Adam Shapiro, Research Advisor, Federal Reserve Bank of San Francisco

Adam Shapiro

Research Advisor

Microeconomic Research

Industrial organization, Macroeconomics, Health care

Adam.Shapiro (at)


Working Papers
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Drilling into Bank Balance Sheets: Examining Portfolio Responses to an Oil Shock

2017-03 | With Bidder and Krainer | January 2017

abstract (+)
Using detailed bank balance sheet data obtained under the United States’ stress testing programs we examine how a shock to banks’ net worth affects their portfolio decisions. We focus on the supply of credit (the bank lending channel) and the ultimate effect on borrowers (the credit channel), but also examine how the shock affects banks’ overall risk profile and security holdings. Our shock is derived from variation across banks in their loan exposure to industries adversely affected by the precipitous oil price declines of 2014. For corporate lending, we find significant evidence of a bank lending channel. Banks more exposed to the shock appear to have tightened credit as evidenced by tightening lending standards and reductions in lending to firms. We do not find significant evidence of a credit channel. The effect of the tightening of credit on firms’ scale seems minimal. This appears to be because firms are able to substitute to alternative financing from other banks or by drawing down pre-existing lines of credit. In terms of residential lending, the story is more subtle. Affected banks tightened credit on mortgages that they would ultimately hold in their portfolio but appear to have expanded credit for those mortgages that would predominantly be securitized. This tendency is reflected in a contemporaneous expansion in their holdings of MBS after the shock. While affected banks substantially de-risked their portfolios through adjusting their residential lending in this way, we again find that the ultimate effect on borrowers was minimal.
Measuring News Sentiment

2017-01 | With Sudhof and Wilson | January 2017

abstract (+)
We develop and assess new time series measures of economic sentiment based on computational text analysis of economic and financial newspaper articles from January 1980 to April 2015. The text analysis is based on predictive models estimated using machine learning techniques from Kanjoya. We analyze four alternative news sentiment indexes. We find that the news sentiment indexes correlate strongly with contemporaneous business cycle indicators. We also find that innovations to news sentiment predict future economic activity. Furthermore, in most cases, the news sentiment measures outperform the University of Michigan and Conference board measures in predicting the federal funds rate, consumption, employment, inflation, industrial production, and the S&P500. For some of these economic outcomes, there is evidence that the news sentiment measures have significant predictive power even after conditioning on these survey-based measures.
Does Medicare Part D Save Lives?

2015-04 | With Dunn | September 2015

abstract (+)
We examine the impact of Medicare Part D on mortality for the population over the age of 65. We identify the effects of the reform using variation in drug coverage across counties before the reform was implemented. Studying mortality rates immediately before and after the reform, we find that cardiovascular-related mortality drops significantly in those counties most affected by Part D. Estimates suggest that up to 26,000 more individuals were alive in mid-2007 because of the Part D implementation in 2006.
A Dynamic Model of Price Signaling, Consumer Learning, and Price Adjustment

2014-27 | With Osborne | November 2014

abstract (+)
We examine a model of consumer learning and price signaling where price and quality are optimally chosen by a monopolist. Through numerical solution and simulation of the model we find that price signaling causes the firm to raise its prices, lower its quality, and dampen the degree to which it passes on cost shocks to price. We identify two mechanisms through which signaling affects pass-through. The first is static: holding quality fixed, price signaling increases the curvature of demand relative to the case where quality is known, which ultimately acts to dampen how prices respond to changes in cost. The second is dynamic: a firm that engages in signaling recognizes that changing prices today affects consumer beliefs about the relationship between prices and quality in the future. We also find that signaling can lead to asymmetric pass-through. If the cost of adjusting quality is sufficiently high, then cost increases pass through to a greater extent than cost decreases.
Subprime Outcomes: Risky Mortgages, Homeownership Experiences, and Foreclosures

FRB Boston WP 07-15 | With Gerardi and Willen | May 2008

abstract (+)
This paper provides the first rigorous assessment of the homeownership experiences of subprime borrowers. We consider homeowners who used subprime mortgages to buy their homes, and estimate how often these borrowers end up in foreclosure. In order to evaluate these issues, we analyze homeownership experiences in Massachusetts over the 1989-2007 period using a competing risks, proportional hazard framework. We present two main findings. First, homeownerships that begin with a subprime purchase mortgage end up in foreclosure almost 20 percent of the time, or more than 6 times as often as experiences that begin with prime purchase mortgages. Second, house price appreciation plays a dominant role in generating foreclosures. In fact, we attribute most of the dramatic rise in Massachusetts foreclosures during 2006 and 2007 to the decline in house prices that began in the summer of 2005.
Decomposing the Foreclosure Crisis: House Price Depreciation versus Bad Underwriting

