Slides for Class 6: Promoting a better grasp of Pareto Optimality and its application to Health Policy

1
Slides for Class 6 Promoting a better grasp of
Pareto Optimality and its application to Health
Policy

• What happens in markets for medical care when
• There are positive and negative externalities
  linked to consumption
• When consumers tastes for health are not
  predetermined.

2
How a Society , Abiding by the Assumptions That
Underlie Free Market Competition, Reaches Pareto
Optimality.

• The society consists of 2 households each owning
  finite amounts of 2 resources - X and Y, and 1
  producer that makes and sells 2 services - A and
  B to the households.
• Acting as consumers, both households optimize
  their utility when their marginal rate of
  substitution of A for B Pa/Pb
• The producers maximizes profits when it produces
  where its marginal rate of technical substitution
  of X for Y Px/Py and, its marginal cost of
  producing an additional unit of both A and B is
  to the market price or A and B.
• The society maximizes its collective well-being
  when the marginal rate of transformation of A for
  B is equal to the Pa/Pb.
• The Edgeworth box illustrates how the resources X
  and Y are allocated between A and B and these
  services are distributed between the 2
  households.
• Note the difference between this societys
  contract curve and the point on that curve where
  social welfare in that society is at a maximum.

3
Critiquing Assumptions Associated With the
Textbook Model of Market Competition

• Assumption 1 There are no negative externalities
• Assumption 2 There are no positive externalities
• Assumption 3 Consumer tastes are predetermined

4
Implications for Health Policy

• Equalizing Access to Health Services
• What comes first, allocation or distribution?
• Competition and prevention
• Government sponsored Health education
• Should cost control be a Public policy?

5
How would you like skill group organized and
managed?

• How will the group govern its effort?
• How will it structure its work? By tasks? By
  organizations involved? By experience with the
  skill area? Others?
• Are there special needs or boundaries within
  which members should work? How might the group
  manage these challenges?.
• What strategies will be used to gather
  bibliography from journals, books and the
  Internet?
• Use these questions if you choose to write class
  7, 1-pager on this topic.