ECON 440 Lecture 5: Government Involvement in Health and Health Care Markets
13 Jun 2018
School
Department
Course
Professor
Market failure
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Economic perspective
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Assumptions about individual preferences and rationality don't apply (Rice)
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Paternalism, redistribution, merit goods
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Other perspectives
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Examples where markets should work (or not)
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Outline
Free entry and exit
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Many buyers and sellers - price takers
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Homogeneous product
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Rational decision makers, maximize utility (or profit)
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Perfect information: symmetric and no uncertainty
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No significant externalities, public goods
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The competitive market model is the traditional starting point for economists
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Competitive markets yield efficient allocations (Pareto) IF the above conditions for a competitive
market model are met
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The First Theorem of Welfare Economics
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Are Markets Efficient?
Monopoly power: one or a small number of sellers is dominant
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Public goods: consumption is non-rival and non-excludable
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Externalities: third party affected by consumption
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Incomplete markets: good cannot be purchased at any price
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When markets "fail", intervention is required to reach efficient outcomes
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Market Failure? Quebec plans to set minimum sale quota on electric cars
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Market Failure - 21:00
Medical degree/license
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Continuous education
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Restricted entry (to suppliers)
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There are few physicians, health insurers, hospitals
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They may not all be specialized
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Monopoly power (concentration of market power)
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Not all the same quality; not substitutes
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Heterogeneous goods and services
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Debate that providers are profit-maximizers - do they care and prioritize the health of patients?
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Not all patients prioritize health!
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Rational decision-makers
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Patients usually know less than doctors
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Doctors, surgeons, etc. don't know the outcomes 100%
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Asymmetric information and uncertainty
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No; they are usually publicly financed, but if one person being in the ER means the other
person can't be…
▪
Are health care services public goods?
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Production and distribution of health information
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Public goods
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e.g. second hand smoke, driving drunk = negative externalities
Externalities
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Market Failure in Health and Health Care
Lecture 5 - Government Involvement in Health and Health
Care Markets
Wednesday, January 24, 2018
12:08 PM
ECON 440 Page 1
Document Summary
Lecture 5 - government involvement in health and health. Assumptions about individual preferences and rationality don"t apply (rice) The competitive market model is the traditional starting point for economists. Competitive markets yield efficient allocations (pareto) if the above conditions for a competitive market model are met. When markets fail, intervention is required to reach efficient outcomes. Monopoly power: one or a small number of sellers is dominant. Incomplete markets: good cannot be purchased at any price. Quebec plans to set minimum sale quota on electric cars. Doctors, surgeons, etc. don"t know the outcomes 100% No; they are usually publicly financed, but if one person being in the er means the other person (cid:272)an"t (cid:271)e . Externalities e. g. second hand smoke, driving drunk = negative externalities. Econ 440 page 1 e. g. second hand smoke, driving drunk = negative externalities. Econ 440 page 1 e. g. second hand smoke, driving drunk = negative externalities e. g. disease immunity (vaccines, flu shots, etc. )
