… or a good excuse for Five Minute Economist to dig out some quotes from a comedy classic.
Healthcare works differently from most markets in many ways. Apart from anything else, it’s an experience good, which means that it’s hard to assess its effectiveness before you consume it. In some cases, even after consuming it, it might be difficult to say for sure whether it’s made things better (it’s a credence good). The placebo effect confuses the issue even more: am I feeling better because the pill I took actually affected my system, or is it all psychological – I believed the pill would make me feel better, and so I do.
Because healthcare is like a credence good, there are many examples of bizarre medical procedures persisting over time – like blood-letting. It was difficult to disprove the effectiveness of these practices, and so people carried on using them.
We still have difficulty assessing the effectiveness of treatments today. And we often rely on less than perfect signals of quality. Take, for example, this scene from the “Match Game” episode of Frasier.
Niles: Well, our professional is at the top of her field.
Frasier: As is mine.
Niles: Well, our professional charges $200 an hour.
Frasier: Mine charges 10,000!
Niles: She sounds fantastic! Congratulations, Frasier.
Frasier: Thank you, Niles. Wish me luck!
Niles: Good luck. Wow.
Niles, whose midwife charges $200 an hour, is very influenced by price as a signal of quality, as many of us probably are. So we shouldn’t be surprised that research suggests that treatments are more effective when they are priced high. A high price is taken as a signal of high quality, which makes people more likely to believe that it will work.
But this gives rise to some very problematic questions for public health policy, which I’ll cover in the next blog post!