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health care and information asymmetry

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yessir posted on Tue, May 1 2012 5:02 PM

 

Could someone explaint to me why the majority of economist brain seems to lock up when the words health care and information asymmetry are mentioned. Just that alone is supposed to prove no market could every exist in health care. I mean how do you even prove that? 

It seems to be so irresponsible that based on a theorethical idea of information asymmetry could advocate a complete denial of a market based system in health care. Or is there some part of the argument that I am not getting? isn't information asymmetry in every market??

 

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Okay, here's the big problem with the whole ball of wax there. The notion of information asymmetry as Stiglitz loves to tout does not mean markets cannot find a price for a good. The poor fool doesn't recognize that individuals are always picking the price that best fits their situation even if that price is higher/lower than they want on the whole selling/buying part. The only asymmetry that exists in a market is within future expectations in respect to those prices. Sometimes folks think a good will always be there, so they don't stock up. Or someone thinks because the supply is low, there must be no demand and thus they leave the market. These expectations or assumptions make the outcome of an expected price vary quite a bit. So, no market is ever at rest.

 

Healthcare is no different than any other good in this respect. The price goes up based on incomplete information (true, but Stiglitz and company take it the wrong way), but it equally goes down for the same reasons. Holding all other factors constant (political economy, regulations, etc).

"The power of liberty going forward is in decentralization.  Not in leaders, but in decentralized activism.  In a market process." -- liberty student

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Information asymmetry necessarily follows from (and is responsible for) the division of labor; also, does "buyer beware" mean nothing?

The Implications of an Imperfect World

A Note on the Canard of "Asymmetric Information" as a Source of Market Failure

Markets Don't Fail!

 

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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I see what you are saying. I just find all health economics so confusing. Take for example this quote from a paper that has recently won the best health economics paper award:

 

"because prices exceed marginal cost, insurers have powerful incentives to engage in marketing activities to attract new clients. Indeed, the competition for new clients can create a marketing arms race between insurers that leads to excessive spending."

a marketing arms race....

ofcourse the paper ends with suggesting "our analysis also suggests that a publicly-financed insurance option
might improve private insurance markets by reducing distortions induced by search frictions."

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Don't get confused by the buzz words. ThatOldGuy summed up my thoughts better with the referenced articles. It's not really that complex once you get under the buzzwords and technical language.

"The power of liberty going forward is in decentralization.  Not in leaders, but in decentralized activism.  In a market process." -- liberty student

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Here's the link to the paper you just referenced, for anyone else interested: 

Unhealthy Insurance Markets:  Search Frictions and the Cost and Quality of Health Insurance 

Pertaining to the Health Care Industry in particular, the following thread may be of interest:

Where are good resources that make the case for Free Market Healthcare?

There are also many prohibitive regulations that may lead to price exceeding marginal cost (P>MC) with laws that prevent competition and entry (Tom Woods elaborates in Rollback the reasons why prices are high: there are measures in place such that supply is reduced and demand is stimulated ... leading to high prices).

Profit maximizing firms don't produce where P=MC, but where MR=MC. In this case, if P>MC it means that resources aren't being allocated to the industry in question sufficiently enough to do so; in other words, it's not that these firms need more customers, it's that there are some variables that are preventing resources from being allocated to the health care industry or, there are other variables outside cost analysis that are preventing production from expanding in the health insurance industry.

In an MSM economics textbook, only in pure competition does a profit-maximizing firm operate where P=MC because, by definition of what is called pure competition, P=MR=D. Health care insurance, based on MSM economic models, is not a perfectly competitive industry. As such, P will never equal MC but for government regulations to provide the "socially optimal price" (based on high school-level models which are based from a starting model of pure competition which is defined as lacking any competitive characteristics whatsoever -because all goods sold are perfectly homogeneous and infinitely divisible- and the idea that everyone has perfect information; in other words, the models don't conform to reality).

So if this is the conclusion made by those who wrote the "best health economics award," the same conclusion can be drawn in any economics textbook at the public library or local high school and still be as specious.

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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