MARKET GOVERNMENT GOVERNMENT FAILURE INTERVENTION FAILURE EXTERNALITY PUBLIC ENTERPRISE ADMINISTRATIVE -PUBLIC GOODS-NATIONALIZATION COST MARKET -PRIVATIZATION COMPLIANCE POWER REGULATION COST INEQUITIES - OUTPUT EFFICIENCY COST DYNAMIC - PRICE - NEGATIVE EXTER. MKT. FAIL. - STANDARDS -PUBLIC BADS INDIVISIBILITY ANTITRUST - MKT POWER INFORMATION -STRUCTURE - INEQUITIES ASYMMETRY -CONDUCT - DYNAMIC TAXES (SUBSIDIES) - INDIVISIBILITY PROVISION OF - INFORMATION INFORMATION RATIONING (MONEY) Learning, Leadership and Service in the Jesuit Tradition Slide 1

EXTERNALITIES: impacts on third parties besides the buyer and seller. CONSUMPTION EXTERNALITIES: impacts on third parties as a result of the consumption of a good. Eg. Each infected person who takes Drugs eliminates disease helps all of society, not Just the drug company which provides the medicine PRODUCTION EXTERNALITIES: impacts on third parties as a result of the production of a good. Eg. New discoveries & innovations impact all of Society, not just the scientist who disovers them and the firm who employs the Scientist (streptomyacin patent problem) Learning, Leadership and Service in the Jesuit Tradition Slide 2

MARKET POWER: The power of a single Company to change the price of a good Or service in the market place. includes: MONOPOLY, MONOPOLISTIC COMPETITION, BILATERAL MONOPOLY. Examples: Drug Companies while they have Patents. Learning, Leadership and Service in the Jesuit Tradition Slide 3

INEQUITIES: any economic, social or political mechanism that systematically causes one part of the population to be worse off than another part of a population through time without the possibility of correction. Examples: Poor Populations have greater vulnerability to TB due to their economic and social conditions. Learning, Leadership and Service in the Jesuit Tradition Slide 4

DYNAMIC MARKET FAILURE: the failure through time to achieve technological change and the failure of the market to achieve stable, equilibrium outcomes. Examples: As a disease disappears in a given locale: -lack of incentives for new drug development -Lack of treatment for those who are diseased both in the area and in other areas where pandemics may occur Learning, Leadership and Service in the Jesuit Tradition Slide 5

INDIVISIBILITIES: a problem cannot be sub- divided into smaller pieces for the purpose of solving the problem or marketing the solution Example: even one remaining infected person means no cure has been achieved. any plan to wipe out a disease means that a comprehensive world wide plan must be undertaken. Learning, Leadership and Service in the Jesuit Tradition Slide 6

INFORMATION ASYMMETRY: decision makers do not have access to the same information which leads to different definitions, boundaries, and solutions to problems to be solved and social outcomes. Examples: indifference to disease, lack of education about how to treat diseases, and failure to understand the tradeoff between private rights and public goods. Learning, Leadership and Service in the Jesuit Tradition Slide 7

Learning, Leadership and Service in the Jesuit Tradition Slide 8

Public Enterprise: The government provides the Service instead of the market. Nationalization: Government takes over private enterprises Examples: Move to single payor system Privatization: Government sells off government enterprises to the private market Examples: Sell off Veterans Administration Hospitals Learning, Leadership and Service in the Jesuit Tradition Slide 9

REGULATION: Government determines how Market outcomes are to be limited. *output regulation: Government sets quotas or Limits the amount of output that can be provided By participants in a market. Examples: prohibition of bogus cures *price regulation: Government sets price controls Either as minimum or maximum prices that can Be charged in a market. Examples: price controls on drugs *standards regulation: Government sets limits on The characteristics of a product or service Examples: FDA regulations on advertising & quality Learning, Leadership and Service in the Jesuit Tradition Slide 10

ANTITRUST: the government limits the structure and conduct of firms in the market instead of market performance such as output and price. Structure: Government examines all mergers Examples: Hospital, drug co. mergers Conduct: Government limits conspiracies to fix prices Examples: Drug company pricing Learning, Leadership and Service in the Jesuit Tradition Slide 11

Subsidies: Government provides money to provide incentives for certain market outcomes Examples: Medicare, Medicaid, Free Drugs (Isoniazid, Myambutol) Taxes: Government collects money to provide revenues for government services and to discourage certain market outcomes. Examples: Income Taxes Learning, Leadership and Service in the Jesuit Tradition Slide 12

