nep-hea New Economics Papers
on Health Economics
Issue of 2006‒11‒18
thirteen papers chosen by
Yong Yin
SUNY at Buffalo, USA

  1. Alcohol Taxation and Regulation in the European Union By Sijbren Cnossen
  2. Reference Pricing of Pharmaceuticals By Kurt R. Brekke; Ingrid Königbauer; Odd Rune Straume
  3. Longevity and Aggregate Savings By Eytan Sheshinski
  4. Are Cardiovascular Diseases Bad for Economic Growth? By Marc Suhrcke; Dieter M. Urban
  5. When Health Care Insurance Does Not Make A Difference – The Case of Health Care ‘Made in China’ By Hendrik P. van Dalen
  6. Labour Participation of People Living with HIV/AIDS By José M. Labeaga, Juan Oliva; Juan Oliva
  7. The Effects of Education Quality on Income Growth and Mortality Decline By Eliot A. Jamison; Dean T. Jamison; Eric A. Hanushek
  8. The SES Health Gradient on Both Sides of the Atlantic By James Banks; Michael Marmot; Zoe Oldfield; James P. Smith
  9. Health Insurance as a Two-Part Pricing Contract By Darius Lakdawalla; Neeraj Sood
  10. Health Shocks, Village Elections, and Long-Term Income: Evidence from Rural China By Li Gan; Lixin Colin Xu; Yang Yao
  11. Wearing Out -- The Decline in Health By Eugene Choo; Michael Denny
  12. Physician Quality and Health Care for the Poor and Uninsured By Lara Bryant; Sharmila Vishwasrao
  13. Indian Patent Policy and Publich Health : implications from the Japanese Experience By Aoki, Reiko; Kubo, Kensuke; Yamane, Hiroko

  1. By: Sijbren Cnossen
    Abstract: This paper estimates the external costs of harmful alcohol use in the European Union (EU) and confronts them with the alcohol excise duty collections per adult and per litre of pure alcohol in the various Member States. In all but one Member State, drinkers do not appear to pay their way. This reflects the EU’s acquiescence in a formidable alcohol problem. Fifteen per cent of adults ‘drink too much’, while the extent of youth drinking has reached alarming proportions. The external costs should be internalised in price through an appropriate optimal alcohol excise duty, supplemented by regulatory measures aimed at specific problem groups. Further, a coordinated alcohol tax policy seems called for, which would, among others, raise the minimum duties on wine, beer and spirits, preferably in line with their relative alcohol content. A drawback of these measures is that they would reduce the welfare of moderate drinkers.
    Keywords: alcohol taxation, European Union, external costs, social costs
    JEL: H20 H80
    Date: 2006
  2. By: Kurt R. Brekke; Ingrid Königbauer; Odd Rune Straume
    Abstract: We consider a therapeutic market with potentially three pharmaceutical firms. Two of the firms offer horizontally differentiated brand-name drugs. One of the brand-name drugs is a new treatment under patent protection that will be introduced if the profits are sufficient to cover the entry costs. The other brand-name drug has already lost its patent and faces competition from a third firm offering a generic version perceived to be of lower quality. This model allows us to compare generic reference pricing (GRP), therapeutic reference pricing (TRP), and no reference pricing (NRP). We show that competition is strongest under TRP, resulting in the lowest drug prices (and medical expenditures). However, TRP also provides the lowest profits to the patent-holding firm, making entry of the new drug treatment least likely. Surprisingly, we find that GRP distorts drug choices most, exposing patients to higher health risks.
    Keywords: pharmaceuticals, reference pricing, product differentiation
    JEL: I11 L13 L51 L65
    Date: 2006
  3. By: Eytan Sheshinski
    Abstract: For the last fifty years, countries in Asia and elsewhere witnessed a surge in aggregate savings per capita. Some empirical studies attribute this trend to the increases in life longevity of the populations of these countries. It has been argued that the rise in savings is short-run, eventually to be dissipated by the dissaving of the elderly, whose proportion in the population rises along with longevity. This paper examines whether these conclusions are supported by economic theory. A model of life cycle decisions with uncertain survival is used to derive individuals’ consumption and chosen retirement age response to changes in longevity from which changes in individual savings are derived. Conditions on the age-profile of improvements in survival probabilities are shown to be necessary in order to predict the direction of this response. Population theory (e.g. Coale, 1952) is used to derive the state-state population age density function, enabling the aggregation of individual response functions and a comparative steady-state analysis. Under certain conditions, increased longevity is shown to increase aggregate savings per capita. These conclusions pertain to an economy with a competitive annuity market. The absence of such market compels individuals to leave unintended bequests, whose size depends on the (random) age of death. While an increase in longevity raises individual savings for given endowments, it is shown that the effect on expected steady-state aggregate savings, taking into account the endogenous ergodic distribution of endowments, cannot be determined a-priori.
