Should Medicine be a Commodity?
Citation (APA): Friedman, D. (2016). Should Medicine be a Commodity? [Kindle Android version]. Retrieved from Amazon.com
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Should Medicine be a Commodity? By David Friedman
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What are the alternatives? The two most important are household production--the way in which children are reared, homes cleaned, clothes washed, and most meals cooked--and political production.
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ALTERNATIVE AL MERCATO
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The meaning of market provision of medical services is fairly clear, although the form may vary; individual physicians, group practices, private hospitals, payment by individuals or by insurance companies, are all possible market arrangements.
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MERCATO NELLA SANIYÀ
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I include three different sorts of government intervention under the general category of government provision and allocation--production, payment, and regulation. An obvious example of governmental production of medical services is a state hospital, or, on a larger scale, the British National Health System. Government payment would include systems such as medicare,
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3 FORME DEL SOCIALISMO
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Regulation includes such widely accepted activities as licensing of physicians and control by the FDA over the introduction of new drugs.
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calling the alternatives "market" and "government" is itself somewhat misleading, since government can be viewed as merely a second and different market, a political market
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GOVERNO VS PRIVATO
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I. Apologia Pro Via Sua--A Philosophical Introduction
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This section deals with the relation between the philosophical question of what is desirable and the economic question of what is efficient.
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EFFICIENZA ED ETICA
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The position in moral philosophy that I find least unsatisfactory is that there exist natural rights, that they can be described in terms of entitlements, and that to be entitled
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The rules of original entitlement and transfer that I find plausible correspond fairly closely to the laws of a pure free market society.
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MERCATO E DIRITTI
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the "coincidence" reflects some underlying connection between natural rights and utilitarian arguments.
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DIRITTI E UTILITÀ
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What is Efficiency Anyway?
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economic efficiency, due to Pareto, is that a Pareto-improvement is a change that benefits someone and injures no one and a situation is efficient if it cannot be Pareto-improved.
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I therefore prefer to use a slightly different approach, due to Marshall. I define an improvement as a change such that the total benefit to the gainers, measured by the sum of the numbers of dollars each would, if necessary, pay for the benefit, is larger than the total loss to the losers, similarly measured.
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Suppose there were a situation that was Pareto efficient (could not be Pareto improved) but not Marshall efficient. There would then be a possible Marshall improvement--a change that would benefit the gainers by more, measured in dollars, than it would injure the losers. A bureaucrat god could make that change and simultaneously transfer from gainers to losers a sum larger than the losses and less than the gains, taxing each gainer
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MARSHALL = PARETO MA PIÙ ONESTO
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is a way of making interpersonal utility comparisons while pretending not to; Marshall's approach makes the same comparisons but is honest
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What justification can there be for making interpersonal utility comparisons in a way that, by comparing gains and losses as measured in dollars, implicitly assumes that the utility of a dollar is the same to everyone? Marshall's answer was that for most economic questions it does not much matter how you weight utilities. Most issues involve large and diverse groups of gainers and losers;
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CONFRONTABILITÀ DELLE UTILITÀ
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Utility measured in dollars is observable, since we can observe how much people are willing to pay to achieve their objectives; utility measured in utiles is not.
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"O1 is more efficient that O2" means "going from O2 to O1 is a Marshall improvement" means "utility is (probably) higher in O1 than in O2."
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Why Bother With Efficiency?
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more is known about economics than about moral philosophy, so we are more likely to reach true conclusions and be able to convince others of them through the former than through the latter.
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PER MOLTI MORAITÀ=UTILITARISMO=EFFICIENZA ECONOMICA
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If I am right, then political disagreement is fundamentally a disagreement about the economic question
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Part II: Is The Best the Enemy of the Good? Efficiency Proofs
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I. Perfect Knowledge:
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ASSUNTI X L EFFICIENZA
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II. Private Property:
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III. No Transaction Costs:
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IV. Perfect Competition:
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V. Private Goods:
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Assumption III substitutes for assumptions IV and V because of the Coase Theorem; under conditions of zero transaction costs all of the inefficiencies associated with imperfect competition, externalities, and public goods can be eliminated by appropriate bargains among the affected parties.[
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The difficulty with such arguments is that there is no adequate theory of government behavior that implies that government would choose to do the right
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although we do not have an economic theory of the political process as well worked out and broadly accepted as the theory of private markets, we do have enough of such a theory to have some idea of where and why the political market is likely to produce less efficient outcomes than the private market.
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there exists a large and growing body of empirical studies of the effects of government regulation,
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Public Choice--The Economics of the Political Market
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Part III: The Case Against Economics
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The central assumption of economics is rationality--that people have objectives and tend to choose the correct way of achieving them.
