Externalities
The total or “social” costs associated with a disease or a risk factor, are made up of combined internal and external costs. By far the most costs associated with health behavior-related choices leading to ill health are paid by the consumer—internal costs.
Situations arise, however, when a consumer does not bear all these costs. Then, some of the costs are borne by others or by society at large—external costs or “externalities”. The market failure here manifests itself as a societal cost incurred by an individual choice, and it justifies, in principle, a public policy intervention seeking to improve social welfare by reducing the costs borne by that society.
quasiexternalities
Short of making a decision on where exactly to draw the line between internal and external costs, Sloan et al. (2004) have split the external costs into traditional external costs and quasi-external costs. That is, the costs borne by household members who are not participating in the choice are called “quasiexternalities” and may justify intervention since they tend to be larger than the external costs borne by he larger society.
In brief, there are obvious and substantial external costs resulting from second-hand smoke and from alcohol-induced traffic fatalities, but probably less so in the case of obesity. Those external costs are likely to be even higher (at least in the case of smoking) when intra-household effects are also considered as external. In addition, NCDs impose costs on the social insurance system and hence on third parties, but these costs may be “compensated” by the premature death of the person with the NCD.
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