Internalities, habit formation and healthy individuals

Healthy Habits: Some Thoughts on The Role Of Public Policy in Healthful Eating and Exercise Under Limited Rationality

Selected statements from a chapter of new book presented recently: Behavioral Public Policy, a must read.

About unhealthy habits:

Neither self-control problems per se nor naivety about future self-control problems necessarily lead to special mistakes in light of habit formation. People over-indulge in un-healthful behaviors because of self-control problems. But it is primarily the unhealthfulness per se not the habit component that causes the problem. Self-control problems predict that people overconsume unhealthy goods and activities, but by themselves there is no simple prediction that overconsumption is worse for habit-forming goods than for non-habit-forming goods.

Message:

First, unless we believe that it is likely that people are making mistakes, the fact that some activities are habit forming does not (in any way that I can understand) heighten the case for policy intervention, regulation, or paternalism. Second, if we decide we'd like to deter some activity, we should never forget the power of prices. The most practical policy we may employ if we reach the conclusion that people are doing too much of bad habits or too little of good habits: tax or otherwise deter the bad habits, and subsidize or otherwise support the good habits. If we want to get people to do less unhealthy eating, we should make it more costly; if we want people to do more exercise, we ought to make it cheaper

Tool, a life cycle adjusted taxes on unhealthy behavior:

Instead of (say) 10% tax on unhealthy items for a persons entire life, consider heavy taxes for young people for these items, and no taxes when older, in a way calculated to leave the total tax burden the same overall if people do not change their behavior. What would happen, according to di§erent theories of motivation? If young people are acting according to fully rational models, fully realizing the habits they are forming and the costs they are incurring, then they will be made no worse off. Indeed, there is a behavioral prediction of the rational model: they will either keep consuming a lot in their youth and in their adulthood just like they did before, or they will stop in their youth and then start in their adulthood. But either way, economic theory based on full rationality says they will be just as well as before. How might people who have self-control problems or projection bias behave? The prediction is that they are very likely to decrease consumption dramatically both in their youth and thereafter. This is because the prediction of these alternative models is that those who were forming these habits when young (at least the ones who were close to indi§erent before) were not planning to do so. If people don't realize they will develop a lifelong habit as strong as they will, then they never thought they were going to pay taxes later in life just because of early consumption.

Wether this is possible to apply remains uncertain. I suggest looking at Acemoglu-Robinson paper to shed some light.

How much does healthcare cost during your life?

Estimating lifetime healthcare costs with morbidity data

We don't know when we can get an illness, how much it will cost to treat and how much time will last. Thats the rationale for being  insured. However, if you were born in 2007 your lifetime healthcare costs in Baix Empordà were 111.936 € for women and 81.566 € for men (on average and without any additional assumption about changes in unit costs). As far as this is the average, mandatory insurance allows for compensating those in ill health by those that are healthy. This is an unique efficient result, any departure from such option would require individual savings and potential debt when having an illness.
We have just published such estimation in BMC Health Services Research, those of you that follow this blog will remember this 2011 post. Lifetime health trajectories is a challenge for research, our contribution is just one of the first steps in such direction.

PS. Must read (as usual), Uwe Reinhardt blog on Angus Deaton.

PS. Economic and financial conditions are again "bubble-like.". WSJ dixit today. I agree.

PS. Toni Catany, exhibition at Galeria Trama.

Incentives and physician specialty choice

Specialty choice in times of economic crisis: a cross-sectional survey of Spanish medical students

Two opposite trends coincide, on one hand Health Policy is strengthening primary care, and on the other hand the number of students that apply for it is decreasing. The shortage of primary care practitioners should be an issue of concern for any regulator. However, current professional incentives are set up in a different opposite direction.
You'll find the details in this article. Key messages:

Results: 978 medical students (25% of the nationwide population of students in their final year)
participated. Perceived job availability had the largest impact on specialty preference. Each 10% increment in the probability of obtaining employment increased the odds of preferring a specialty by 33.7% (95% CI 27.2% to 40.5%). Job availability was four times as important as compensation from private practice in determining specialty choice (95% CI 1.7 to 6.8). We observed considerable heterogeneity in the influence of lifestyle and work hours, with students who preferred such specialties as Cardiovascular Surgery and Obstetrics and Gynaecology valuing longer rather than shorter workdays.
Conclusions: In the midst of an ongoing economic crisis, job availability has assumed critical importance as a determinant of specialty preference among Spanish medical students. In view of the shortage of practitioners of FCM, public policies that take advantage of the enhanced perceived job availability of FCM may help steer medical school graduates into this specialty.

