Sam Watson’s journal round-up for 12th February 2018

Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot. If you’d like to write one of our weekly journal round-ups, get in touch.

Tuskegee and the health of black men. The Quarterly Journal of Economics [RePEc] Published February 2018

In 1932, a study often considered the most infamous and potentially most unethical in U.S. medical history began. Researchers in Alabama enrolled impoverished black men in a research program designed to examine the effects of syphilis under the guise of receiving government-funded health care. The study was known as the Tuskegee syphilis experiment. For 40 years the research subjects were not informed they had syphilis nor were they treated, even after penicillin was shown to be effective. The study was terminated in 1972 after its details were leaked to the press; numerous men died, 40 wives contracted syphilis, and a number of children were born with congenital syphilis. It is no surprise then that there is distrust among African Americans in the medical system. The aim of this article is to examine whether the distrust engendered by the Tuskegee study could have contributed to the significant differences in health outcomes between black males and other groups. To derive a causal estimate the study makes use of a number of differences: black vs non-black, for obvious reasons; male vs female, since the study targeted males, and also since women were more likely to have had contact with and hence higher trust in the medical system; before vs after; and geographic differences, since proximity to the location of the study may be informative about trust in the local health care facilities. A wide variety of further checks reinforce the conclusions that the study led to a reduction in health care utilisation among black men of around 20%. The effect is particularly pronounced in those with low education and income. Beyond elucidating the indirect harms caused by this most heinous of studies, it illustrates the importance of trust in mediating the effectiveness of public institutions. Poor reputations caused by negligence and malpractice can spread far and wide – the mid-Staffordshire hospital scandal may be just such an example.

The economic consequences of hospital admissions. American Economic Review [RePEcPublished February 2018

That this paper’s title recalls that of Keynes’s book The Economic Consequences of the Peace is to my mind no mistake. Keynes argued that a generous and equitable post-war settlement was required to ensure peace and economic well-being in Europe. The slow ‘economic privation’ driven by the punitive measures and imposed austerity of the Treaty of Versailles would lead to crisis. Keynes was evidently highly critical of the conference that led to the Treaty and resigned in protest before its end. But what does this have to do with hospital admissions? Using an ‘event study’ approach – in essence regressing the outcome of interest on covariates including indicators of time relative to an event – the paper examines the impact hospital admissions have on a range of economic outcomes. The authors find that for insured non-elderly adults “hospital admissions increase out-of-pocket medical spending, unpaid medical bills, and bankruptcy, and reduce earnings, income, access to credit, and consumer borrowing.” Similarly, they estimate that hospital admissions among this same group are responsible for around 4% of bankruptcies annually. These losses are often not insured, but they note that in a number of European countries the social welfare system does provide assistance for lost wages in the event of hospital admission. Certainly, this could be construed as economic privation brought about by a lack of generosity of the state. Nevertheless, it also reinforces the fact that negative health shocks can have adverse consequences through a person’s life beyond those directly caused by the need for medical care.

Is health care infected by Baumol’s cost disease? Test of a new model. Health Economics [PubMed] [RePEcPublished 9th February 2018

A few years ago we discussed Baumol’s theory of the ‘cost disease’ and an empirical study trying to identify it. In brief, the theory supposes that spending on health care (and other labour-intensive or creative industries) as a proportion of GDP increases, at least in part, because these sectors experience the least productivity growth. Productivity increases the fastest in sectors like manufacturing and remuneration increases as a result. However, this would lead to wages in the most productive sectors outstripping those in the ‘stagnant’ sectors. For example, salaries for doctors would end up being less than those for low-skilled factory work. Wages, therefore, increase in the stagnant sectors despite a lack of productivity growth. The consequence of all this is that as GDP grows, the proportion spent on stagnant sectors increases, but importantly the absolute amount spent on the productive sectors does not decrease. The share of the pie gets bigger but the pie is growing at least as fast, as it were. To test this, this article starts with a theoretic two-sector model to develop some testable predictions. In particular, the authors posit that the cost disease implies: (i) productivity is related to the share of labour in the health sector, and (ii) productivity is related to the ratio of prices in the health and non-health sectors. Using data from 28 OECD countries between 1995 and 2016 as well as further data on US industry group, they find no evidence to support these predictions, nor others generated by their model. One reason for this could be that wages in the last ten years or more have not risen in line with productivity in manufacturing or other ‘productive’ sectors, or that productivity has indeed increased as fast as the rest of the economy in the health care sector. Indeed, we have discussed productivity growth in the health sector in England and Wales previously. The cost disease may well then not be a cause of rising health care costs – nevertheless, health care need is rising and we should still expect costs to rise concordantly.


