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First steps into Health Economics

23 Jan

Having entered the foreign world of health economics, I’ve picked up on a few key terms that are really fundamental within the field. Here I try to define them in my own words… Yikes.

Utility: the benefits a good/service might bring to an individual; e.g. health services improve health or maintain health, which is valued formally as utility. It is described in mathematical terms as a fuction of each medical service received i.e. U = U(X,Y,Z etc) NB we assume individuals are rational; ie their behaviour is consistent with their aims. For example, someone in last week’s lecture asked whether the utility function applied to a drug user’s “utility” gained from using coccaine, the “goods”. Here, it is clear that the utility function doesn’t apply because addiction is not a rational behaviour. This doesn’t mean the consumption of addictive goods can’t be modelled though, a model has been shown to accurately show that “addicted people maximise utility consistently over time”. (Morris et al, 2012)

Marginal utility: this describes how much utility increases by per increase in consumption of the medical good/service. In mathematical terms, it is described as the slope of the curve; if you think about it (well I had to think about it) the slope of a curve indicates the change in the y-axis (utility) per change in the x-axis (medical good/service), which makes perfect sense! 🙂

As you can see from the Utility curve, as the quantity of medical care consumed increases, utility doesn’t increase exponentially. The lecturer used chocolate as an example: A chocoholic will be very happy after 1 bar of chocolate, pretty happy after 2, not so great after 3… There is clearly a limit on the utility of medical care, irrespective of how many operations/casts/drugs you receive. This decrease in marginal utility allows two laws to be established:

The Law of diminishing marginal productivity: each additional unit of medical good/service is associated with smaller and smaller improvements in health

The Law of diminishing marginal utility: Increasing health is associated with smaller and smaller increases in utility

That’s it for now as I like to take things slooooow… Just kidding, coursework is starting to get on top of me again…

References: Morris S, Devlin N, Parkin D & Spencer A (2012) Economic Analysis in Healthcare (2nd ed)


New module: Health Economics

16 Jan

Today we started the health economics module organised by the business school. It was a pretty brief introduction that took the first steps into the deep deep waters of health economics… I had been looking forward to this module and simultaneously dreading it as I have no knowledge of any economics whatsoever. The lunch afterwards provided a great opportunity to start getting to know the students from the International Health Management course, who we will be sharing lectures and coursework with. First impressions of both the course and the new students were good, most seem to be clueless about economics too which is reassuring! Will keep you posted on how it goes!