Health Economics for Low-Income Countries

Good health is a determinant of economic growth and a component of the well-being of the population. This chapter discusses and synthesizes economic models of individual and household behavior, showing how the models may be used to illuminate health policy making in low-income countries. The models presented could help address questions such as: How can the health of the poor be improved, and what are the economic consequences of better health? What policies would improve intra-household distribution of health outcomes? It is argued that health economics research can provide information of relevance to health policies in low-income countries, if it were to take into account specific institutional contexts in which economic agents in these countries operate. Although institutions are universal, their type and extent of development differ across countries, and differ as well, in their effects on economic behavior. An important mechanism by which institutions affect health is through their effects on demand for health production inputs. Cooperative and noncooperative household models for analyzing intra-family allocations of health production inputs are reviewed, stressing the role institutions play in accounting for differences in levels of health and health care among individuals and across countries. Next, examples of application of nonexperimental and experimental approaches to estimation of economic and social impacts of better health in low-income countries are presented. Two main results emerge from the examples. First, health in low-income countries can be improved through implementation of simple interventions, such as provision of communities with basic social services, supplementation of normal household diets with micronutrients, deworming of school children, and cash transfers to families conditional on illness prevention and health promotion behaviors. Second, there are large returns to health investments. However, since placement and utilization of health interventions may not be random with respect to health status (clinics for instance may be constructed in high morbidity villages and then used more intensively by educated people with fewer health problems than illiterate individuals), estimated direct impacts of better health may be contaminated by indirect effects of other factors. The chapter shows how IV regression methods and randomized experiments have been used to resolve this endogeneity problem. Since its emergence as a disease in 1981, HIV/AIDS has become a major health problem in low-income countries, especially in Africa. The chapter illustrates how information generated by demand for HIV counseling and testing can be used to control the disease through mechanisms such as: treating pregnant women to reduce the risk of transmitting the virus from mother to child, targeting preventive measures and messages to individuals according to their HIV status, and timely treatment of AIDS-patients. Issues of industrial organization of health care, such as public provision of treatment, managed care, and national health insurance are briefly considered. The chapter concludes with a discussion of policy options for improving health in low-income countries.