    Keywords: longevity, annuities, life cycle savings, retirement age, steady-state, aggregate savings
    JEL: D10 D60 E20 H00
    Date: 2006
  4. By: Marc Suhrcke; Dieter M. Urban
    Abstract: We assess the impact of cardiovascular disease (CVD) mortality on economic growth, using a dynamic panel growth regression framework taking into account potential endogeneity problems. We start from a worldwide sample of countries for which data was available and detect a non-linearity in the influence of working age CVD mortality rates on growth across the per capita income scale. We then split the sample (according to the resulting income threshold) into low- and middle-income countries on one hand, and high-income countries on the other hand. In the latter sample we find a robust negative contribution of increasing CVD mortality rates on subsequent five-year growth rates. Not too surprisingly, we find no significant impact in the low- and middle-income country sample.
    Keywords: cardiovascular disease, growth empirics, dynamic panel data estimator
    JEL: I10 O47
    Date: 2006
  5. By: Hendrik P. van Dalen (Erasmus Universiteit Rotterdam)
    Abstract: Does medical insurance affect health care demand and in the end contribute to improvements in the health status? Evidence for China for the year 2004, by means of the China Health and Nutrition Survey (CHNS), shows that health insurance does not affect health care demand in a significant manner. Counterfactuals suggest that full insurance coverage of the Chinese population will not radically change the health care decisions and may even enlarge the perverse effects of today’s health care system: insured persons are more likely to fall back on self-care when they are injured or ill than on the care of a local clinic. This effect is particularly strong in urban areas. In case of a severe injury hospital consultation is preferred to local clinic or self-care by most people, but still a substantial percentage (20 percent) resorts to self-care or ignores the illness. The high level of out-of-pocket expenses paid by both insured and uninsured patients lies at t! he root of this problem. Insurance does not offer real protection against unpredictable high health care expenditures and can lead people into a position of long-term poverty or serious liquidity problems.
    Keywords: health insurance; poverty; China; health care; market failure
    JEL: D12 H51 I11 I18 P36
    Date: 2006–10–11
  6. By: José M. Labeaga, Juan Oliva; Juan Oliva
    Abstract: The therapeutic advances that have taken place since the mid 1990s have profoundly affected the situation of people living with HIV/AIDS, not only in terms of life expectancy and quality of life but also socio-economically. This has numerous effects on different aspects of the patients’ lives and, especially, on their working lives. We analyze in this paper labour force participation of people living with HIV/AIDS in Spain. Although we first set up our model in a typical neoclassical framework where variables of defence levels, illness stage and patients health related quality of life are added to the normally used demographic and economic variables, we depart from it at several points of the paper. The results point to a high level of labour participation, although lower than the level at the time of the diagnosis, associated with a good health status. Gender, education level, unearned income, clinical indicators and the patients’ own perception of their health are the main variables explaining the probability of participating in the labour market. The results obtained in the study may serve both as a basis for making medium term predictions and for designing integral support policies for these people.
  7. By: Eliot A. Jamison; Dean T. Jamison; Eric A. Hanushek
    Abstract: Previous work shows that higher levels of education quality (as measured by international student achievement tests) increases growth rates of national income. This paper begins by confirming those findings in an analysis involving more countries over more time with additional controls. We then use the panel structure of our data to assess whether the mechanism by which education quality appears to improve per capita income levels is through shifting the level of the production function (probably not), through increasing the impact of an additional year of education (probably not), or through increasing a country's rate of technological progress (very likely). Mortality rates complement income levels as indicators of national well-being and we extend our panel models to show that improved education quality increases the rate of decline in infant mortality. Throughout the analysis, we find a stronger impact of education quality and of years of schooling in open than in closed economies.
    JEL: F4 I2 J0 J21 O4 I1
    Date: 2006–10
  8. By: James Banks; Michael Marmot; Zoe Oldfield; James P. Smith
    Abstract: Looking across many diseases, average health among mature men is much worse in America compared to England. Second, there exists a steep negative health gradient for men in both countries where men at the bottom of the economic hierarchy are in much worse health than those at the top. This health gradient exists whether education, income, or financial wealth is used as the marker of one's SES status. These conclusions are maintained even after controlling for a standard set of behavioral risk factors such as smoking, drinking, and obesity and are equally true using either biological measures of disease or individual self-reports. In contrast to these disease based measures, health of American men appears to be superior to the health of English men when self-reported general health status is used. The contradiction most likely stems instead from different thresholds used by Americans and English when evaluating health status on subjective scales. For the same "objective" health status, Americans are much more likely to say that their health is good than are the English. Finally, feedbacks from new health events to household income are one of the reasons that underlie the strength of the income gradient with health in England.
