Spillover effects increase labor supply and conformity effects make labor supply perfectly inelastic at a reference group average. The demand for a good may also be influenced by either a spillover effect or a conformity effect. Positive spillover increases the demand for the good with interactions, and a conformity effect makes the demand curve pivot to become less price sensitive. Similar social interactions effects appear in the associated derived demands for labor.

Individual and community factors may influence the average length of poverty spells. We measure local economic conditions by the county unemployment rate and neighborhood spillover effects by the racial makeup and poverty rate of the county. We find that moving an individual from one standard deviation above the mean poverty rate to one standard deviation below the mean poverty rate (from the inner city to the suburbs) lowers the average poverty spell by 20–25 percent.

We further consider overall labor market outcomes by examining theoretically the socially optimal wealth distribution. Interdependence in utility can mitigate the need to transfer wealth to low-wage individuals and may require them to be poorer by all objective measures.

Finally, we quantify how labor market policy changes when there are household social interactions. Labor supply estimates indicate positive economically important spillovers for adult U.S. men. Ignoring or incorrectly considering social interactions can mis-estimate the labor supply response of tax reform in the United States by as much as 60 percent.

One of the practical problems with trying to consider relative position of income and consumption when estimating willingness to pay is that there is no unique way to ascertain, from a statistical model, the person’s actual social reference group. A researcher must specify ex ante a reference group and then net out the behavioral effects of a possibly incorrectly attributed reference group’s behavior on the individual. There is no well-established result from survey data for a typical person’s economic reference group. Moreover, the econometric literature generally finds that reference group or social interaction effects are unlikely to be identified uniquely or are small and easily ignored, perhaps because the relative positional effects of workplace or product safety offset possible reference group effects on income.

To some extent, Frank and Sunstein’s recommended increase in the value of willingness to pay for safety used in current regulatory evaluations is already considered. Regulatory evaluations often include a pessimistic and an optimistic value of likely benefits, and Frank and Sunstein’s suggested revised value of willingness to pay is still below the optimistic case that carefully formulated cost-benefit studies use. It is easy to show that almost doubling the estimated value of a statistical life would have an inconsequential effect on the economic desirability of a broad set of regulatory policies.

Finally, we argue that the most important refinements in the area of regulatory evaluation would be for agencies involved to adhere more to the framework of what is generally considered a carefully done cost-benefit study and for agencies to make greater actual use of appropriately done cost-benefit studies when recommending regulations.

We retrospectively identify the most important factors associated with the use of psychotherapy in combination with pharmacotherapy in the treatment of depression. Specifically, we study provider choice, health plan characteristics, and patient characteristics.

We use a comprehensive medical and pharmacy claims data sample of 1,023 individuals during 1992–1994. We select persons prescribed with an antidepressant medication and diagnosed with a depressive disorder by a primary care physician, psychiatrist, or non-physician mental health specialist. Controlling for depression diagnosis and severity, comorbidity, and demographics, we examine the role of provider type and plan benefit characteristics. We study the intensity of psychotherapy using zero-inflated count regression, the intensity of pharmacotherapy using truncated count regression, and the likelihood of relapse of depression using logistic regression.

Patients initially seeing a psychiatrist receive more than double the amount of psychotherapy and slightly more pharmacotherapy than patients of other providers. An additional prescription for antidepressant medication reduces by five percent the likelihood of relapse into depression, but the amount of psychotherapy does not affect relapse. Patients seeing a psychiatrist are half as likely to relapse, independent of any effect of psychotherapy. Case management and coinsurance rates do not affect the amount of psychotherapy, but the presence of case management has a positive effect on the amount of pharmacotherapy and on the likelihood of relapse.

We find no discernible pattern of complementarity or substitution between pharmacotherapy and psychotherapy across providers. Although the amount of psychotherapy provided in conjunction with medication does not affect the rate of relapse to depression, psychotherapy may nonetheless provide beneficial outcomes not studied here. Choice of a psychiatrist reduces the likelihood of relapse, independent of the number of psychotherapy sessions and antidepressant prescriptions. The effect of provider choice on relapse could be an artifact of differences in provider follow-up practices or could represent a difference in provider skills. Managed care strategies do not appear to reduce the intensity of depression treatment, but case management does increase the likelihood of relapse.

Pharmacotherapy and psychotherapy appear to be neither substitutes nor complements in the treatment of depression, suggesting that treatment is individualized. Choice of psychiatrist as the initial provider appears to reduce the likelihood of relapse, suggesting models of coordinated care may be beneficial. The link between psychiatrists and more psychotherapy is consistent with the hypothesis that patients resistant to treatment may nonetheless receive high quality care.

Managed care tools such as case management and coinsurance rates do not appear to restrict the use of either psychotherapy or pharmacotherapy. The association of case management with an increased likelihood of relapse suggests that plan characteristics can affect outcomes.

Our study focuses on psychotherapy combined with medication and does not psychotherapy alone in the treatment of depression, which may be a preferred mode of treatment for some. Outcomes other than relapse, as well as costs, should also be considered. Our findings that psychiatrists are associated with a decreased likelihood of relapse and that case management is associated with an increased likelihood of relapse despite a correlation with greater pharmacotherapy intensity present avenues for additional study.