Nova workboard

a blog from young economists at Nova SBE


Poverty and Social Exclusion in the UK

The 10th October 2012,

Each year, the New Policy Institute monitors poverty and social exclusion in the UK. Thanks to that, they were able to make a great estimation of the impacts of the crisis of 2008 and 2009 on poverty in the UK. In order to implement their survey, they analysed several predefined indicators: income, the unemployment rate, education,  health, and fear of crime. Statistics on these indicators are computed every year which allowed them to establish a good follow up of the evolution of poverty.

Let’s start by analyzing the number of people who are considered low income earners, that is, the people that earn less that 60% of the median income of the UK. Actually, if we compare to the situation at the beginning of the century, there are less people living in poverty. Unfortunately, the New Policy Institute also notices that since 2005, the situation has gone worst. Indeed from 2005 until 2010 the number of low-income households has increased. Therefore, at the end of 2009, 13.1 million people were living in poverty in the UK.

As far as the unemployment is concerned, the figures are also not good at all. In 2009, 2.5 million people were unemployed: the highest level since 1995. However even if the crisis emphasized the growth, we can notice that the increase in unemployment started in 2004: four years before the crisis.

Now let’s have a look at the place of child poverty in the UK. As the number of low-income households has increased, so did the number of children living in low-income households. Nevertheless, the number of children living in a non working family has decreased  continuously since 2004.

Regarding education, the figures are better. Indeed, the number of pupils not achieving 5 GCSEs (the equivalent of high school) has dropped by one third since 2004. Besides, we can also notice a decrease in children who do not have the basic knowledge in Mathematics and English at the age of 11.

Besides, as far as heath is concerned, we can also see some regular improvement, the number of premature deaths before age 65 has also reduced inthe last decades. The numbers of mental illnesses, infant mortality, babies born with low birth weight have also dropped.

People feel also more secure. Indeed, the percentage of people who feel worried about being victim of violent crime has gone from 17% to 14% since 2005. We observe the same thing for the people worried of being burgled.

To conclude, I think the crisis had a really bad effect on poverty. Indeed, the priorities of governments changed and poverty became a secondary issue. However, the report published by the New Policy Institute shows that some indicators started to get worst way before the recession. That is why I think that we should maybe look further in the past to find what problems are at the origin of the increase in poverty.

Jérôme Lucchese

Source:            http://www.poverty.org.uk/summary/reports.shtml


 [SP1]realise = se rendre compte

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The lucky ones

On the 31st of October2011, the population of the earth reached seven billion people. According to The United Nations, one billion of these are today living in extreme poverty, which means that they have to survive for less than one American dollar a day.  In Africa, south of Sahara, approximately 41 % of the population lives in such extreme poverty (www.fn.no).  Facts like that can easily make me think that I am one of the lucky ones.

Where you are born can highly affect how your life is going to be, and where you are born is just a coincidence. It is good luck or bad luck.  Also in the rich countries there are people who are born in areas where the probability of being poor is higher than in other parts of a city or a country. So this does not only apply on a country level, but within a country as well. Either way, it’s important for the lucky ones to remember that lucky is exactly what they are. Then the awareness of poverty in rich countries may be raised, while the focus on poverty in poor countries may be increased. We have to remember the unlucky ones, and do something more about it. Of course it is not always easy to know what to do, but every contribution can help.

Norad, the Norwegian Agency for Development Cooperation, offers a special and interesting service on their webpage (www.norad.no). By entering some personal data, you can be “reborn”. This means that you’re offered a timeline of your “new life” and some enlightening comparisons between your old and new country. I was reborn in South-Africa, without the same possibilities for education, work life and health care as in Norway. As a Norwegian I am able to study abroad in Lisbon. If I had been born into my “other life”, I would not have had any higher education. To sum up, the point of this comment is not to claim that people don’t take higher education in South-Africa, because many people do. I am simply trying to remind many readers of this blog how lucky they are.

Solveig Lillebø

References:
Fn.no, (2012) Fattigdom [online] Available at: <http://www.fn.no/Tema/OEkonomisk-og-sosial-utvikling/Fattigdom/Fattigdom  > [Accessed 08 October 2012]

Norad.no, (2012) Norad [online] Available at: < http://www.norad.no/en/front-page > [Accessed 08 October 2012]


A system of incentives

In life, there are some people that we need to trust. Our doctor is one of them. However, how do we know that our doctor has the same interests as us? After all, treating sick people is this medical practitioner’s job, and not something he or she does on a volunteer basis. One can argue that most doctors probably do their absolute best in saving as many lives as possible. I would like to believe in this argument. Still, I doubt that it would hurt with a system of incentives that gives the doctor and the patient the same interests.

