Global Convergence of Health Care Financing in OECD Countries: An Equilibrium Based Asset Pricing Approach

21 Pages Posted: 21 Jul 2014

See all articles by William R. Pratt

William R. Pratt

Oklahoma City University

Gokce Soydemir

California State University, Stanislaus

Elena Bastida

Florida International University (FIU)

Date Written: July 09, 2014

Abstract

We provide an equilibrium based asset pricing framework to investigate the patterns in health care finance in 30 OECD countries. Using purchasing power parity adjusted data we find that the sample of countries together as a whole does not exhibit a pattern of convergence. However, there is some evidence of regional convergence within NAFTA, the E.U. and those countries with similar economic conditions such as the developing nations. Interestingly when compared to pre-1980 the standard deviation of financing expenditures divided by average expenditures (variation coefficient) increases when the U.S. is included in the G7 countries and decreases when the U.S. is excluded. Thus in this category of nations the U.S. appears to exhibit somewhat of a unique pattern. However, based on the benchmark theoretical price generated by CAPM overpricing (the difference between the actual minus the theoretical) tends to decrease over time with respect to the U.S., but tends to increase most notably for Australia, the U.K., Norway, Ireland, Turkey, the Check Republic and Greece. As their consumption of health care increase at an increasing rate, we note that most countries exhibit a converging pattern beginning from the 1980s. Developing nations increasingly exhibit excessive health expenditures. The results are consistent with the view that globalization in health care occurs at varying speeds in the U.S. and other OECD countries and trading blocks. Lastly, the CAPM predicted estimates backed by income elasticities, point towards convergence of countries as groups which seem to indicate greater opportunities for arbitrage exist across trading blocks and those countries with dissimilar economic conditions, but not as much within trading blocks and countries with similar economic conditions.

Keywords: OECD Healthcare Expenditures, CAPM, Globalization

JEL Classification: F36, G10, G12, I10, O57

Suggested Citation

Pratt, William Robert and Soydemir, Gokce and Bastida, Elena, Global Convergence of Health Care Financing in OECD Countries: An Equilibrium Based Asset Pricing Approach (July 09, 2014). Available at SSRN: https://ssrn.com/abstract=2468586 or http://dx.doi.org/10.2139/ssrn.2468586

William Robert Pratt (Contact Author)

Oklahoma City University ( email )

2501 N Blackwelder
Oklahoma City, OK 73106
United States

Gokce Soydemir

California State University, Stanislaus ( email )

Turlock, CA 95382
United States

Elena Bastida

Florida International University (FIU) ( email )

University Park
11200 SW 8th Street
Miami, FL 33199
United States

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