Meanwhile, you can check today some details about  the salaries in the public sector. An this link shows how physicians are really paid in one region. The summary is that all you thought and presumably knew about it (average salaries and complements), is completely wrong when you have detailed information about individual salaries. I strongly suggest to have a look at it, and find the first primary care physician salary.

Undermining agency theory

The Rhetoric of the Economy and the Polity

Two statements from an excellent article by D. McCloskey:
 
A criticism on agency theory:

The Great Recession gave us all some perspective on how agency theory works. The deepest problem in agency theory in any of its forms (public choice, law-and-economics, finance, whatever) is the same as the problem in prudence-only political theory, subject to the Nussbaum Lemma. The theory declares that one has an “obligation” tomake profit (and further that the economic analyst has an obligation to articulate such a theory, always, and has an obligation not to talk about the ethics of  managerial or scientific obligation, since these are matters of value about which one has an obligation not to dispute). But where does the obligation come from? It comes in fact from the ethical responsibilities of a manager to her professionalism, her stewardship, her stakeholders’ interests, or her promotion of the common good. The agent is not a pure prudence-only, Max U creature after all, just as the Hobbesian selfish individual is not. In the very theory that
denies ethics to the agent, she is imagined to be driven by an ethic, albeit a tacit and abbreviated one. Kant fell into a similar self-contradiction when he claimed to base ethics on reason alone, yet gave no account of the reasons an agent would want to act on reason.

About the crisis:

If we have a crisis, it is one of ethics. Bad People (mainly Bad Men) did it. But the baddest men are the political theorists and business-school professors who recommend an approach to the politics of life that omits the virtues. Is that you, looking at yourself in the mirror?

My understanding is that we have emphasized agency teory beyond its initial purpose. The combination of agency and utilitarism forgets professionalism. I share the view of McCloskey.

PS. 30 years after Fama-Jensen famous article on separation ownership and control.

PS. Another article against agency theory.

PS. Nussbaum Lemma:  I think it implausible to suppose that one can extract justice from a starting point that does not include it in some form, and I believe that the purely prudential starting point is likely to lead in a direction that is simply different from the direction we would take if we focused on ethical norms from the start.
McCloskey interpretation: You have to put the rabbits into the hat if you are going to pull them out.

Courts as market makers

Recent decision invalidating Myriad patents has had immediate results. The market of genetic tests on breast and ovarian cancer has new entrants. The price of the test has decreased 40% (!) in just four months after the resolution. More entrants are expected in the next future for more tests.
The question is still the same, is there any clear cost-effectiveness analysis available for such tests? Why homebrew tests (LDT) are beyond any regulation? Does any regulator care about all this issues?. The answer is: up to now, we can't see any efforts. Patents create artificial monopolies, courts may create markets when invalidate patents,  but patients are concerned about health improvement and value. In an asymetric information environment, the regulator can't take permanent holidays. Overdiagnosed population doesn't necessarily mean healthier population.

 Forbes Healthcare Summit 2013

Insurance Companies Enter A New World

A cause and consequence of progress (2)

The Great Escape: Health, Wealth, and the Origins of Inequality

Although Angus Deaton qualifies himself as cautiously optimistic in the book, some paragraphs may help to understand his caveats:

Our children and grandchildren cannot possibly expect a unique exemption from the forces that brought down previous civilizations. In Europe and North America we have grown to believe that things will always get better. The past 250 years have seen unprecedented progress, but 250 years is no great span of time compared with the long-lived civilizations of the past who doubtless thought that they were destined to last forever.