Agency relationships occur when two or more parties have different and/or asymmetric information. Normally, this would make the person with the best information the decision maker. In other words, your doctor should make all the decisions concerning your health. But as mentioned above, my interest may not coincide with my doctor’s interests. Personally, I would like to get the best possible treatment for the lowest possible price. This is where the system of incentives may help.

In Norway we have something called “The arrangement of a regular GP”, where GP stands for General Practitioner. The purpose of this system is to allow everybody to sign up for a GP, and thereby improve the quality of general medical practice. So the purpose is good. The doctor’s gets a number of regular patients on its list and you get a regular doctor. Maybe by getting a personal relationship with your GP, the interest will be more alike? In theory you are also allowed to choose your GP. At the same time, for every person on a doctor’s list, the doctor is granted a relatively large sum of money from the government. Hopefully this money will give the GP an incentive to give the best possible health care and to protect the interests of the patient, since the most popular doctors get more patients on their lists and thereby more money from the government. Is it like this in real life? I don’t know. It can be very time consuming to change a regular GP when you want to, so I think many people just stick to their doctor almost no matter what. And if you want to switch, which doctor should you choose? The ones with many patients on their list? They are popular, yes, but do they have proper time for so many patients? Either way, as I mentioned before, the purpose of the arrangement is good. I doubt that it works perfect – not all doctors share the interests of their patients, but at least it’s a start towards a good system of incentives.

Solveig Lillebø


Is the diffusion of low-cost flights a modern manifestation of tragedy of the commons?

The emission of greenhouse gases not only is a modern tragedy of the commons but extents its effect over space and time. The lack of a supranational regulating institution makes it particularly difficult to tackle the problem.

The purpose of this report is twofold: Firstly, an analysis on whether low-cost flights are a modern day manifestation of tragedy of the commons and secondly, if the answer to the previous question turns out to be positive, to propose an appropriate policy intervention mechanism.

Table 1 shows a comparison of ticket prices and pollution levels of three different means of transports on the track Rome – Venice (the data is provided by ENEA, the Italian national agency for technological development and energy). The respective ticket prices were then augmented by the cost of emissions they produce. The latter is calculated as the product of units of emissions times the carbon price (Futures on EU Carbon Allowances 3rd Period which mature Mid December 2012, source: Bloomberg BNEF).

Table 1

Track “Rome – Venice”

Low-cost airline

Train

Car

Price

€ 39.07[1]

€ 49[2]

€ 95.71[3]

CO2 emissions

104 kg

26 kg

52 kg

Carbon price per kg

€ 0.01130

Cost of emissions

1.18

0.29

0.59

“True” ticket price

40.24

49.29

96.3

 

The comparison shows that, even if emission costs are included, the price of low-cost airlines is still below the price of trains and cars. Given the size of the difference between the actual and the “true” ticket price, we can assume that also current prices are close to economic efficiency. The distortion they cause to people’s decision making is minor and also the size of the excess pollution caused to the environment by airplanes because of inappropriate price setting is marginal. In any case, considering that plane rides are both, the fastest and the cheapest alternative, there won’t be any change in the preference ranking of a rational decision maker. In fact, only a carbon price of 98.34 per ton would make trains and planes competitive. This is very closed to 100, the fixed upper ceiling of the carbon price, which has never been achieved yet.[4]

It is, however, important to eliminate this price distortion to achieve an efficient economic outcome. Emissions bring in fact both, economic benefits in terms of production, but also environmental damage through pollution. The goal is therefore to find the socially optimal pollution level as a compromise of the two: This will be at the point where the marginal benefit equals the marginal damage. A tax[5] per unit of carbon emission equal to the market carbon price (0.0113/kg) is appropriate to approximate the marginal damage of pollution. It is a cost-effective instrument, doesn’t require much information except from the price of carbon allowances but only needs to be adapted in case of inflation and economic growth. Society would benefits in two ways: trough the increase in tax revenues and through a less polluted environment.