PROVISION OF INFORMATION: Government provides information that the market otherwise Would not provide Examples: Data on extent of TB RATIONING: Government determines market Signals that will determine how distribution of goods or services is to occur Examples: TB drugs and treatment Learning, Leadership and Service in the Jesuit Tradition Slide 13

GOVERNMENT TUBERCULOSIS INTERVENTION EXAMPLE PUBLIC ENTERPRISE -NATIONALIZATION SINGLE PAYOR SYSTEM -PRIVATIZATION SELL OFF VA HOSPITALS REGULATION ISOLATION, QUARANTINE - OUTPUT PROHIBITION OF BOGUS CURES - PRICE PRICE CONTROLS ON DRUGS - STANDARDS FDA Regulations on Advertising, Quality ANTITRUST -STRUCTURE HOSPITAL, DRUG CO. MERGERS -CONDUCT PRICE FIXING, TAXES (SUBSIDIES) MEDICARE, MEDICAID,FREE DRUGS (ISONIAZID, MYAMBUTOL) PROVISION OF PUBLIC HEALTH INFORMATION, INFORMATION DATA ON EXTENT OF TB RATIONING Learning, Leadership and Service in the Jesuit Tradition Slide 14

GOVERNMENT TUBERCULOSIS FAILURE EXAMPLE? ADMINISTRATIVE COST COMPLIANCE COST EFFICIENCY COST Learning, Leadership and Service in the Jesuit Tradition Slide 15 *How much it costs the government to Intervene. *How much it costs the private sector To comply with government intervention *How much is lost in efficiency of service As a result of government intervention

GOVERNMENT FAILURE ADMINISTRATIVE COST COMPLIANCE COST EFFICIENCY COST -AND- All of the Market Failures as well!!! NEGATIVE EXTER. PUBLIC BADS MKT POWER INEQUITIES DYNAMIC INDIVISIBILITY INFORMATION ASYMETRY Learning, Leadership and Service in the Jesuit Tradition Slide 16

100,000 Persons 65 and Over Physician Acute Care Hospital Nursing Home Deaths (5114) Annual movement of persons 65 and over through the healthcare system * Paul Densen (Milbank Quarterly, V65 #4, 1987 Chronic Disability Rehab Facility Community Care Agency Inpatient Mental Health Facility Dental Care Discharges Persons

100,000 Persons 65 and Over Physician Acute Care Hospital Nursing Home Deaths (5114) Annual movement of persons 65 and over through the healthcare system * Paul Densen (Milbank Quarterly, V65 #4, 1987 Chronic Disability Rehab Facility Community Care Agency Inpatient Mental Health Facility Dental Care Discharges Persons

GOVERNMENT STUDIES

PRIVATE (for profit) STUDIES

Terminal Care Depends upon Who does the Ultimate Financing: Government or Private Third Party Payors Cost Effectiveness Analysis is similar Cost Benefit Analysis: costs and benefits are different: stockholders vs. society Many kinds of specialized studies that apply to one type of organization only

MARKET GOVERNMENT GOVERNMENT FAILURE INTERVENTION FAILURE EXTERNALITY PUBLIC ENTERPRISE -PUBLIC GOODS-NATIONALIZATION MARKET -PRIVATIZATION POWER REGULATION INEQUITIES - OUTPUT DYNAMIC - PRICE MKT. FAIL. - STANDARDS INDIVISIBILITY ANTITRUST INFORMATION -STRUCTURE ASYMMETRY -CONDUCT TAXES (SUBSIDIES) PROVISION OF INFORMATION RATIONING (MONEY)

MARKET GOVERNMENT GOVERNMENT FAILURE INTERVENTION FAILURE EXTERNALITY PUBLIC ENTERPRISE ADMINISTRATIVE -PUBLIC GOODS-NATIONALIZATION COST MARKET -PRIVATIZATION COMPLIANCE POWER REGULATION COST INEQUITIES - OUTPUT EFFICIENCY COST DYNAMIC - PRICE - NEGATIVE EXTER. MKT. FAIL. - STANDARDS -PUBLIC BADS INDIVISIBILITY ANTITRUST - MKT POWER INFORMATION -STRUCTURE - INEQUITIES ASYMMETRY -CONDUCT - DYNAMIC TAXES (SUBSIDIES) - INDIVISIBILITY PROVISION OF - INFORMATION INFORMATION RATIONING (MONEY)