that misaligned incentives can have adverse consequences. Yet, to say the least, all is not well with American health care. Whether the subject is the quality of care that insured and uninsured Americans receive, the cost of coverage and of receiving care, Medicare's fiscal projections, the burdens Medicaid imposes on the states, the cost of pharmaceuticals, the availability of primary care physicians, the wide variation in cost and treatment patterns, the continued viability of employment-based health insurance, or the dysfunctions of the medical malpractice system, it is clear there is no shortage of problems with the U.S. health care system. What all of these problems have in common is that some (and, more often than not, most) of the blame is properly attributable to misaligned economic incentives. Instead of trying to address that problem, past efforts have focused on a "collective search for villains," with the specific identities of the villains varying, depending on the political and philosophical commitments of the searchers. These efforts have been time-consuming, and have created steady work for lobbyists, lawyers, law professors, and policy wonks, but they have had about the same impact as the witch trials that swept Europe from 1400-1600 and Salem, Massachusetts from June-September, 1692: deeply satisfying for those who perceive they are doing "God's work," intensely unpleasant (and sometimes lethal) for the targets, but providing little actual improvement in the state of the world. Stated more positively, unless and until we alter the core incentives created by our existing payment system, we will get more of what we've already got - a dysfunctional non-system that delivers uncoordinated care of widely varying quality at a high cost.2 Part II provides a number of examples of how "money matters" in health care, and details the adverse consequences that have resulted from ignoring that basic insight. Part III details how the latest iteration of health reform has, in important ways, made things worse by "doubling down" on coverage without addressing these incentive problems. Part IV considers what we can learn from Massachusetts' 2006 health reform efforts. Part V concludes. II. MONEY MATTERS: A COMPENDIUM It is difficult to overstate the extent to which economic incentives explain the structure, performance, and pathologies of the American health care system. …

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MA Education Ltd, St Jude's Church, Dulwich Road, London, SE24 0PB. neil.henty@markallengroup.com