    JEL: I0
    Date: 2006–11
  9. By: Darius Lakdawalla; Neeraj Sood
    Abstract: Monopolies appear throughout health care markets, as a result of patents, limits to the extent of the market, or the presence of unique inputs and skills. In the health care industry, however, the deadweight costs of monopoly may be small or even absent. Health insurance, frequently implemented as an ex ante premium coupled with an ex post co-payment per unit consumed, effectively operates as a two-part pricing contract. This allows monopolists to extract consumer surplus without inefficiently constraining quantity. This view of health insurance contracts has several implications: (1) Low ex post copayments to insured consumers substantially reduce deadweight losses from medical care monopolies -- we calculate, for instance, that the presence of health insurance lowers monopoly loss in the US pharmaceutical market by 82 percent; (2) Price regulation or break-up of health care monopolies may be inferior to laissez-faire or simple redistribution of monopoly profits; and (3) Promoting efficiency in the health insurance market can reduce static losses in the goods market while improving the dynamic efficiency of innovation.
    JEL: D42 I11
    Date: 2006–11
  10. By: Li Gan; Lixin Colin Xu; Yang Yao
    Abstract: Using a sample of households in 48 Chinese villages for the period 1986-2002, this paper studies the dynamic effects of major health shocks on household income and the role played by village elections in mitigating these effects. Our results show that in the first 15 years after a shock, a shock-hit household on average falls short of its normal income trajectory by 11.8% and its recovery would take 19 years. Based on the premise that shock-hit families impose negative externalities on richer families by borrowing from them, our political economy model predicts that the outcome of village elections would differ from that of a standard median voter model in that the elected village leaders tend to adopt pro-poor policies. Our empirical study finds that villages are more likely to establish a healthcare plan after the election is introduced. In addition, village elections reduce the probability of a household to borrow by 16.7% when one of its working adults is seriously sick. As a result, they reduce more than half of the negative effect of a health shock on household income.
    JEL: I12 O15 Z13
    Date: 2006–11
  11. By: Eugene Choo; Michael Denny
    Abstract: The acquisition of chronic diseases and lifestyle choices are key aspect i the decline in health. Case and Deaton (2005) examine the importance of manual work in altering both the level of and rate of decline in health status with age. Using data from Canada, our paper extends this analysis by investigating the interaction of manual work with chronic conditions and lifestyle on the aging process. To our surprise the independent importance of manual work remains even after one accounts for the large role of lifestyle and chronic diseases.
    Keywords: Morbidity, Aging Chronic Disease
    JEL: I10 I12
    Date: 2006–10–10
  12. By: Lara Bryant (Department of Economics, College of Business, Florida Atlantic University); Sharmila Vishwasrao (Department of Economics, College of Business, Florida Atlantic University)
    Abstract: Many studies have documented adverse health outcomes for uninsured patients in U.S. hospitals. These poor outcomes have been attributed to their health status and limited access to healthcare. A measure of treatment that remains unexplored is the quality of the physicians treating uninsured patients. We examine whether uninsured and poor patients are treated by lower quality physicians with four measures of physician quality. Using a hospital fixed-effects model, we find that cardiac patients are matched to physician quality based on their ability to pay. Even after controlling for average physician quality within a hospital and patient characteristics, we find that uninsured and Medicaid patients are generally treated by lower quality physicians. We also find that while for-profit and not-for-profit hospitals treat the uninsured with lower quality physicians, government hospitals do not. However, there is evidence that hospitals of all ownership types treat Medicaid patients with lower quality physicians.
    Keywords: Uninsured, Medicaid, Physician Quality, Hospital Ownership
    JEL: I11 I18 J18
    Date: 2006–07
  13. By: Aoki, Reiko; Kubo, Kensuke; Yamane, Hiroko
    Abstract: The introduction of pharmaceutical product patents in India and other developing countries is expected to have a significant effect on public health and local pharmaceutical industries. This paper drawsimplications from the historical experience of Japan when it introduced product patents in 1976. In Japan, narrow patents and promotion of cross-licensing were effective tools to keep drug prices in check while ensuring the introduction of new drugs. While the global pharmaceutical market surrounding India today differs considerably from that of the 1970's, the Japanese experience offers a policy option that may profitably be considered by India today. The Indian patent system emphasizes the patentability requirement in contrast to the Japanese patent policy which relied on narrow patents and extensive licensing. R&D by local firms and the development of local products may be promoted more effectively under the Japanese model.
    Keywords: Pharmaceutical industry, Industrial policy, Intellectual property rights, Patent law, Public health, Industrial property law, India, Japan
    JEL: I11 I18 L50 L65 O10 O31 O34
    Date: 2006–03

This nep-hea issue is ©2006 by Yong Yin. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.