Quality of life - PowerPoint PPT Presentation

Loading...

PPT – Quality of life PowerPoint presentation | free to download - id: 245c23-ZDc1Z



Loading


The Adobe Flash plugin is needed to view this content

Get the plugin now

View by Category
About This Presentation
Title:

Quality of life

Description:

'By 2017, total health care spending will double to more than $4 trillion a year, ... Skydiving. Bungee jumping. Mountain climbing ... – PowerPoint PPT presentation

Number of Views:11
Avg rating:3.0/5.0
Slides: 42
Provided by: JohnHa
Learn more at: http://www.econ.ucsb.edu
Category:

less

Write a Comment
User Comments (0)
Transcript and Presenter's Notes

Title: Quality of life


1
Quality of life
  • Today Health care environmental regulation
    workplace safety

2
Today
  • Three mini-lectures about issues related to
    quality of life
  • Health care
  • Full coverage is wasteful
  • Environmental regulation
  • Finding the lowest cost way to cut pollution
  • Workplace safety
  • How much safety is enough?

3
Health care
  • By 2017, total health care spending will double
    to more than 4 trillion a year, accounting for
    one of every 5 the nation spends, the federal
    government projects.
  • (Source AP article on CBS website, Health
    Care Will Cost 4 Trillion by 2017, posted Feb.
    26, 2008 see readings on class website for link)

4
Health care
  • More from the AP article, quoting Centers for
    Medicare and Medicaid Services economists
  • "Health is projected to consume an expanding
    share of the economy, which means that
    policymakers, insurers and the public will face
    increasingly difficult decisions about the way
    health care is delivered and paid for"

5
Health care
  • As we will see, there is often too much money
    spent on health care, relative to the optimal
    amount of spending
  • We will look at a simple case with constant MC

6
Health care
  • Health care services, like all goods and
    services, have a demand schedule
  • Demand denoted by MB curve

7
Health care
  • Suppose that Angela has been admitted to the
    hospital after being in a car accident
  • She has a substantial MB for the first night in
    the hospital, due to the care that she needs

8
Health care
  • As Angelas condition improves, her MB declines
  • After Q2 days in the hospital, she is completely
    better

9
Will Angela pay for the full cost of her hospital
stay?
  • Not likely
  • Most Americans have at least some health
    insurance
  • Insured person usually pays a deductible or
    co-payment for medical services
  • Some people have complete medical coverage
  • No direct payment made to those that provide
    medical services

10
Equilibrium length of hospital stay with
co-payment
  • Assume that Angela pays X dollars (co-payment)
    for her hospital stay
  • Let X be small relative to total hospital bill
  • Angela will then decide to stay in the hospital
    as long as MB for each night exceeds its MC
  • Note that Angelas private MC is zero under this
    form of insurance

11
Equilibrium length of hospital stay with
co-payment
  • PUBLIC MC is positive
  • Angelas PRIVATE MC is zero
  • If hospital lets Angela stay in the hospital as
    long as she wants, equilibrium occurs at Q2
  • MB and private MC are both zero here

12
What is optimal?
  • Angelas optimal length of hospital stay occurs
    when the PUBLIC MC equals MB
  • This occurs at point A

13
What about a percentage co-payment?
  • What if Angela had to pay 20 of her costs while
    in the hospital
  • Her PRIVATE MC is now two-tenths of MC curve (See
    dashed line)
  • Equilibrium is at the yellow circle

0.2 MC
14
What are some possible solutions to this problem?
  • Health Maintenance Organizations (HMOs)
  • Patients less likely to receive services with low
    MB
  • Higher deductibles
  • Closer to optimal outcome, since out-of-pocket
    payments are higher
  • Reimbursement policies for medical services
  • Review boards
  • Discharge criteria from hospitals

15
Moral hazard
  • With insurance, people are likely to do riskier
    activities, knowing that insurance will cover
    them if they get hurt
  • Skydiving
  • Bungee jumping
  • Mountain climbing
  • These activities lead to more medical costs,
    leading to higher premiums for everyone

16
Health care costs
  • Is there a single solution to lowering health
    care costs?
  • No Many approaches will be needed
  • Another issue Drug costs
  • Research and Development Often millions of
    dollars for a single drug
  • Patent protection ?? Market power

17
Summary Health care
  • Insurance often leads to more health care being
    used than what is optimal
  • Co-payments help improve efficiency some, but not
    completely
  • Some methods to help lower health care costs
    include the use of HMOs, higher deductibles, and
    reimbursement policies

18
Environmental regulation
  • Environmental quality is a good that people want
  • Problems with providing environmental quality
  • Goods without markets (air quality, global
    temperature, rivers)
  • Goods that governments own (parks)

19
Environmental regulation and externalities
  • Recall Externalities Chapter
  • With negative externalities, too much of some
    goods is produced, relative to efficient outcomes
    possible
  • Three ways of reducing pollution
  • Taxes
  • Pollution permits
  • Arbitrary controls (also known as command and
    control methods)

20
Environmental regulation and efficiency
  • Assume we are trying to find efficiency in an
    air-polluted city
  • To reach the efficient level of pollution, we
    need to find firms with the lowest cost to abate
    pollution