 

Nadja Mumelter


[1] Easyjet is the only low-cost airline operating on this route

[2] Tariffs according to Trenitalia www.trenitalia.it from Roma Termini to Venezia Mestre

[3] Calculated by Via Michelin, including fuel and toll expenses

[4] Alexander Brauneis, Roland Mestel, Stefan Palan, „Does a cap on the carbon price have to be a cap on green investments?“, 02/2012

[5] Note, that this is not a Pigouvian tax since the requirement of knowing the socially optimal level of emissions is not satisfied.


Poverty: between child exploitation and child illeteracy

Filippo Galli

1192

Every year six million children under five starve to death or die of curable illnesses such as dysentery, pneumonia or malaria. FAO reports that malnutrition – still 143 million children in the developing Countries suffer it – causes almost half of about five millions of deaths reported in the world every year among children under five.

Child exploitation is a cause and consequence of poverty and grows when people must face without any help its poverty without free schools and health, and families are compelled to ask  each of its members to work to survive. As far as this situation is concerned, an Unicef research in Latin America points out how the purchasing power of the family increases of 10-20% maximum with the works of little children: poverty still remains.

 Child exploitation in the working places involves 218 million children (default estimation, as we talk about illicit situations) who are obliged to work deprived of education, health and play: 126 million of them carry on dangerous activities risking their lives.

One child among five, for example, has no free admittance to drinkable water; this causes the death of 2,5 millions of children every year. 143 millions of children suffer from malnutrition ,which is the cause of the 40% of the total infant mortality.  

Another important problem is the plague of the child soldiers and the prostitution: over 250.000 children under 15 are recruited and used in the state armed forces and in non-state armed groups (in the Democratic Republic of Congo at present about 11.000 children have been kidnapped by the guerrillas), and one million of children every are led to prostitution, often by their parents themselves to pay their debts.

Unicef is trying to solve the present situation with two kinds of interventions: programs to sustain the domestic household to make the children’s work unnecessary and intervention in favour of children workers to grant them the possibility to attend school and to get an education.

Another problem for children is the illiteracy. Over 130 million of children of age of primary school grow up, in the developing Countries, without any chance to get  basic education. If we add to this number the other 20 millions of children that do not complete the four years of school (minimum period to grant a minimum ‘learned’ child), we obtain a total of 150 millions. Moreover 77 millions of boys and girls in the South of the world cannot write or read. The greater part of these are girls, condemned to an uncertain future. The 57% of girls of age of primary school are deprived of education due to cultural, economic, and  discrimination reasons.

However Child labour and children illiteracy  are only two of the several problems that children are compelled to face, and they are only two of the several problems concerning poverty, that everyone in the world should try to face and solve.

 

 www.unicef.it


Poverty in developed countries

 

When we think of poverty, it is usually the kind of poverty we see in third world countries that come to mind. Starvation, famine and homeless children and families are “common” images we are faced with on a regular basis in every media channel. However, poverty also exists in developed countries, even in the richest countries in the world. In wealthy countries, though, poverty rarely takes the form of famine or starvation. Homelessness is more common, and is widespread in many countries, but this is a multifaceted phenomenon that can have many different causes other than poverty. People who are poor in wealthy countries may still have full-time jobs and earn a decent income every month. It is mostly their life situations that determine whether they are poor or not.

 

Poverty in developed countries can be relative or absolute. Relative poverty refers to a standard defined by the society in which an individual lives. It differs between countries and over time, an example being that you are poor if you are living on less than for example 60% of a country’s average equivalized income. Absolute poverty refers to state of being where a person does not have enough resources to afford a basic consumption basket (of food, housing, clothing etc.).

 

There are many different reasons why there are poor people in industrialized countries. For example, there may be stagnating wages, long-term unemployment and rising prices of essential goods. Other reasons that are more complex may be racism, immigration and an increasing number of single parent households. If the social safety nets are absent or low, poverty may become even more widespread. Proper day care facilities, care for the elderly and health care are important factors to prevent poverty increases. These last factors are evident when we look at growth in poverty in the developed world. In Scandinavia, where the countries are known for their extensive welfare benefits and high safety nets, the trend is notably different from other industrialized countries. While almost all other countries have increased amount and depth of poverty, the Scandinavian countries have shown a stagnating or decreasing development[1].

