The October 25th meeting of the discussion forum was about emergency care.
The topic was introduced by A/Prof Uwe Dulleck, an expert in so-called credence goods (goods of which the consumer doesnt know he needs them, nor whether he received them. Some type of health care are like this: you may know you're sick but not whether you need medicine A or B, and even after having been cured you dont know whether you needed the treatment you got or have been swindled into a more expensive treatment than you needed).
The issue of emergency health care has just been on the political agenda. The Sydney Morning Herald reported on the case of a mother who gave a miscarriage in a toilet whilst the 28 acute beds in the emergency room were taken by 43 patients. Several such stories have been running for months (such as here). The politicians have varying spins on their reaction to this issue, with Labour promising an additional 2 billion in health care spending subject to greater bureaucratic control of hospitals to 'ensure' money is spent well.
The question Uwe raised was to ask whether there is any real objective economic reason to think anything is particularly wrong about the current system and what one could do about emergency health care. The first thing he noted as an economist, is that the decision about the number of emergency beds is taken in uncertainty: you dont know how many patients are giong to turn up but they are expensive beds to have. Given that there are other worthy goals to spend money on, this already means that the optimal number of times that an emergency department is going to have more patients than beds, is non-zero. From an optimal planning perspective, you have to balance the loss incurred when patients get turned down by emergency departments with the loss incurred from expensive beds being idle when there are few patients. That idle capacity could be used to save patients' lives elsewhere. The notion that it would be better for patients to divert resources from non-emergency care to emergency care is not obvious at all. A second important economic element Uwe noted was that the doctors and nurses at emergency departments were strong substitutes for those in other departments. This means the 'solution' for emergency care may involve reducing the capacity needed in other health departments. Putting it simply, outsourcing most hip-replacement operations to Bombay (fly out the sick patients, treat them there, and then fly them back home) might very well be the most effective way to free resources for emergency departments which, by design, cannot be outsourced to other countries.
Markus Schaffner then argued that there wasnt any apparent reason for Australia to worry about emergency care. He based this assertion on 4 pieces of information. One, Australia has a relatively long-lived healthy population implying that our health service gets it right on aggregate. Second, the number of complaints per unit serviced regarding the health system and even the total number has apparently been going down the last 5 years, implying there is no 'impending crisis' at all. Third, health care spending is simply average compared to other OECD countries, implying no structural underfunding of any kind. Fourth, the funding formula applied in this country for hospital care appears to be regarded as cutting-edge, again implying no obvious improvements could be made. Though there is scant information about what happens in emergency care, Markus noted that from the available figures there were appeared to say there was little to worry about.
Andrew McClelland on the other hand argued there should be more funding to emergency departments. His main argument was that private hospitals have an incentive to free-ride on the public system by not having emergency departments. This 'automatically' reduces the relative availability of emergency beds as the private sector expands. There are three ways to combat this. One, the asymmetry could be rectified by forcing private hospitals to have such departments. Second, the government is the logical entity to look to for more training of medical staff. At the moment, such trainnig is heavilyfrustrated by the quasi-unions limiting the availability of training places, but governments could if it wanted to change that since medical accreditation is ultimately though indirectly based on legislation. Third, the government can change the amount it pays hospitals per emergency procedure giving them an incentive to provide more emergency care.
What I took from the discussion was how intricate the funding formulas for hospital care actually were: hospitals get paid on the basis of the severity of the illness as first assessed (with procedures in place to prevent hospitals from claiming patients have more severe problems than that they have). Also, the issue of the visibility came to the fore: patients whose undertreatment is indisputable clearly matter a lot more politically than patients whose undertreatment is not visible (such as when people dont get treated for diseases because they are not screened and hence neither they nor the doctors know of a problem), even though this distinction shouldnt matter economically.
Recently, we have a policy discussion forum about the issue of whether Australia should follow most of the rest of the OECD and introduce the right to paid maternity leave. For the full slides, see here.
Paul Frijters introduced the topic of paid maternity in the context of the recent proposals by the Democrats and the Greens to guarantee women 14 weeks of paid maternity leave, with the payment being at the level of the minimum wage and provided by the government. Such a scheme would apply to about 100,000 women a year which would make the cost close to half a billion a year. One possible reason we do not already have such a scheme is a deep seated anxiety on the part of many in the population about the whole notion of women with children being at work. From an economic point of view though, the relevant question to ask is whether there are any market failures at work that would warrant such an appeal to the public purse.
Alison MacIntyre argued this scheme does make sense from an economic point of view because of the benefits to the rest of society of having children to perpetuate the nation. The scheme is an effective subsidy from families without children (who pay part of the taxes paying for the scheme) to families with children. Since private employers do not take such beneficial social incentive effects into account they are not going to be in favour of maternity leave, and indeed would discriminate women if they as employers would have to pay for such a scheme. Private individuals deciding to have kids do not obtain the full societal benefits of having kids. Hence Alison argued we needed a government funded scheme to bribe people into having more kids, or at least to help them out. Most other countries indeed have such a scheme, varying from 12 weeks to a whole year of paid maternity leave. Alison pointed out that women's groups support it and many large businesses already have such schemes anyway.