21
Environmental regulation and efficiency
  • Example with 3 firms
  • Efficient level of pollution, as determined by
    the government 5 tons of smoke per day
  • One of the two approaches (taxes or permits) is
    needed to solve for the optimal amount of
    pollution
  • We do not spend much time on command and
    control methods since it is often sub-optimal

22
Example
  • Three firms produce light bulbs
  • With no abatement technology, each firm produces
    4 tons of smoke per day
  • 12 tons of smoke with no regulation
  • To reach efficient level of 5 tons, 7 tons need
    to be abated
  • Some firms can more easily abate pollution than
    others
  • If firms with low abatement costs abate the most,
    we can get an efficient result

23
Example
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • Notice that marginal abatement costs increase as
    more is abated
  • Firm A 14 MC to abate 1st unit 16 for the
    2nd unit 20 for the 3rd unit 25 for the 4th
    unit

24
Example
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • We need to find the 7 tons with the lowest
    abatement MC
  • Lets start by adding arrows to abatement MC of
    20 per ton or less
  • Not enough Only 4 tons abated

25
Example
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • Lets try 30 abatement MC or less
  • 7 green arrows
  • We now have reached the efficient level of 5 tons
    of emissions

26
Our two methods to reach an efficient result
  • Pollution tax
  • Find a tax such that exactly 7 tons of pollution
    will be abated
  • Sell pollution permits
  • Find a price such that exactly 5 tons of
    pollution permits are demanded

27
Pollution tax
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • Lets try a 30 tax
  • Firm A will abate all 4 tons of smoke, since
    abatement cost is lower for each ton of smoke
    removed
  • Firm B will abate 2 tons and pollute 2 tons
  • Firm C will abate 1 ton and pollute 3 tons

28
Pollution tax
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • 7 tons abated
  • 5 tons polluted
  • We have found a tax that leads to the efficient
    pollution level

29
Pollution permits
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • What if you need a permit to pollute?
  • What if we sell permits for 30 each?
  • Firm A will demand no permits (and abate 4 tons)
  • Firm B will demand 2 permits (and abate 2 tons)
  • Firm C will demand 3 permits (and abate 1 ton)

30
Pollution permits
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • 7 tons abated
  • 5 tons polluted
  • We have found a price for permits that leads to
    the efficient pollution level

31
Alternative to taxes and permits
Command-and-control methods
  • An alternate method to control pollution is for
    the government to dictate that each firm reduce
    its pollution by a given percentage
  • Example Each firm must reduce emissions by 25
  • Problem Usually not efficient

32
Alternative to taxes and permits
Command-and-control methods
Tons of smoke emitted per day 4 3 2 1 0
Total abatement cost, firm A 0 14 30 50 75
Total abatement cost, firm B 0 20 45 80 120
Total abatement cost, firm C 0 25 60 100 150
  • Example Each firm must abate 1 ton
  • Total cost 59
  • Total cost if firm A abates 2 tons and firm B
    abates 1 ton 50 (see green ovals)

33
Summary Environmental regulation
  • Markets with externalities usually require
    government intervention to have optimal outcomes
    to occur
  • Taxes Efficient (with the right tax)
  • Permits Efficient (if permit price leads to an
    efficient amount of pollution)
  • Command and control methods Almost never
    efficient

34
Workplace safety
  • In a perfectly competitive labor market
  • Firms will provide the optimal amount of safety
  • Workers will be hired by a firm
  • Threat to leave firm will prevent the firm from
    lowering safety standards

35
The real world
  • Many countries have laws dictating a minimum
    level of safety to workers
  • Why?
  • Although most labor markets are competitive in
    the long run, there are frictions in the short
    run that prevent immediate job movement

36
What else is going on?
  • Todays work affects the company today, but the
    worker for a lifetime ? Workers value safety
  • Example Lose an arm ? Firm lays you off lower
    worker productivity for a lifetime
  • Firm does not care about future earnings of the
    worker
  • In many countries Government support needed if
    the worker is unable to find a job

37
Unions and workplace safety
  • Recall that unions not only fight for high wages,
    but also working conditions
  • Unions can be beneficial in determining the
    optimal amount of worker safety

38
Other methods to increase safety
  • Offer financial incentives
  • Higher safety ? Bonuses (money, gift
    certificates, tickets for prize giveaways)
  • Increased training
  • Shorter work days
  • Tired people are more likely to be clumsy and
    inattentive
  • Workers compensation
  • Insurance system for those injured while working

39
An application of safety
  • Look at Example 15.5 and Exercise 15.4 (p.
    437-438)
  • Uses many tools
  • Benefit/cost analysis
  • Workplace safety
  • Game theory
  • Prisoners dilemma
  • Relative income

40
Safety outside of the workplace
  • Many safety laws exist that are not related to
    workplaces
  • These laws often affect children, who are unable
    to fend for themselves
  • Child seats in cars
  • Crib safety
  • Reduced speeds near schools

41
Summary Workplace safety
  • Workplace safety laws try to establish an
    efficient amount of worker safety
  • Other attempts to increase workplace safety
    Unions, financial incentives, increased training,
    shorter work days, and workers compensation
    programs
About PowerShow.com