Health Economics (econg041)



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Health Economics (ECONG041)
Dr. Marcos Vera-Hernandez. Office: 203 Office hours: Thursdays 15:00-16:00
Lectures: Medical Sciences A V Hill LT.. Thursdays 11:00 – 13:00
Syllabus and Reading List
Overview of health care system and issues in the economics of health
We will start looking at some recent OCDE data to highlight some key similarities and differences across countries in figures related to the health sector. We will then review how different countries organize their health care systems. Finally, we will review some of the key issues and topics in health economics.
Arrow (1963) “Uncertainty and the Welfare Economics of Medical Care” American Economic Review 53(5): 941-973
Grose-Tebbe, S., Figueras, J. Health Systems Snapshots. Eurohealth 14(1). European Observatory on Health Systems and Policies. Downloadable from here.
Weisbrod (1991) “The Health Care Quadrilemma: An Essay on Technological Change, Insurance, Quality of Care, and Cost Containment” Journal of Economic Literature 29 (2): 523-552
Ex-ante risk heterogeneity and health care insurance markets
We will study the problems that emerge in health care insurance markets because consumers are heterogeneous in their probability of risk and insurers have less information about it than potential consumers. We will also study what public policy can do to alleviate the problem. Both theoretical and empirical papers will be used.
Buchmueller, T., and J. Dinardo (2002) “Did Community Rating Induce an Adverse Selection Death Spiral? Evidence from New York, Pennsylvania and Connecticut” American Economic Review, 92(1): 280-294
Cutler, D.M. & Reber, S.J. (1998), Paying for the health insurance: the trade-off between competition and adverse selection, The Quarterly Journal of Economics 113: 433-466
Ettner, S.L (1997) "Adverse Selection and the Purchase of Medigap Insurance by the Elderly." Journal of Health Economics 16: 543-562.
Glazer, J. and Mcguire, T. (2000) "Optimal Risk Adjustment in Markets with Adverse Selection: An Application to Managed Care." American Economic Review 90: 1055-1071.
Rothschild and Stiglitz (1976) “Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information” Quaterly Journal of Economics 90 (4): 629-649

Medical insurance, moral hazard and the use of health care services
We will study why it is generally not optimal to have full insurance in health care markets, and review empirical studies on the optimality of health insurance contracts, how health care use is affected by the features of health care contracts, as well as the effect of insurance on health outcomes.
Card, D, C. Dobkin, N. Maestas (2008) “The Impact of Nearly Universal Insurance Coverage on Health Care Utilization and Health: Evidence from Medicare” American Economic Review 98 (5): 2242-2258
Chiappori, P.A., Durand, F., and Geoffard., P-Y. (1998). Moral Hazard and the Demand for Physician Services: First Lessons from a French Natural Experiment. European Economic Review, 42: 499-511.
Doyle, J. (2005) Health Insurance, Treatment and Outcomes: Using Automobile Accidents as Health Shocks. Review of Economic and Statistics 87(2): 256-270
Ma, A. C. and Riordan, M. H. (1997), Health Insurance, Moral Hazard and Managed Care. Boston University ISP Discussion Paper n. 80 (more concise version is published in Journal of Economics and Management Strategy 11(1): 81-107)
Manning et al (1987) “Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment” American Economic Review 77(3), 251-277.
Pauly, M. (1968), The Economics of Moral Hazard. A Comment. The American Economic Review, 58, 531-537.
Vera-Hernandez, M. (2003) “Structural Estimation of a Principal-Agent Model: Moral Hazard in Medical Insurance”, The Rand Journal of Economics 34, No. 4, pp. 670-693.
Health care providers and incentives
We will study the different ways that health care providers can be paid and how this will affect the effort, cost, and quality of treatment. We will also review empirical papers on the effect of competition among health care providers on quality as well as the effects that the vertical integration between insurer and health care providers has on treatment costs and health outcomes.
Croxson, B, Propper, C, Perkins, A (2001) Do Doctors Respond to Financial Incentives? UK Family Doctors and the GP Fundholder Scheme, Journal of Public Economics 79, 375 - 398
Cutler, D. McClellan, M. And J. Newhouse (2000) “How Does Manage Care Do It?” Rand Journal of Economics 31, 526-548
Cutler, D. (1995) The Incidence of Adverse Medical Outcomes under Prospective Payment. Econometrica 63, 29-50
Ellis, R.P. and McGuire, T. G. (1993) Supply-Side and Demand-Side Cost Sharing in Health Care. Journal of Economic Perspectives 74, 135-151.
Ellis, R.P. & McGuire, T.G. (1996) Hospital response to prospective payment: moral hazard, selection, and practice-style effects, Journal of Health Economics 15: 257-277
Gruber, J. And M. Owings (1996) “Physician Incentives and Cesarean Section Delivery” Rand Journal of Economics 27, Spring, 99-123
Propper, C, Burgess, S, Gossage, D. (2008) Competition and quality: Evidence from the NHS internal market 1991-9, Economic Journal 118, Pages: 138 – 170
Individual Determinants of Health

This series of two lectures will review the evidence on the individual determinants of health at various point of the life-cycle. We shall consider the role of education, the role of income in shaping health as well as the importance of early life factors.


Case, Lubotsky and Paxson (2002) “Economic status and health in childhood: the origins of the gradient”, AER.
Currie and Stabile (2003) “Socioeconomic Status and Health, Why is the Relationship Stronger for Older Children?" AER.
Cutler, Deaton and Lleras-Muney (2006) “The Determinant of Mortality”, Journal of Economic Perspective
Van den Berg et al (2006) “Economic Conditions Early in Life and Individual Mortality”,AER.
Ruhm (2000) “Are Recession Good for your Health?”, Quaterly Journal of Economics.
Lindahl (2005) “Estimating the effect of income on health and mortality using lottery prizes as an exogenous source of variation in income”, Journal of Human Resources.
Adda et al (2009) “The Impact of Income Shocks on Health: Evidence from Cohort Data”, JEEA.
Lleras-Muney (2005) "The Relationship Between Education and Adult Mortality in the United States", Review of Economic Studies.
The Economics of Health Behaviours

This lecture will review the economic theory of health behaviour . This is a fruitful area to understand and model the trade-offs between immediate utility and future consequences as well as time-inconsistent behaviour. The lecture will also review the efficacy of public policies.


Becker and Murphy (1988) "A Theory of Rational Addiction", Journal of Political Economy.
Gruber and Koszegi (2001) "Is Addiction Rational: Theory and Evidence", Quaterly Journal of Economics
DeCicca, Kenkel and Mathios (2002) "Putting out the Fires: Will Higher Taxes Reduce Youth Smoking", Journal of Political Economy,
Adda and Cornaglia (2006) "Taxes, Cigarette Consumption and Smoking Intensity", American Economic Review

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