Non-standard Economic Rationales: Behavioral Economics(cont...)
Time-inconsistency is easily confused with insufficient information, especially with addictive goods. The outcomes of these market failures may be identical, but the causes—and hence the policy implications— differ significantly. While the solution to time-inconsistency is to provide effective commitment devices, which are mechanisms that reinforce a previously adopted decision, the solution to limited information is to provide more of it, particularly to young people.
Taxes can provide such commitment devices.34 They increase the immediate cost of unhealthy behaviors, thereby lowering the individual’s present benefit. Gruber (2002) suggests that taxes should be accompanied by other measures to reduce the present enjoyment of smoking, such as banning smoking in public places or the workplace.
Although more research is needed to establish an empirical basis in the case of chronic NCD risk factors, the concept of time inconsistency could justify some of the substantial internal costs incurred through poor health habits as relevant to public policy, significantly reinforcing the case for government intervention.
In summary, the presence of market failures by itself is in fact only one part of the full economic rationale for public policy intervention. If a market failure exists, an effective intervention is also needed to remedy the failure and justify government intervention. In terms of equity, treatment of chronic NCDs can be expensive. Chronic NCDs, by definition, require treatment over a much longer period than acute communicable diseases.
Given existing health financing patterns in many low- and middle-income countries—the poorer a country is, the more regressive the health care financing system tends to be and the higher the fraction of health costs borne by patients themselves through out-of-pocket payments—the costs associated with chronic NCDs are likely to weigh more heavily on those least able to afford them.
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