“Health is bad for you. That’s what many economists believe.” Richard Horton’s anti-economics strikes again.

Richard Horton, editor-in-chief of the venerable medical journal the Lancet, is no stranger to bad economics. In 2012 and 2013, he stoked the ire of economists worldwide with a series of ill-informed tweets. These included gems such as:

A number of measured responses were offered, but it’s unclear if they had any influence on Horton’s thinking.

Well, in this week’s edition of the Lancet, Horton once again wades erroneously into economics. Horton discusses William Baumol’s theory of the cost disease. Briefly, this theory offers an explanation of why healthcare continues to grow as a proportion of GDP. Growth in GDP occurs in part due to an increase in productivity, but growth in some sectors, such as manufacturing, increases more rapidly than in others, such as healthcare and education, which are typically labour intensive. Wages increase in the ‘productive sectors’ as a result of increased output. The wages in the ‘stagnant sectors’ also increase to stay in line with other sectors, but since productivity does not grow as fast either prices rise or profits fall, and it is usually the former. Therefore, healthcare continues to grow as a proportion of GDP as a consequence of economic growth. This is a positive, as opposed to normative, theory and we’ve previously discussed an empirical study examining it. So what does Horton have to say about the cost disease?

Health is bad for you. That’s what many economists believe. A man called William Baumol may be largely to blame. In the 1960s, he invented the notion of a “cost disease” in modern societies. It was a powerful metaphor, one that has shaped the prejudices of many a Minister of Finance ever since. His central idea sounds convincing. Some industries are good at increasing their productivity. As a result, they earn more money to invest in the wages of their employees. These sectors of the economy deserve our praise. There are other sectors where increasing productivity is harder. […] In areas that depend on human beings interacting with one another, as medicine does, productivity gains are hard to achieve. But the salaries of those working in these productivity-poor sectors rise anyway. […] The result of the Baumol effect is a disaster for society. The costs of a concert, ballet, or health service increase even though productivity stays stubbornly the same. What else could this be but a malignant “cost disease” on our collective welfare. [Link]

The trouble with this explanation of the cost disease is that, while it gets some of the basics of the argument (not metaphor) right, it has attached Horton’s normative beliefs (and anti-economics prejudices) to it. No economist has ever declared that “health is bad for you” or that this argument leads to the conclusion of a “disaster for society”. The main conclusion is that while there is economic growth, stagnant sector services like health care will take up a greater and greater proportion of national income, but national income will grow at least as fast in size. Baumol makes some other claims that Horton may wish to engage with as they have important consequences for access to health care:

  1. the cost disease will disproportionately affect the poor as healthcare services become more unaffordable,
  2. misinterpretation of the cost disease will lead to suboptimal policy (as we are seeing in the UK with significant underfunding),
  3. the private sector is liable to the same problems.

Matthew Bishop argues that economists should engage with those who know nothing of economics as a “worthy interlocutor in a way that values his opinion”. But as another blog argues, there is a difference between “the man who genuinely wants to learn more, and the one who is loudly spouting nonsense for political reasons.” One hopes that Horton is the former, but his previous output might suggest otherwise.


Sam Watson’s journal round-up for 19th September 2016

Every Monday our authors provide a round-up of some of the most recently published peer reviewed articles from the field. We don’t cover everything, or even what’s most important – just a few papers that have interested the author. Visit our Resources page for links to more journals or follow the HealthEconBot. If you’d like to write one of our weekly journal round-ups, get in touch.