FRB Atlanta WP 2009-25 | With Gerardi and Willen | September 2009

abstract (+)
We estimate a model of foreclosure using a data set that includes every residential mortgage, purchase-and-sale, and foreclosure transaction in Massachusetts from 1989 to 2008. We address the identification issues related to the estimation of the effects of house prices on residential foreclosures. We then use the model to study the dramatic increase in foreclosures that occurred in Massachusetts between 2005 and 2008 and conclude that the foreclosure crisis was primarily driven by the severe decline in housing prices that began in the latter part of 2005, not by a relaxation of underwriting standards on which much of the prevailing literature has focused. We argue that relaxed underwriting standards did severely aggravate the crisis by creating a class of homeowners who were particularly vulnerable to the decline in prices. But, as we show in our counterfactual analysis, that emergence alone, in the absence of price collapse, would not have resulted in the substantial foreclosure boom that was experienced.
Implications of Consumer Heterogeneity on Price Measures for Technology Goods

Manuscript | With Aizcorbe | August 2010

abstract (+)
Using a new dataset on household purchases of personal computers (PCs), we document positive correlations between buyers’ incomes and the prices they pay for seemingly identical PCs. These results suggest that firms may be successful at separating the market and charging different prices to consumers with different levels of willingness to pay. We consider the implications of this kind of market separation for price and quality measurement via a theoretical model based on Mussa and Rosen (1978). The model suggests that, in markets like these, standard methods that do not account for this heterogeneity can understate inflation in a cost-of-living context. Consistent with the model, our empirical work shows that controlling for income yields indexes that show slower price declines than seen in standard indexes. This understatement of the cost-of-living measure likely mitigates the unrelated upward biases found in recent studies by Bils (2009), Erickson and Pakes (2010), Broda and Weinstein (2010).
Published Articles (Refereed Journals and Volumes)
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Physician Competition and the Provision of Care: Evidence from Heart Attacks

Forthcoming in American Journal of Health Economics | With Dunn

abstract (+)
We study the impact of competition among physicians on service provision and patients’ health outcomes for the U.S. commercial market. We focus on cardiologists treating patients with a first-time heart attack treated in the emergency room. Physician concentration has a small, but statistically significant effect on service utilization. Cardiologists in more concentrated markets perform more intensive procedures, particularly, diagnostic procedures—services in which the procedure choice is more discretionary. Higher concentration leads to fewer readmissions but no effect on mortality. These findings suggest that changes in organizational structure, such as a merger of physician groups, not only influence the negotiated prices of services, but also service provision.
Decomposing Medical-Care Expenditure Growth

Forthcoming in Measuring and Modeling Health Care Costs, NBER Volume, ed. by Aizcorbe, Baker, Berndt, Cutler. University of Chicago | With Dunn and Liebman

abstract (+)
Medical-care expenditures have been rising rapidly, accounting for almost one-fifth of GDP in 2009. In this study, we assess the sources of the rising medical-care expenditures in the commercial sector. We employ a novel framework for decomposing expenditure growth into four components at the disease level: service price growth, service utilization growth, treated disease prevalence growth, and demographic shift. The decomposition shows that growth in prices and treated prevalence are the primary drivers of medical-care expenditure growth over the 2003 to 2007 period. There was no growth in service utilization at the aggregate level over this period. Price and utilization growth were especially large for the treatment of malignant neoplasms. For many conditions, treated prevalence has shifted towards preventive treatment and away from treatment for late-stage illnesses.
Price Setting and Rapid Technology Adoption: the case of the PC industry

