lecture 5 - health policy

Question 1

public health

Answer 1

• Public health aims to prevent and control disease and injury in a population through weakening social, economic, and environmental determinants of health (macro)
• Medicine aims to cure disease of an individual (micro)

Question 2

strands of public health policy

Answer 2

• Control of communicable disease
• Prevention of non-communicable disease
• Prevention of injury

Question 3

Rationale for public health policy

Answer 3

• Externality
• Free riding
• Internality
  o some psychological bias which leads an individual to not take account of all the costs and benefits of the decision they are taking. because of that the decision they are going to make is maybe not in their own best interest.
• Information failure
  o could lead to people making decision they would not make if they would have been fully informed
• Inequity
  o different resources, so different health outcomes

Question 4

Impediments (belemmeringen) to public health policy

Answer 4

• Non-compliance
  o Screening, vaccination, regulations
  o It is offered, but many people don’t take it
• Risk compensation
  o Public policy crowds out self-protection
  o Example: when seat bells became necessary, people started driving faster
• Information aversion
  o Fear of bad news
  o Screening programs  not taken because of fear of bad news
• Perverse redistribution from poor to rich
  o Taxing unhealthy product with negative income elasticity
  o Subsidising healthy product with positive income elasticity
  o For example: more poor people smoke, so taxing cigarettes affects the poor more than the rich
• Politics
  o Laws & regulation constrain freedom & taxes unpopular

Question 5

limitations if pigou’s solution

Answer 5

• To set the optimal tax/subsidy, need to know MEC/MEB at the social optimum
• Difficult to measure external effects because
  o external effects are not traded – market provides no information on their magnitude and value
  o external effects vary across consumers
• Need to estimate external effects, with lots of scope for error
• If set tax/subsidy too high or too low
  o will not get to social optimum
  o hopefully, get closer than the market achieves
  o but this is not guaranteed

Question 6

• Coase Theorem

Answer 6

• Coase Theorem: If property rights on the externality-generating activity are clearly defined and there are little or no transaction costs, then voluntary trade will achieve the social optimum
  o Transaction costs = costs of making a deal between those who are generating the externality and those who are affected by the externality: the costs of negotiating
• If those generating the externality hold the property rights, then those affected will offer payment to reduce (negative externality) / increase (positive externality) quantity
  o Establish right to remain unvaccinated. Payments made to persuade others to vaccinate.
• If those affected by externality hold the property rights, then those generating the externality will offer payment to increase (negative externality) / reduce (positive externality) quantity
  o Establish right to smoke-free workplace. Smokers pay others to smoke at work.
• Assignment of property rights affects distribution of welfare but not level of output or welfare

Question 7

Limitations of Coase’s solution

Answer 7

• Property rights are often not clearly defined, e.g. right to smoke-free workplace but not to take payment to allow smoking
  o Leaves bargaining at impasse
• Transaction costs of bargaining high when many people involved
  o If property rights held by those generating externality, e.g. right not to get vaccinated
   Coordination problem for the many affected by it
• I benefit if others pay to reduce external cost / increase external benefit
• So, why should I pay?
• Voluntary bargaining fails due to free riding
  o If property rights held by those affected by externality, e.g. right to smoke-free workplace
   Hold up problem for those who generate externality
• Takes only one person to stop bargain