Health losses at the end of life: a Bayesian mixed beta regression approach. Journal of the Royal Statistical Society Series A Published 2nd September 2016

The growth in healthcare expenditure is and has long been a concern for policy makers worldwide. Many factors contribute to this increase, for example it may be a consequence of economic growth, but perhaps the most widely cited determinant is an ageing population. A growing literature is questioning the simplicity of this assumption though: is it age per se that leads to increased healthcare costs or is it proximity to death? This study presents a new analysis of this question. More specifically, the authors propose that the observed decline in health related quality of life (HRQoL) associated with age is due to the increased age-specific mortality and the lower HRQoL associated with being close to death, and not age itself. The implication of this is that increased longevity is unlikely to have a large effect on overall healthcare expenditure. To examine this empirically the authors use longitudinal data on HRQoL from 356 individuals over 16 years. Issues such as the skewness of the outcome measure and it being bounded between zero and one, along with the correlation within individuals over time and the relationship between the mean and variance are accommodated using a Bayesian beta regression. Estimation using MCMC methods provides great flexibility in terms of complex models that may be intractable using classical maximum likelihood methods, and the inclusion of previous evidence through the prior reduces uncertainty that may arise due to smaller sample sizes. A wide range of sensitivity analyses are also conducted. The authors’ key finding is that when time to death is included as a variable the effect of age is almost negligible. This journal round-up author’s interest in Bayesian methods has grown exponentially over the last few years and most of his analyses are now in the Bayesian paradigm. Articles such as this demonstrate the power and flexibility of such methods and, importantly, they show how the emphasis is on the estimation problem rather than arbitrary hypothesis testing and estimation of p-values.

Group-based microfinance for collective empowerment: a systematic review of health impacts. Bulletin of the World Health Organisation Published September 2016

Microfinance initiatives have become a popular method to promote development and a sizable empirical literature has grown around it. Indeed, the 2006 Nobel Peace Prize was awarded to a Bangladeshi microfinance program. Many microfinance schemes are founded on the principle of collective empowerment by providing capital to support female autonomy and entrepreneurship. As such, there is an increasing interest in whether these schemes can also improve health. However, the enthusiasm for microfinance initiatives is often said to outstrip evidence of their effectiveness. This systematic review considers the evidence for whether microfinance can improve health. The studies identified in this review provided evidence that microfinance schemes can reduce maternal and infant mortality, improve sexual health, and in some cases lower interpersonal violence. However, even in the higher quality studies, there was potential for bias and unfortunately publication bias was not assessed. Nevertheless, such a review of the effectiveness of microfinance has been long overdue.

The impact of changing economic conditions on overweight risk among children in California from 2008 to 2012. Journal of Epidemiology and Community Health [PubMedPublished September 2016

The relationship between economic conditions and population health has emerged into a huge research area in the last 20 years. We’ve previously discussed it in a number of blog posts. As the literature grows and understanding and knowledge expand, research moves from generalities to specifics. This article explores whether childhood obesity was affected by changing economic conditions during the last recession using a huge dataset of over 1.7 million children. The proportion of children who are obese is larger among low socioeconomic status groups than higher status groups, so it may be expected that a worsening of economic conditions, measured here as unemployment, would lead to an increase in childhood obesity. However, the authors theorise that the association is ambiguous, citing the typical economic argument that through income and substitution effects households may both change their consumption patterns and the amount of time devoted to health promoting activities, which could either improve or worsen health. Using an individual and county level fixed-effects linear probability model (the justification for using the linear probability model over a perhaps more appropriate nonlinear model is not given), a one percentage point increase (around 10-15% relative increase) in the county level unemployment rate is estimated to lead to a 1.4 percentage point increase in the risk of being obese (around 4% increase in risk). Of course, the results are statistically significant. The results seem reasonable, but I’m left struggling to interpret them properly having had the same issue with an aggregate treatment and individual level outcomes previously. The results are consistent with the idea that the increase in obesity occurred among individuals whose families increased their income over the period, for example. Simpson’s paradox often rears its head in the economic conditions and health literature, as we have previously seen with infant health.

Photo credit: Antony Theobald (CC BY-NC-ND 2.0)