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I OBIEZIONE. ASSUNTO CONTESTATO
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To take a trivial example, most of our objectives require that we eat occasionally, so as not to die of hunger (exception--if my objective is to be fertilizer). Whether or not people have deduced this fact by logical analysis, those who do not choose to eat are not around to have their behavior analyzed by economists. More generally, evolution may produce people (and other animals) who act rationally
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LA RAZIONALITÀ NN È NECESSARIAMENTE DEDUTTIVA
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The same result may be produced by a process of trial and error. If you walk to work every day you may by experiment find the shortest route, even if you do not know enough geometry to calculate it.
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RAZIONALITÀ TRIAL AND ERROR
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the idea that economists assume that "all anyone is interested in is money." Put in that way the assertion is wrong; economists usually assume that people desire money only as a means to other objectives. What is true is that although economics can, in principle, take account of the full richness of human objectives, it is necessary for many practical purposes to assume away all save the most obvious--the consumption of goods, leisure, security, and the like.
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Suppose we know someone's objective, and also know that half the time he correctly figures out how to achieve it and half the time he acts at random. Since there is usually only one right way of doing things (or perhaps a few) but very many wrong ways, the rational behavior can be predicted but the irrational behavior cannot. If we predict his behavior on the assumption that he is always rational we will be right half the time; if we assume he is irrational we will almost never be right,
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UTILITÀ DELL ASSUNZIONE
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We are better off assuming he is rational
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it takes a theory to beat a theory; until some better alternative is found, rationality is the best we have.
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TEORIA BATT TEORIA
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when it comes to analyzing a market--a complicated interacting system--" common sense" turns out in practice to mean a poorly thought out, inconsistent, and untested theory.
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Economics and the Poor
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A second set of objections to the market and the economic approach is based on the claim that neither gives proper consideration to the implications of income inequality.
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OBIEZIONE: IL VALORE DEL DENARO VARIA
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the market--and the criterion of efficiency according to which its outcome is often judged--measures individual values in dollars, not in intensity of feeling;
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PRIMO ARG CONDIVISIBILE
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This is equivalent to doing an interpersonal utility comparison on the assumption that the marginal utility of a dollar is the same for everyone.
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Most of the decisions an economist is interested in affect large and heterogeneous groups of people.
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differences among individuals can be expected to average out when we consider the effect on the whole group.
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obvious case is the decision of whether or not to provide free medical care (or housing, or food, or money) to the poor at the expense of the rest of us.
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CASI IN CUI PESA IL DIFETTO
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This is the traditional utilitarian argument for redistribution.
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The standard argument for redistribution begins with the claim that, for a given individual, the marginal utility of income declines as income increases. This seems plausible in terms of introspection,
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The next step is to claim that, absent information about differences in individual utility functions, we must treat each individual utility function as a random draw from the same population, so declining marginal utility of income applies not only to the same individual with different incomes but (on average) to different individuals
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DECLINING: VERO X IL SINGOLO MA X IL GRUPPO? I SOLDI NN PORTANO FELICITÀ
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It is quite implausible if differing income is the result of differing effort. An individual who greatly values the things that money buys will be more willing than others to give up other goods, such as leisure, in order to get income, so he will, on average, end up with a higher income.
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the claim that poor people cannot really be said to choose poor medical care, or poor nutrition, or whatever, since they cannot afford anything else.
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used to justify programs to provide "necessities" to the poor, whether or not such programs are actually redistributive--and often enough they are not.[
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Why not give money, and let the poor family decide for itself what it is most important to spend it on?
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VOUCHER O CASH?
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The Value of Life
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error--the failure to realize that life is infinitely more valuable than money.
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UN ERRORE DEL MERCATO
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The real comparison is not between life and money but between life and other things people value--leisure, consumption goods, education for their children, housing, et multa caetera.
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IL VERO CFR
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Anyone who both smokes and believes the conclusions of the surgeon general's report is deliberately trading life--an increased probability of dying of heart disease or lung cancer--for the pleasure of smoking.
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the assumption that life is infinitely valuable imply that we should take no avoidable risks--no sky diving, no skiing, no skin diving--it also implies a society wholly devoted to achieving a single goal.
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Few of us would agree to be hung tomorrow in exchange for a payment of a million dollars, or even ten billion. Does not that imply that our value for life is very high and perhaps infinite? No. It proves that money is of no use to a corpse.
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SOLDI AL MORTO
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studies of wage differentials in hazardous professions generate value of life estimates well below a million dollars.
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Suppose there is some individual who requires--and does not get--a ten million dollar operation to save his life. Further suppose that ten million dollars is precisely the sum spent, during a year, by all the people in the U.S. in order to have mint flavor in their toothpaste.
