Chapter 13 - Government regulation and intervention (Part 1). This chapter presents the following content: Introduction, criteria for perfect competition, types of government intervention, public goods, externalities, smokers also impose health care costs on nonsmokers,. | Government Regulation and Intervention Part 1 Vivian Ho Health Economics This material draws heavily from Santerre & Neun: Health Economics, Theories Insights and Industry Studies, Southwestern Cengate 2010 Introduction Causes and consequences of government intervention in health care. Types of government intervention. Case studies Cigarette taxes. Price ceilings on health care services. Hospital antitrust litigation. Criteria for perfect competition All firms and consumers are price takers. Consumers and firms have perfect information. All firms produce an identical product. Firms can freely enter an exit an industry. Price taking - There are many independent firms and consumers in the market. Firms and consumers believe their decisions will not affect price. Perfect Information - Consumers have perfect info on their preferences, income levels, prices, and quality of goods purchased. Firms have perfect info on costs, prices, technology. Product homogeneity - Insures single market price, Any firm that raises price will lose all sales. Consumers consider only price when choosing between firms. Perfect mobility of resources - no barriers to entry Market imperfections may lead to inefficient or inequitable distribution of resources. Imperfect consumer information Monopoly Externalities Government intervenes to restore efficiency and/or equity. “Public interest theory.” An opposing theory: The amount and types of government intervention are determined by supply and demand. Vote-maximizing politicians “supply” legislation. Wealth maximizing special interest groups are the buyers. Successful politicians stay in office by satisfying special interest groups. “Special interest group theory” Examples: Extended patent protection for brand name drugs. Rejection of national health insurance in favor of private insurance companies. Special interest group theory claims that special interest groups gain at the expense of the general public. Consumers are diverse, fragmented, . | Government Regulation and Intervention Part 1 Vivian Ho Health Economics This material draws heavily from Santerre & Neun: Health Economics, Theories Insights and Industry Studies, Southwestern Cengate 2010 Introduction Causes and consequences of government intervention in health care. Types of government intervention. Case studies Cigarette taxes. Price ceilings on health care services. Hospital antitrust litigation. Criteria for perfect competition All firms and consumers are price takers. Consumers and firms have perfect information. All firms produce an identical product. Firms can freely enter an exit an industry. Price taking - There are many independent firms and consumers in the market. Firms and consumers believe their decisions will not affect price. Perfect Information - Consumers have perfect info on their preferences, income levels, prices, and quality of goods purchased. Firms have perfect info on costs, prices, technology. Product homogeneity - Insures single market .
