Category: Economics

India: Public and Private spending on Health

The following three maps will show us that, though the’spending in health by the private sector is comparatively much larger than the public sector, yet HIV prevalence is very high in India.

This shows the dire need for targeted public’investment in health care. This is because private sector’investment does not extend to the rural areas and regions with low purchasing power. [Investment is a part of spending]

Public Health Spending

Territory size shows the proportion of worldwide spending on public health services that is spent there. This spending is measured in purchasing power parity.

HIV Prevalence

 

Territory size shows the proportion of all people aged 15-49 with HIV (Human Immunodeficiency Virus) worldwide, living there.

Private Health Spending

Territory size shows the proportion of worldwide private spending on health services that is spent there. This spending is measured in purchasing power parity.

Source: Worldmapper

[Cross posted @ Krish World]

On Perfect Information

Four persons A, B, C and D have to share Rs 4 among themselves in units of one rupee. First A proposes a distribution and all of them, including A vote on it. If at least 50% of those voting agree with A, the proposal is accepted. If not, A loses her voting rights and B gets to propose a distribution and all except A vote on it. Once again B’s proposal is accepted if at least 50% of those eligible to vote agree on it. If not, B also loses her voting rights and C gets to propose and so on to D. Assume that each person prefers more money to less and will always vote against a distribution in which she gets zero. What distribution would A propose’

This is a sequential game. It is one in which players make decisions (or select a strategy) following a certain predefined order, and in which at least some players can observe the moves of players who preceded them. If no players observe the moves of previous players, then the game is simultaneous. [Game Theory.net]

This is also one of perfect information. If every player observes the moves of every other player who has gone before her, the game is one of perfect information. [Game Theory.net]

In the sequential game with perfect information, A will propose 3 for himself and 1 to D. This will be accepted by both A and D. D will accept anything more than 0; the reason being that, if all the proposals are rejected and the 4 rupees come in Cs hand, he will take all 4 for himself and since he will will vote for himself, the proposal will get accepted.

In such a game, the one makes the move first will have undue advantage.

On Perfect Competition

This market environment is extensively studied in Economics and is considered as a “Perfect” environment especially on the basis of efficiency.

This write up explains the concept of perfect competition succinctly.

Is such an environment favourable for all ‘ Competitive markets emphasise the importance of having perfect information as a pre requisite for a competitive equilibrium; one which is also Pareto Efficient.

The consumption decisions taken are sequential in nature. The consumer decides to purchase the commodity or service keeping in mind the price; which has been fixed earlier keeping in mind the consumers preferences. The outcome will always favour the producer (In a perfectly competitive market) as he makes the decision of pricing first.

On Pareto Efficiency

An outcome of a game is Pareto efficient if there is no other outcome that makes every player at least as well off and at least one player strictly better off. That is, a Pareto Optimal outcome cannot be improved upon without hurting at least one player. [Game Theory.net]

Conclusion

If the objective in an economy is Pareto Efficiency, then it can be achieved by a competitive market. But, it does not take into consideration equity in distribution. For example, in the game mentioned above, an allocation which leaves A with all the 4 rupees is Pareto Efficient, because in order to make someone better off, A has to be made worse off.

In India, the objective is to reduce Poverty and make growth more wide spread rather than growth being segregated in nature.

The idea that we cannot achieve the ideal state of perfectly competitive market equilibrium might seem pessimistic. Some economists insist upon holding the capitalist system to a standard of competitive equilibrium. Failure to meet this standard constitutes a “market failure” that warrants government intervention.[MacKenzie 2006]

So, is a market environment with perfect information desirable’

On History of Economic Thought

Economics has been getting more mathematical with the passage of time. Students opt for maximum papers in mathematics so that they can remain competitive academically at the international level.

Stark inequalities are present in the syllabi within India. In the South, the undergraduate degree does not lay much of emphasis on mathematics in comparison to the North, where the emphasis on mathematics is very high. One reason is that, in the South a degree is Economics is considered as one of the Arts subject, while in the North it is transitioning into a Science subject.

This affects the discipline of Economics. In certain areas of Economics, it requires analysis which needs the use of mathematics; but is it that Economics requires mathematics in all areas’ But again, this depends on if one views Economics as a Positive or a Normative discipline.

Axel Leijonhufvud writes in his paper The Uses of the Past– The history of economic thought used to be part of the graduate studies in economics. Sixty or seventy years ago, it was common of famous teachers like Lionel Robbins or Jacob Viner to approach economic theory by way of its development. Today, of course, this is seen as an archaic way of going about it and it has become quite uncommon. The history of thought is still a tolerated subject-in at least a few places- but not one to be studied to improve ones understanding of today’s economics. [Via: New Economist]

For those who want to have a deeper understanding of the discipline of Economics, learning the history of economic thought will prove to be highly beneficial. It will help in understanding how the dominant theories came by and how the theories get refuted. When history of economic thought is aided with economic history, it will provide a clearer understanding of economics to the student.

References

1) The Uses of the Past, Axel Leijonhufvud, December 2006.

Further Readings

1) History of Economic Thought

2) History of Economics Society

3) History of Economic Thought Website

Marshallian Economics: Some thoughts

This post deals with the discipline of Economics as to how Alfred Marshall saw it in 1890. Here are some of the excerpts which i found interesting.

“Economics cannot be compared with the exact physical sciences: for it deals with the ever changing and subtle forces of human nature.”

“It is essential to note that the economist does not claim to measure any affection of the mind in itself, or directly; but only indirectly through its effect.”

“The economist studies mental states rather through their manifestations than in themselves. He estimates the incentives to action by their effects just in the same way as people do in common life.”

“A shilling may measure a greater pleasure (or other satisfaction) at one time than at another even for the same person; because money may be more plentiful with him, or because his sensibility may vary. It would therefore not be safe to say that any two men with the same income derive equal benefit from its use; or that they would suffer equal pain from the same diminution of it.”

“A stronger incentive will be required to induce a person to pay a given price for anything if he is poor than if he is rich. The benefit that is measured in the poorer man’s mind by the cost is greater than that measured by it in the richer man’s mind.”

“Economics takes man just as he is in ordinary life: and in ordinary life people do not weigh beforehand the results of every action, whether the impulses to it come from their higher nature or their lower.”

“Economists study the actions of individuals, but study them in relation to social rather than individual life; and therefore concern themselves but little with personal peculiarities of temper and character. The measurement of motive thus obtained is not indeed perfectly accurate; for if it were, economics would rank with the most advanced of the physical sciences; and not, as it actually does, with the least advanced.”

“It is the business of economics, as of almost every other science, to collect facts, to arrange and interpret them, and to draw inferences from them. “Observation and description, definition and classification are the preparatory activities. But what we desire to reach thereby is a knowledge of the interdependence of economic phenomena…. Induction and deduction are both needed for scientific thought as the right and left foot are both needed for walking.”

Reference

1)Principles of Economics, Alfred Marshall