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TOPIC 4 - The Production of Heath In Ireland Cheat Sheet (DRAFT) by

The production of Health In Ireland

This is a draft cheat sheet. It is a work in progress and is not finished yet.

I. THE PRODUCTION FUNCTION

ECONOMIC THEORY
ROLE OF HEALTH IN THE ECONOMY
Input combined to produce a level of output with mediating factors
Defini­tion: Health is an input + output of productive process
Different combin­aisons: Substitute input to produce the same level of output
Described how efficient particular process are
Ex: Labor, capital --> good, services, activities
Ex: Enviro­nment, lifetime, education, wealth --> Produc­tivity, Labor Supply

III. HEALTH AS AN OUTPUT

Health Output Definition = health outcomes (life expect­ancy, healthy days, QUALY)
1.1 Total ProducT: Health input expended in the production process
1.2 Increasing Total Product: Health increases as more and more Health Inputs are added to the production process
2.1 Marginal Product: additional (health input) = output generated
2.2 Dimini­shing Marginal Product: More health input added = The rate of increase in Health declines

IV.B THE MODERN ROLE OF HEALTH CARE

2. MARGINAL PRODUCT OF HEALTH CARE INVESTMENT
Population subgroups? 1 (Under 6 years) and 2 (Parti­cular disease area)
Other health outcome measures? Quality Adjusted Life Expectancy QUALY
  

II. HEALTH AS AN INPUT

Health Input Definition= Health care & Other Input
1. Social Objectives: macroe­conomic Objective is Economic Growth
2. Economic Theory: Neocla­ssical Theory Economic Growth Depends on = Stock of capital, Stock of Labor, Produc­tivity
3. Empirical Evidences: Positive relati­onship with Health and Economic Growth (health measured as life expectancy which is sizeable predictor of subsequent economic growth)
Grossman 1972 "If health is a driver for human capital, then health is a driver for economic growth­".

IV.A THE ROLE OF HEALTH CARE

A THE HISTORICAL ROLE OF HEALTH CARE
1750-1850: Improve Nutrition (indus­trial revolu­tion)
1850-1930: Improve Public Health (food safety, clean water)
1939's Onwards: Health Care (vacci­nation, antibi­otics, hight techno­logies medicine)
What caused the improv­ements in Population Health?
- New ideas personal health and public health (better better nutrition, better housing)
- New ideas about the germ theory ( infectious diseases)
- New inform­ation on the effects of smoking (health behaviours and health outcome)
- New major, life-s­aving, scientific innova­tions in medical procedures and new pharma­ceu­ticals (Extending life Expect­ancy)

V. IMPLIC­ATIONS FOR POLICY MAKERS

Increase economic growth = Policy makers should consider health input invest­ments
Improve Health = Policy makers should consider the marginal product of altern­ative health input invest­ments including health care.
Compare evidence on all relevant compar­ators = Health care VS Health Care / Health care VS Non-Health Care
The historical emphasis of policy makers on health care as the sole determ­inant of Health may be at odds with the evidence.
 

Exemple of inputs

- Produc­tivity: produce more output/ hour, physical and capable capabi­lity, more efficient use of techno­logies
- Labor Supply: More Healthy days available (work, Leisure)
- Education: Becker's Human Capital Theory -> more educated = More produc­tive, produce more Output
- Education: Becker's Human Capital Theory -> more educated = More produc­tive, produce more Output
- Capital Formation: Health impact how individu distribute income: saving, consum­ption and Invest­ment.
Healthier individu = higher level of income, higher savings ratio and higher likelihood of invest­ment.

Higher levels of savings and/or investment improve economy’s physical, intell­ectual and/or financial capital stock -> Potent­ially leading to increased returns at individual and macro economic levels.

IV.B THE MODERN ROLE OF HEALTH CARE

1. HEALTH CARE ELASTICITY
Exemple:
*Elast­icity of Health Care Expend­iture = 0.10
Life expectancy = 80 years
The Government increases Health Care Expend­iture by 10% (or 0.10) per year

What improv­ement in health can we expect?
Expectancy = 0.10 x 0.10 x 80 = 0.80 year or 292 days (365x0.80) over the average lifespan