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VITA E DENTIFRICIO
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meaning--we have no intuition for how much the importance of a trivial pleasure is increased when it is multiplied by two hundred million.
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we end up comparing the value of one life to the value of a trivial pleasure to one person, or perhaps a few.
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Suppose I know that by eliminating mint flavor from my toothpaste I can avoid a one in 200 million chance of my own death. That is, in some sense, an equivalent problem--at
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Put this way, the answer is far from obvious;
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Rights to Life and Similar Claims
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It is sometimes claimed that individuals have a self-evident right to life, hence to that necessary to life, hence to medical care.
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DIRITTO ALLA VITA
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One difficulty with this argument is that it proves too much. Medical care is not the only thing whose consumption affects life expectancy.
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COSA ALLUNGA LA VITA?
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Nutrition, clothing, housing, education--a
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The concept of a right to life makes sense as my right to have other people not kill me. It does not make sense as a blank check against the rest of the human race for anything that extends my life.
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FARE OD OMETTERE
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A second argument for the special status of medical care holds that economic considerations are appropriate for choices that involve differing tastes, but inappropriate for choices where the right answer is a matter of objective fact.
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The problem with this argument is that decisions about medical care, like most decisions human beings make, involve issues of both fact and value.
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REPLICA: TUTTO È MISCHIATO
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One consequence of lack of medical care may be a drastic reduction in the number of available alternatives--a cripple cannot become an athlete, to take a particularly sharp example. Hence, it is said, while poor people may not have any general right to be given money, they do have a right to be provided with medical care. It is claimed that this argument justifies medical vouchers--payments
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ALTRO ARGOMENTO: LA SALUTE APRE AD ALTRE SCELTE
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argument proves too much--many inputs other than medical care affect our future choices.
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argument for vouchers appears to contain a simple error of logic--the proposal to increase choice in fact reduces it.
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I VOUCHER DIMINUISCONO LE SCELTE NN LE AUMENTANO
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removing the requirement that the money be spent on medical care obviously increases choice.
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IV. TECHNICAL ARGUMENTS
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The assumption of perfect information seems most appropriate for goods that are purchased repeatedly
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Some medical purchases seem to fit this pattern--cold medicines, for example, are used repeatedly, providing the customer an opportunity to determine which ones do noticeably better than others at relieving his symptoms.
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ANCHE SERVIZI MEDICI
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For many medical services the situation is far worse. Few of us break our bones often enough to form a competent opinion of the skills of those who set them;
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our willingness to pay for drugs or services reflects only very approximately their real value to us,
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One is to voluntarily shift the decision, and the associated costs and benefits, to some organization better informed than the individual consumer.
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health insurance, for example,
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It also raises the problem of how to decide which insurance company to trust. One solution is to purchase life and health insurance in the same package--since
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A CHI ASSOCIARSI?
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Another is to rely on published reports of the performance of insurance companies.
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Another solution is for some expert body to certify the quality of drugs or physicians; a familiar example in another field is the Underwriter's Laboratory.
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Another solution is a guarantee. If customers believe that they are ignorant about the effects of drugs and that the drug companies are not, they should strongly prefer drugs produced by companies that assume liability for unexpected side effects--and be willing to pay more for the drugs sold by such companies.
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Under our present system liability rules are determined by the courts and waivers are unenforceable. The customer ends up paying for the malpractice insurance whether or not he thinks it is worth the price.
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What about governmental solutions? The obvious one is for the government to generate information, leaving the customer free to decide for himself how to make use of it. A familiar example is the labeling of cigarettes;
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SOLUZIONI GOVERNATIVE. LABELLING
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Although the government may have superior information about the side effects of a drug or the consequences of smoking, the consumer has superior information about his own values--how
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MEGLIO INFORMARE LASVIANDO LIBRRI
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In the case of physicians, this is an argument for certification and against licensing.
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CERTIFICAZIONE VS LICENZA
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Physicians are licensed, and unlicensed physicians are forbidden to practice. Similarly, although there is some control over the labelling of drugs,
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keep drugs off the market until the FDA has approved them.
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present policies assume customers who are not only poorly informed but irrational
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An alternative explanation is that the chief objective of at least some regulation is the welfare not of the patient but of the doctor.
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ALTERNATIVA: LE REGOLE SONO X I DOTTORI
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This raises a general issue frequently ignored by those who wish to substitute governmental for private decisions. Even if the government is better informed than the individual, the individual has one great advantage in making decisions about his own welfare--he can be trusted to have his welfare as one of his principal objectives.