The Review of Economics and Statistics 98, July 2016, 601-616 | With Copeland

abstract (+)
We examine how the confluence of competition and upstream innovation influences downstream firms’ profit-maximizing strategies. We focus on personal computers (PCs) and using two novel data sets describe the dramatic fall in both price (27 percent at an annual rate) and sales of a computer over its product cycle. Further, we document that computers are typically sold for only 4 months before being replaced by a higher-quality product. To explain these facts, we develop and calibrate a vintage-capital model that combines a competitive market structure with an exogenous rapid rate of innovation.
Guidelines for Measuring Disease Episodes: An Analysis of the Effects on the Components of Expenditure Growth

Health Services Research, April 2016 | With Dunn, Liebman, and Rittmueller

abstract (+)
We provide guidelines to researchers measuring health expenditures by disease and compare these methodologies’ implied inflation estimates. A convenience sample of commercially-insured individuals over the 2003 to 2007 period from Truven Health. Population weights are applied, based on age, sex and region, to make the sample of over 4 million enrollees representative of the entire commercially-insured population. Different methods are used to allocate medical care expenditures to distinct condition categories. We compare the different methods based on their estimates of disease-price inflation. Across a variety of methods, the compound annual growth rate stays within the range 3.1 to 3.9 percentage points. Inflation at the disease category level is more sensitive to the selected methodology. The selected allocation method impacts aggregate inflation rates, but considering the variety of methods applied, the differences appear small. Future research is necessary to better understand these differences in other population samples and to connect disease expenditures to measures of quality.
Implications of Utilization Shifts on Medical-Care Price Measurement

Health Economics 24(5), May 2015, 539-557 | With Dunn and Liebman

abstract (+)
The medical-care sector often experiences changes in medical protocols and technologies that cause shifts in treatments. However, the commonly used medical- care price indexes reported by the BLS hold the mix of medical services fixed. In contrast, episode expenditure indexes, advocated by many health economists, track the full cost of disease treatment, even as treatments shift across service categories (e.g., inpatient to outpatient hospital). In our data, we find that these two conceptually different measures of price growth show similar aggregate rates of inflation. Although aggregate trends are similar, we observe differences when looking at specific disease categories that have implications for the productivity of disease treatment.
Physician Payments Under Health Care Reform

Journal of Health Economics 39, January 2015, 89-105 | With Dunn

abstract (+)
This study examines the impact of major health insurance reform on payments made in the health care sector. We study the prices of services paid to physicians in the privately insured market during the Massachusetts health care reform. The reform increased the number of insured individuals as well as introduced an online marketplace where insurers compete. We estimate that, over the reform period, physician payments increased at least 11 percentage points relative to control areas. Payment increases began around the time legislation passed the House and Senate—the period in which their was a high probability of the bill eventually becoming law. This result is consistent with fixed-duration payment contracts being negotiated in anticipation of future demand and competition.
Developing a Framework for Decomposing Medical-Care Expenditure Growth: Exploring Issues of Representativeness

In Measuring Economic Sustainability and Progress, NBER Volume, ed. by Jorgenson, Landefeld, and Schreyer | University of Chicago, 2014 | With Dunn and Liebman

Do Physicians Possess Market Power?

Journal of Law and Economics 57 (1.), February 2014, 159-193 | With Dunn

abstract (+)
We study the degree to which greater physician concentration leads to higher service prices charged by physicians in the commercially insured medical-care market. Using a database of physicians throughout the United States, we construct physician-firm concentration measures base “fixed-travel-time HHI” (FTHHI). We link these concentration measures to health insurance claims. We find that physicians in more concentrated markets charge higher service prices—a physician in the 90th percentile of market concentration will charge 14 to 30 percent higher fees than a physician in the 10th percentile. Our estimates imply that physician consolidation has caused about an 8 percent increase in fees on average over the last 20 years, and substantially higher increases in concentrated markets.
Geographic Variation in Commercial Medical-Care Expenditures: A Framework for Decomposing Price and Utilization

Journal of Health Economics, 2013 | With Dunn and Liebman

abstract (+)
This study introduces a new framework for measuring and analyzing medical-care expenditures applied to the study of commercial medical-care markets. The framework focuses on expenditures at the disease level that are decomposed between price and utilization. These measures show that a particular MSA may have high overall prices, but may actually have low medical-care spending per episode due to low utilization. Prices within an MSA appear to be quite homogeneous, implying that regional factors explain a large degree of price variation. However, within an MSA there is a large degree of heterogeneity in utilization patterns between disease categories. This implies that most MSAs do not have systematically high or low utilization for all disease categories. We find evidence of a negative correlation between price and utilization across MSAs for many diseases, so it appears that the greater expenditures from higher prices are partly offset by lower utilization.
Medical-Care Price Indexes for Patients with Employer-Provided Insurance: Nationally-Representative Estimates from MarketScan Data