On growth:

Economic growth is the engine of the escape from poverty and material deprivation. Yet growth is faltering in the rich world. Growth in each recent decade has been lower than in the previous one. Almost everywhere, the faltering of growth has come with expansions of inequality. In the case of the United States, current extremes of income and wealth have not been seen for more than a hundred years. Great concentrations of wealth can undermine democracy and growth, stifling the creative destruction that makes growth possible. Such inequality encourages the previous escapees to block the escape routes behind them.
Mancur Olson predicted that rich countries would decline like this, undermined by the rent seeking of an ever-growing number of focused interest groups pursuing their own self-interest at the expense of an uncoordinated majority. Slower growth makes distributional conflict inevitable, because the only way forward for me is at your expense. It is easy to imagine a world with little growth but endless distributional conflict between rich and poor, between old and young, between Wall Street and Main Street, between medical providers and their patients, and between the political parties that represent them.

The inevitability of distributional conflict is the issue to take into account. This is in my opinion the greatest concern for the future, unless we are able to build firewalls to protect the foundations of social welfare.

 “The Kennedys” at Galería Loewe by Mark Shaw until Nov 15th

A cause and consequence of progress

The Great Escape: Health, Wealth, and the Origins of Inequality

I have spent this long weekend reading the last book by Angus Deaton. It appeared in the list of FT business books of the year, although was not shortlisted. You may find a short reference at The Economist and an article by the author at Foreign Policy. As you know, I'm a follower of his works. You'll find references in previous posts 1, 2.
The book is worth reading. The topic and the author deserves spending time on it. And specially right now, with dubious prospects about economic growth and how it will affect to inequality.
Let me highlight some paragraphs from the book.
On inequality paradox:

Inequality is often a consequence of progress. Not everyone gets rich at the same time, and not everyone gets immediate access to the latest life-saving measures, whether access to clean water, to vaccines, or to new drugs for preventing heart disease. Inequalities in turn affect progress. This can be good; Indian children see what education can do and go to school too. It can be bad if the winners try to stop others from following them, pulling up the ladders behind them. The newly rich may use their wealth to influence politicians to restrict public education or health care that they themselves do not need.

On efficiency and the economists:

Economists—my own tribe—think that people are better off if they have more money—which is fine as far as it goes. So if a few people get a lot more money and most people get little or nothing, but do not lose out, economists will usually argue that the world is a better place. And indeed there is enormous appeal to the idea that, as
long as no one gets hurt, better off is better; it is called the Pareto criterion. Yet this idea is completely undermined if wellbeing is defined too narrowly; people have to be better off, or no worse off, in wellbeing, not just in material living standards. If those who get rich get favorable political treatment, or undermine the public health or public education systems, so that those who do less well lose out in politics, health, or education, then those who do less well may have gained money but they are not better off. One cannot assess society, or justice, using living standards alone. Yet economists routinely and
incorrectly apply the Pareto argument to income, ignoring other aspects of wellbeing.

On inequality and what to do about it:

Inequality can spur progress or it can inhibit progress. But does it matter in and of itself? There is no general agreement on this: the philosopher and economist Amartya Sen argues that even among the many who believe in some form of equality, there are very different views about what it is that ought to be made equal. Some economists and philosophers argue that inequalities of income are unjust, unless they are necessary for some greater end. For example, if a government were to guarantee the same income for all of its citizens, people might decide to work a lot less so that even the very poorest might be worse off than in a world in which some inequality is allowed. Others emphasize equality of opportunity rather than equality of outcomes, though there are many versions of what equality of opportunity means. Yet others see fairness in terms of proportionality: what each person receives should be proportional to what he or she contributes. On this view of fairness, it is easy to conclude that income equality is unfair if it involves redistributing income from rich to poor.

On Aid and Politics, (chapter 7).

The arguments about foreign aid and poverty reduction are quite different from the arguments about domestic aid to the poor. Those who oppose welfare benefits often argue that aid to the poor creates incentives for poor behavior that help to perpetuate poverty. These are not the arguments here. The concern with foreign aid is not about
what it does to poor people around the world—indeed it touches them too rarely—but about what it does to governments in poor countries. The argument that foreign aid can make poverty worse is an argument that foreign aid makes governments less responsive to the needs of the poor, and thus does them harm.

Aid is a controversial issue, and Deaton was criticised for it at NYT .  You may find here a recent example that supports anecdotically the argument of Angus Deaton. It's up to you, the final view on this difficult topic.

PS. On inequality in our days, at NEG.