• Frank
• Mar 21,2008
• In: Lifestyle

You Are Too Healthy

Or so says a National Bureau of Economic Research working paper, “The Other Ex-Ante Moral Hazard in Health”, via MarginalRevolution and The Economist blog.

As The Economist has it:

IF WE all had malaria, the incentive to pharmaceutical companies to develop a cure for malaria would be massive. In all probability, some company would then develop a cure for malaria, and none of us would have malaria. QED, we should all develop malaria.

This is one of the paradoxical and counterintuitive–not to mention absolutely insane and counterfactual–conclusions that regularly comes out of modern microeconomics.

Tyler Cowen presents this strange thesis this way:

If you catch a disease or condition, and therefore you make the number of sufferers from that condition more numerous, the chance they will find a cure or partial solution is much greater.

But, really, is that true? While there is lots of statistical research to be done in that regard, I find doubtful the claim that (a) disease rates can significantly increase over time, barring special circumstances, and (b) that, even if such an increase were to occur, that it would necessarily translate into a greater probability of a cure or solution.

But the microeconomists at The Economist blog lack sense, too, it seems, as they embark on that great pursuit of the neoclassical economist: the devision of “the proper incentive structure” in order to approximate some Platonic ideal of “efficiency”, with plenty of help from the state, apparently begging the question of whether the state really can do anything to help these sort of problems.

What’s more, it seems probable that there’s a more efficient way to arrive at the desired innovation equilibrium. If a health problem, like obesity, saddles the afflicted person with heavy costs while generating a comparatively small additional innovation incentive to pharmaceutical companies, then there should be some amount less than the toll of the illness which individuals are willing to pay to forego the discomfort of illness.

That amount could be taxed off society and placed in a pharma contest fund, the proceeds of which could be paid to companies that develop treatments for illnesses–especially those under-addressed by drug companies due to the scarcity or poverty of the population of afflicted persons. The competition and prize structure would help leverage the amount in the pool, since competing innovators tend to spend far more than the amount at stake.

It really makes one wonder if they’re talking about people, or atomistic automatons with perfect knowledge who always pursue the path of the most monetary gain.