Young Economics.

Maximizing the benefits of public spending

with 2 comments

This evening I discovered that the Health Council of Canada is endeavoring to gather information and promote discussion of “value for money” in Canadian health care.  They kicked things off last month with the release of this non-technical document that outlines the sorts of questions they hope to address.

The fundamental issue is how best to allocate resources in the health care sector.  Resources are finite and have to be rationed somehow.  In Canada, the political process has determined that we should try to avoid using the market mechanism to do the rationing in health care.  That’s fine, but it means that the resources have to be rationed via some other mechanism.  The question is: is the current allocation of government resources – both within the health care sector and between health care and alternative areas of government activity – acceptable?

According to the Council’s document, about forty percent of provincial government revenues are spent on health care, and spending continues to increase as consumers demand more services.  I guess there’s nothing wrong with those facts, but it seems that we don’t have any good information about what kind of return we are getting on the marginal dollar of health care spending.  If the marginal dollar (or several thousand marginal dollars) goes toward keeping an elderly dying person alive for one extra week, isn’t it likely that we would increase social welfare by reallocating that spending to some other target that would deliver longer-term returns?  I have heard (though I have never investigated the claims) that some non-negligible proportion of the increase in health care costs comes from spending on things like new drugs which don’t have any demonstrable benefits relative to the old drugs but which cost much more.  If that’s true, then I should think that a well-run system of socialized health care would prevent doctors from prescribing these new drugs.  Those dollars could be spent elsewhere – on infrastructure, education,* social assistance, tax cuts, etc.

It seems to me that these are the kinds of decisions that someone has to make if we are not going to allocate resources according to willingness (or ability) to pay.

I’m not really making any claims about how the Canadian health care system should be run.  I don’t know anything about it.  I merely wonder:

– how seriously do policymakers take these questions?
– what incentives do policymakers have to address these questions?
– do we have any good measurements of the marginal benefits of various types of government spending in Canada?
– how much of government spending delivers negative net benefits to society at the margin, taking into account opportunity cost?

None of these issues is new.  I was reminded of them when I found the Council’s web page and I decided to post about it because I don’t know the answers to these questions.  We have several co-bloggers here at Young Economics who have studied the economics of government activity.  Is it possible that they have any insights to offer?

* This post could just as easily have been written about the marginal benefits of government spending on education.  However, I decided that I should refrain from suggesting that such spending could be anything but beneficial – at least until I am no longer a beneficiary of the state’s largesse in that respect.


Written by Alex

March 24, 2009 at 9:19 pm

2 Responses

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  1. This is article I remember liking years ago about the value of life implied by worker behavior and government policies. A must read.


    March 25, 2009 at 8:18 pm

  2. […] to point out that these are the really important questions when it comes to health care policy.  As I have noted before, the scarce resources have to be rationed somehow.  If we decide that willingness/ability to pay […]

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