Health Services Research , October 2012 | With Dunn, Pack, and Liebman

Price Dispersion Over the Business Cycle: Evidence from the Airline Industry

The Journal of Industrial Economics 60(3), September 2012 | With Cornia and Gerardi

abstract (+)
This study provides empirical evidence documenting how price dispersion moves with the business cycle in the airline industry. Performing a fixed-effects panel analysis on 17 years of data covering two business cycles, we find that price dispersion is highly pro-cyclical. This effect is especially pronounced for legacy carriers relative to low-cost carriers. We show that our empirical result is consistent with firms implementing second-degree price-discrimination tactics.
Strategic Alliance as a Response to the Threat of Entry: Evidence from Airline Codesharing

International Journal of Industrial Organization, August 2012 | With Goetz

abstract (+)
Strategic alliances are arrangements in which firms combine efforts and resources to jointly pursue a business objective while remaining separate entities. An example of such a practice is airline codesharing, in which allied carriers engage in the cooperative marketing of certain flights. We empirically test for the presence of competitive motives behind such alliances by identifying an incumbent airline’s use of codesharing in response to the threat of future entry by a competitor. Using within-flight segment, fixed-effects regressions on panel data from 1998-2010, we estimate the impact of exogenous threats of entry on an airline’s decision whether to codeshare with a partner on a specific segment. Estimates show that when an incumbent carrier’s segment is threatened by a low-cost competitor it is approximately 25% more likely than average to be codeshared with its partner. Further tests show that this effect depends strongly upon the level of market share that the airline has on the segment in question. We interpret this as evidence of a strategic alliance being used to preemptively act in anticipation of future competition.
Does Competition Reduce Price Dispersion? New Evidence from the Airline Industry

Journal of Political Economy 117(1), February 2009, 1-37, 02 | With Gerardi

abstract (+)
We analyze the effects of competition on price dispersion in the airline industry, using panel data from 1993:Q1 through 2006:Q3. Competition has a negative effect on price dispersion, in line with the text-book treatmetn of price discrimination. This effect is pronounced for routes wtih consumers characterized by relatively heterogeneous elasticities of demand. On routes wtih a homogeneous customer base, the effects of competition on price dispersion are smaller. Our results contrast with those of Borenstein and Rose, who found that price dispersion increases with competition. We reconcile the different results by showing that the cross-sectional estimator suffers from omitted-variable bias.
Estimating the New Keynesian Phillips Curve: A Vertical Production Chain Approach

Journal of Money Credit and Banking 40(4), 2008, 627-666

abstract (+)
It has become customary to estimate the New Keynesian Phillips Curve (NKPC) with GMM using a large instrument set that includes lags of variables that are ad hoc to the model. Researchers have also conventionally used real unit labor cost (RULC) as the proxy for real marginal cost, even though it is difficult to support its significance. This paper introduces a new proxy for the real marginal cost term as well as a new instrument set, both of which are based on the micro foundations of the vertical chain of production. I find that the new proxy, based on input prices as opposed to wages, provides a more robust and significant fit to the model. Instruments that are based on the vertical chain of production appear to be both more valid and relevant towards the model. This paper was revised in July 2006.
FRBSF Publications
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Energy’s Impact on Inflation Expectations

Economic Letter 2016-19 | June 20, 2016 | With Cao

Medicare Payment Cuts Continue to Restrain Inflation

Economic Letter 2016-15 | May 9, 2016 | With Clemens and Gottlieb

Did Massachusetts Health-Care Reform Affect Prices?

Economic Letter 2015-13 | April 20, 2015

How Much Do Medicare Cuts Reduce Inflation?

Economic Letter 2014-28 | September 22, 2014 | With Clemens and Gottlieb

Will Inflation Remain Low?

Economic Letter 2014-19 | June 30, 2014 | With Cao

Why Do Measures of Inflation Disagree?

Economic Letter 2013-37 | December 9, 2013 | With Cao

What’s Driving Medical-Care Spending Growth?

Economic Letter 2013-07 | March 11, 2013