Ben Ives on the other hand argued we should not have a scheme like this. His main argument was that having children strongly disrupts the worker-employer relationship, putting an unfair burden on employers of their employees taking time off to care for children, quite apart from the actual wage cost of a maternity scheme. The right to return to the same job when pregnant would furthermore add unfair costs on the employer of training temporary replacements who would then unfairly have to be gotten rid off when the leaver returns. Ben supported the idea that employers should be able to discriminate on the basis of expected pregnancy since this entailed a relevant business cost, and that in general the government should not try to achieve social outcomes (more kids) by labour relations regulation. Ben argued that the incentive to have more children was going to be quite small and probably only relevant at the bottom end of the wage distribution. Finally, Ben made the argument that there was no pressing reason to want a higher population in the first place and that we already have enough kids in Australia.
What the discussion made chrystal clear is that kids are a nuisance from the point of view of the businesses hiring the parents and that any wish to increase the child bearing of workers is gonig to have to recognise that businesses have little incentive to work along with such schemes. Ben is probably spot no in his assertion that most selfish employers have good reasons to shun people who might get pregnant. Should we as acountry ever get really worried about low fertility rates therefore, heavy interference in the worker-employer relation when child bearing is involved is inevitable.
We had an interesting recent economic policy discussion here at QUT about the topical issue of urban water management, chaired by Clevo Wilson, a senior lecturer in environmental economics. The full presentations can be downloaded here . The essence of the debate was whether it would really make sense to try to use price signals to reduce water usage in the big cities like Brisbane, Sydney and Melbourne, a popular topic in econblog land with Andrew Leigh being a vociforous supporter of more aggressive urban water pricing (see, for instance, here ).
Clevo Wilson introduced the background issues involved. The generic issue is that in the region of the major cities, rainfalls have decreased in the last 30 years whilst populations and the water usage per person have massively increased. Whilst urban water users are responsible for no more than about 10% of total human water consumption (the rest goes into agriculture and industry), the urban water system is in many cases geographically separated from the other 2 main users of water in Australia and only at prohibitive costs could they be integrated by long-distance pipelines and the like. There is only a bit of farming that competes with cities for the same water. Clevo explained the main issues in urban water management to be the existence of a natural monopoly in terms of the distribution grid; the variability of demand and supply making marginal costs fluctuate widely; and the existence of other users of the same water (ecosystems) who were not well-funded and would not be able to outbid a city for water. Clevo sketched a water system that was in crisis with strong environmental consequences. There are two basic possibilities for limiting urban water demand: using price signals or appealing to social norms and restrictions. At present, we mainly do the latter.
Redzo Mujcic took the classic economic position that we should rely on price signals. Redzo noted that water-tanks were economically inefficient because the implicit value of water out of a water-tank is probably in the region of 2$ per Ml (=1000 liter) , about twice the actual price and above the price of generating water from desalination plants (which cost about 1.70$ per Ml). Redzo found that the literature suggested the demand elasticity to be about -0.4 implying that any serious reduction in water demand would need pretty draconic increases in water prices (you’d need to at least double the total prices of water to halve consumption). Redzo finally noted that a private water supplier would probably over-charge for water because of the natural monopoly, in which case the articifical separation of the water market for urban and proximate rural areas would not be sustainable. Nevertheless, Redzo’s recommendation was to enforce marginal cost pricing on all users of water simultaneously, including the bits of the rural coomunity competing with the city . Because the fluctuations in supply and the importance of geographical location, this would entail a great degree of price differentiation: users in elevated areas would pay more; water would sharply increase in price depending on the level in the dams; there’d be a difference in prices for guaranteed water over the price of water-if-available; areas with more leaky pipes or areas further away from the source would have to pay more; etc. Prices would not necessarily have to rise to meet marginal costs, but rather in order to ensure sufficient capacity for droughts.
Nemanja Antic on the other hand argued that we should simply give up on marginal cost pricing or any other pricing scheme because it would be too difficult, be perceived as unfair, would be open to abuse (people illegally tapping into other people’s water), would be open to arbitrage unless we were willing to axe the part of rural Australia close to cities as a viable economic entity that did not recieved water at a lower price than cities. Nemanja’s argument was that an appeal to command and control was the only really viable option, and the most popular option by far in other dry areas of the world too.
I was particularly struck in this debate by the immense complexity of actually pricing urban water and by the quick realisation that the water price increase needed to elicit a sufficiently strong demand reaction would make desalination economically viable. Hence, flexible urban water pricing appears to be an urban myth in terms of being an easy and quick solution. Once we really start to get worried about urban water, we’re simply going to desalinate. As a humurous aside, I foretell that if we do desalinate (and Queensland is already building a plant at Tugun), then we’ll pretend the coal needed to power the electricity station that feeds the very energy-intensive desalination plants is not going to hurt the environment because of the tiny bit of carbon we can put back into the ground (carbon sequestration).
