Lec13_govt_handout - Government Regulation and Intervention...

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Government Regulation Government Regulation and Intervention and Intervention Part 1 Part 1 Vivian Ho Health Economics This material draws heavily from Santerre & Neun: Health Economics, Theories Insights and Industry Studies, Southwestern Cengate 2010
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Introduction Introduction Causes and consequences of government intervention in health care. Types of government intervention. Case studies Cigarette taxes. Price ceilings on health care services. Hospital antitrust litigation.
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Criteria for perfect Criteria for perfect competition competition All firms and consumers are price takers. Consumers and firms have perfect information. All firms produce an identical product. Firms can freely enter an exit an industry.
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Market imperfections may lead to inefficient Market imperfections may lead to inefficient or inequitable distribution of resources. or inequitable distribution of resources. Imperfect consumer information Monopoly Externalities Government intervenes to restore efficiency and/or equity. “Public interest theory.”
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An opposing theory: The amount and types An opposing theory: The amount and types of government intervention are determined of government intervention are determined by supply and demand. by supply and demand. Vote-maximizing politicians “supply” legislation. Wealth maximizing special interest groups are the buyers. Successful politicians stay in office by satisfying special interest groups.
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Special interest group theory” Special interest group theory” Examples: Examples: Extended patent protection for brand name drugs. Rejection of national health insurance in favor of private insurance companies.
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Special interest group theory claims that special Special interest group theory claims that special interest groups gain at the expense of the general interest groups gain at the expense of the general public. public. Consumers are diverse, fragmented, more costly for them to organize. Inefficient, inequitable resource allocation by government. Which theory do you believe? C-B analysis is needed to identify winners and losers.
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Types of Government Intervention Types of Government Intervention Provide public goods. Correct for externalities Impose regulations. Enforce antitrust laws. Sponsor redistribution programs. Operate public enterprises. Fund medical research. Tax cigarettes, pollution. FDA Bar hospital mergers. Medicare and Medicaid. VA hospitals
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Public Goods Public Goods >1 individual simultaneously receives benefits from the good. i.e., no rivalry in consumption. Costly to exclude nonpayers from consumption of the good.
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