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Externality Models and Health:a Rückblick over the last Twenty Years

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  • A. J. CULYER
  • HEATHER SIMPSON

Abstract

Economists interested in the political economy of health have attempted to provide a theoretical justification for intervention in the market for health services. Traditional externality analysis, at most, provides a case for variable price subsidies, and the implications of such models do not correspond with the features of existing health care systems. This paper suggests that if the externality is viewed as arising directly from health status, the problem for health policy becomes essentially an engineering one requiring careful analysis of the technical relationships between health services and status. Variable price subsidies are not an obvious implication since individual marginal values of health care become largely irrelevant. Contract costs may be minimized if the ‘firm’ is very large and this may provide the beginning of an explanation for direct State involvement in the production and distribution of health care.

Suggested Citation

  • A. J. Culyer & Heather Simpson, 1980. "Externality Models and Health:a Rückblick over the last Twenty Years," The Economic Record, The Economic Society of Australia, vol. 56(154), pages 222-230, September.
  • Handle: RePEc:bla:ecorec:v:56:y:1980:i:154:p:222-230
    DOI: 10.1111/j.1475-4932.1980.tb01672.x
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    References listed on IDEAS

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    1. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
    2. Michael Grossman, 1972. "The Demand for Health: A Theoretical and Empirical Investigation," NBER Books, National Bureau of Economic Research, Inc, number gros72-1, November.
    3. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132-132.
    4. A. J. Culyer, 1972. "On The Relative Efficiency Of The National Health Service," Kyklos, Wiley Blackwell, vol. 25(2), pages 266-287, May.
    5. S. Fanshel & J. W. Bush, 1970. "A Health-Status Index and its Application to Health-Services Outcomes," Operations Research, INFORMS, vol. 18(6), pages 1021-1066, December.
    6. Mark V. Pauly, 1970. "Efficiency In The Provision Of Consumption Subsidies," Kyklos, Wiley Blackwell, vol. 23(1), pages 33-57, February.
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    Cited by:

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    2. Henry, Edward & Cullinan, John, 2021. "Mental health spillovers from serious family illness: Doubly robust estimation using EQ-5D-5L population normative data," Social Science & Medicine, Elsevier, vol. 279(C).

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