Health Economics
14th Edition
ISBN: 9781137029966
Author: Jay Bhattacharya
Publisher: SPRINGER NATURE CUSTOMER SERVICE
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Question
Chapter 6, Problem 4E
To determine
Check the statement “higher values of the Herfindahl–Hirschman index indicate higher level of competition in those markets” is true or false
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Indicate whether each statement is true or false, and justify your answer.If a government wishes to maximize the rate of pharmaceutical innovation, it should offer non-expiring patents to drug companies.
(a) Suppose there are three hospitals in a market. Hospital #1 has a market share of 20%, Hospital #2 has a market share of 30%, and Hospital #3 has a
market share of 50%. Calculate the Herfindahl-Hirschman Index for this market.
(b) is the following statement TRUE or FALSE? Defend your answer with an explanation.
"Moral hazard in health insurance strengthens the link between hospital competition and lower prices for patients
(c) Suppose research studies on gallbladder removal surgery have found evidence that patients experience better health outcomes at hospitals that
conduct this surgery more frequently. List two reasons why this relationship might development and explain your reasoning.
Indicate whether the statement is true or false, and justify your answer.Consider the following theory due to Arrow (1963): nonprofits exist because for-profit firms are less trustworthy in the performance of actions that are hard to observe. According to this theory, government regulations requiring hospitals to report data on outcomes should lead to a lower share of nonprofit production in the hospital industry.
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- interest). At what age is the rate of disease development the highest? Source: Adapted from P. Coleman et al., “Endemic Stability―A Veterinary Idea Applied to Public Health," The Lancet 357 (2001): 1284–86. 19. If C(x) is the cost of producing x units of a commodity, then the average cost per unit is c(x) = C(x)/x. The marginal cost is the rate of change of the cost with respect to the number of items produced, that is, the derivative C'(x). (a) Show that if the average cost is a minimum, then the marginal cost equals the average cost. (b) If C(x) = 16,000 + 200x + 4x³/2, in dollars, find (i) the cost, average cost, and marginal cost at a produc- tion level of 1000 units; (ii) the production level that will minimize the average cost; and (iii) the minimum average cost. 20. If R(x) is the revenue that a company receives when it sells x units of a product, then the marginal revenue function is the derivative R'(x). The profit function isarrow_forwardThe Orphan Drug Act of 1983 provides tax incentives, patent protection, and research subsidies to firms for drugs, vaccines, and diagnostic agents if they are intended to treat a disease that affects less than 200,000 citizens. Explain how the Orphan Drug Act would affect drug development. Can you think of any tradeoffs from the act?arrow_forwardSupposing we grant the superiority of free market economic over other economic theories, do you think that ethical egoism ultimately justifies this economic theory? Or does some other ethical theory better justify it? Justify your answer with reasons,.arrow_forward
- It is generally agreed that unrestricted price competition among insurers could be detrimental to the public, yet some people argue that antirebating laws represent an unnecessary restriction on price competition among insurance agents and that such laws should be repealed. What is your opinion?arrow_forwardConsider the case of a competitive health insurance market, similar to what we studied in the graphical framework in Week 4A. Assume that, as in the Affordable Care Act, the government allows many insurers to compete (perfect competition) to offer the one kind of insurance contract allowed (this is just the same as the framework we’ve discussed all along, starting in Week 4A). Consumer demand for insurance is described by: P = 15 - .7 Q Qmax = 20 Assume that marginal and average costs are characterized by: MC= 10 – 4Q AC= 10 - .2Q A. Compute the competitive market price and quantity outcome under the usual assumptions. B. Compute the welfare loss from adverse selection in this competitive market. Also, compute the number of people who should have insurance from a social perspective. Remember that some people here may not have positive social value of insurance, so shouldn't be counted in the deadweight loss from adverse selection. This could be because, e.g. there are administrative…arrow_forwardIndicate whether each statement is true or false, and justify your answer.Most economists think that innovation is not random, and that pharmaceutical companies can steer their research toward profit opportunities.arrow_forward
- Why or how can you explain Card and Krueger's findings?arrow_forwardUnlike perfectly competitive markets, health insurance and health care markets are characterized by asymmetric information in many forms. To see the consequences, consider the following scenario: The population is evenly divided between 2 types of people: healthy people and unhealthy people. Healthy people have expected health care costs of $1000 per year. Unhealthy people have expected health care costs of $5000 per year. Unhealthy people can become healthy by working out, eating healthier, and taking preventive care. Assume that the cost of becoming healthy in terms of time and effort is $2000 per year. These people live in a city with one employer who will hire anyone who is willing to work. This employer provides complete health care to all its employees; all health care costs are covered by the insurance. Do the unhealthy employees have an incentive to become healthy? Ο No O Yes O There is not enough information to tell. What is the actuarial fair cost of insurance for all the…arrow_forwardFrustration over US pharmaceutical pricing has led researchers to develop frameworks for evaluation that can be used by any purchaser or patient making complex drug choices. One of the most prominent, the Institute for Clinical and Economic Review, uses clinical trial data and compares value -- per quality adjusted life year (QALY) -- under actual market pricing and other possible references prices for specific drugs. Do you think $/QALY is an appropriate metric for evaluating the value of new drugs?arrow_forward
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