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ARGOMENTO GENERALE X IL MERCATO. USO DELL ONFO
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If the FDA licenses a drug that turns out to have disastrous side effects, the result is a front page story and the end of the career of whoever made the decision. If it refuses to license a useful drug, the result is to keep a cure rate from rising--say from 92% to 93%. The total cost may be very large, but it is not very visible,
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BIAS DEL CONTROLLORE
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So far as I know nobody has yet done a comparable study attempting to estimate the net effect, in either dollars or lives, of FDA regulations restricting the introduction of potentially dangerous drugs.
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It involves situations in which one party to a transaction has information that the other lacks, and there is no (convincing) way to share the information with the other party.
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used car market.[
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The problem is that a car may fail to be sold even though it is worth more to a potential buyer than it is to its present owner.
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AFFARI NN CONCLUSI X LA PAURA
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In the context of health insurance, the same problem is called adverse selection. Individuals know more about their own health, past and future, than insurance companies can learn.
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This makes insurance more attractive for the customer who knows he is a bad risk--more
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One market solution is a group policy. If an insurance company insures all the employees of a firm together, the sample of insured individuals is only slightly biased towards bad risks, since the existence of the insurance is only a minor factor in determining who chooses to work for that company.
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SOLUZIONE GROUP POLICY
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The obvious governmental solution is a group policy for the entire population--national health insurance.
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If provided by a bureaucrat god perfectly informed about the appropriate level of coverage and all the associated administrative details, and suitably tailored to the requirements of different customers, it would be more efficient than the private alternative.
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The problem is called moral hazard.
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Consider an individual deciding whether to stay an extra day in the hospital. The cost of doing so is $ 200. The value to him, in terms of a slight reduction in the chance of a relapse, is $ 50. If he is paying his own bills, he goes home. If the insurance company is paying more than 3/ 4 of the cost, he stays.
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There are several ways in which the costs of moral hazard can be reduced. One is coinsurance--if the insured is responsible for part of the bill, he has at least some incentive to keep it down.
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Moral hazard applies to government health insurance just as it does to private health insurance--indeed,
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The advantage of the private system is that insurance will occur only if the gain due to risk sharing (or other advantages) at least balances the cost imposed by moral hazard--otherwise
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VANTAGGIO DEL PRIVATO
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The main hindrances to competition on that part of the market are the result of government interference--the prohibition on advertising the price of medical services and the restriction on entry to the profession, both enforced by state regulation of who can practice medicine. The same applies to the retailing of medicine; advertising of the prices of prescription drugs has frequently been illegal.
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OSTACOLI ALLA COMPETIZIONE
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What about imperfect competition resulting from economies of scale in the medical industry? Examples are drug research, hospitals, and physicians in sparsely populated areas.
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My own conclusion, considering both the theoretical arguments and historical experience, is that regulation of monopolies may never be desirable, and certainly is not in cases that fall substantially short of complete and very long-lived monopoly.
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PROBLEMI ANTI TRUST
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Externalities/ Public Goods
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One solution to this problem is to have the good produced by government. This solution, as I pointed out in Part II, raises a second public good problem. Production of good law--or bad law for that matter--is a public good from the standpoint of the group benefitted by the law, so getting the government to do things requires that someone solve a public good problem.
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L INCASTRO DEL DOPPIO BENE PUBBLICO
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There are also a number of private solutions to the public good problem. One is charity.
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Another is for the producer to organize a contract among those who will benefit from the public good by which each agrees to contribute only if the others do.
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CONTRATTI BENE PUBBL
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An externality is a cost (or benefit) that one individual's actions impose on another. A public good can be described as a positive externality,
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If I get inoculated against a contagious disease, that reduces the chance that I will infect you--a positive externality. If my drug company discovers a new family of drugs, that provides information useful to other companies. If I spend money on keeping myself healthy, that benefits all those who care for me and would be made unhappy by my illness;
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Economic theory suggests that the market will underproduce inoculations, drug research, and health because in each case the individual paying the cost receives only part of the benefit.
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Similarly, if the use of some antibiotics imposes external costs by encouraging the development of resistant strains of bacteria, such antibiotics will be overused,
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All of these, however, are what I earlier described as mostly private (or at least, largely private) goods. In each case a large part of the benefit goes to the person who pays for it--I stay healthy because of my inoculation, the drug company makes money off its new drugs, and my own health probably gives more pleasure to me than to even the most altruistic of my friends.
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BENI PRIVATI AMVHE SE VON ESTERNALITÀ
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My conclusion was that the substitution of the political for the private market was justified, if at all, only in cases of extreme market failure on the private market.
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In most cases the failure implies that a sufficiently wise, powerful, and benevolent authority could improve--in terms of economic efficiency--the outcome of the market. In no case is there any clear reason to believe that assigning additional power to government--as government actually exists--would improve the situation; in many there is reason to believe that doing so would make it worse. In several cases existing problems are the direct result of government interference with the market.
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