 

In a way, we can say that poverty reflects failures in the systems for redistributing resources and opportunities in a fair and equitable manner.  These lead to deep-seated inequalities and thus to the contrast of excessive wealth concentrated in the hands of a few while others are forced to live restricted and marginalised lives, even though they are living in a rich economic area[2].

 

We see that poverty is a complex issue, and there is no clear answer as to how to prevent it or eradicate it. But better social safety nets, clear redistribution of resources and opportunities, better arrangements for unemployment, and more focus on racism, immigration and divorce may help to improve the poverty rates in many industrialized countries. With a clear focus, maybe it is actually possible to overcome these challenges!

 

Lene Didriksen

 


Area variations in clinical practices

It is a fact that clinical practices may vary considerably between different areas within a country. Doctors seem to differ in their decisions about health care treatments and medicines, independent of the patients’ characteristics.

Moritz et al. (1997) have done an experiment on breast cancer in England and the connection between the mastectomy rate and cancer cases per doctor. They found evidence on variations in the number of patients who receive a mastectomy, even though the size of the tumors was similar. In the course “Economics of health and health care” it is suggested that these variations can be explained with uncertainty about technology and differences in demand and cost conditions across regions. Technology uncertainty will lead to dispersion in practices, but this explanation is not fully satisfactory. The same applies to differences in demand and cost conditions. If people are similar across regions, one should think that their treatments would be similar too.

Another example of variations in effective care, and also patient safety, is the underuse of beta blockers at time of discharge from hospital after a heart attack. The Dartmouth atlas documents show variation among 37 hospital referral regions containing one or more of the academic medical centres identified as the 50 best US hospitals for the treatment of cardiovascular disease by US News and World Report. In the region with the best record only 83% of ideal candidates received a beta blocker; in the region with the lowest record less than 40% did[1]. This variation is a risk for patient safety, when in some areas the patients are not receiving the needed medical treatment to cope with their illnesses.

In an article by Martin Sipkoff (2003), nine things that health plans and provider organizations should do to reduce unwarranted practice variations are formulated. For example, high-risk patients must be identified by collecting data which identifies those who have the potential for using the most resources. Also, physicians should be given incentives to follow treatment guidelines etc. In Norway, doctors are given an incentive to give their patients the best care possible through the primary doctor system. They receive a higher wage if they have a full patient list, and a full patient list only comes with a good reputation. Furthermore, we need continuous quality improvement, implementation of disease management programs, investment in information technology and an increased patient involvement in their own health.

There is a problem when you find that the approach in one city is to operate, and in another city it’s watchful waiting. In many regions, physicians are not using evidence-based medicine to guide their care. The practices are not up to date with the medical knowledge[2], causing much confusion and variations in a wide range of treatments. Patients are getting worse, or even dying, because of this.  

 

Lene Didriksen


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Yielding social profit

When we think of financial innovation we do not automatically associate it with humanitarianism. However a financial product has been designed to make that connection.

The aim of this post is to present Social Bonds. I will explain what these bonds are and how they work, showing some real cases. In addition to that I will demonstrate how, in my opinion, they can be used to fight several social problems, including poverty.

A social bond represents a loan between an investor who buys the bond (the lender) and usually the state who sells the bond (the borrower). What distinguishes this bond from conventional government bonds is that the lent capital shall be used to finance a specific activity with positive social impact and the payback (of the initial amount and interest) will depend on the success of this activity. What’s more, the main difference between these bonds and most funding for social projects is that while the latter’s funding tend to pay for inputs, the former’s rely on results. 

This instrument has a huge potential, since it is broadly known that governments could save much money if they invest in prevention rather than just financing correction. Two main examples of this may be the prevention of diseases by stimulating health instead of spending huge amounts on healing, or preventing what causes people to become criminals instead of paying their caging. It is much preferable to prevent the continuous rollercoaster trail of prisons, courts, homeless shelters and hospital emergency rooms. Besides it is known that there are interventions that are proven to help and to save money, thus unburdening the taxpayer.

Despite the potential savings, cash-strapped public authorities cannot just relocate its expenses from correction to prevention activities. This would mean cancelling health treatments or freeing criminals… Social Bonds may help to solve this situation by financing the prevention which will increase public savings. These savings will then be used to repay the initial investment and interest. Therefore, the Social Bond’s buyer will face the following risk: if the prevention activity is successful, which means that public savings will rise, he will win; if the activity fails, this investor will lose money (which mean that it is not technically a bond).

This instrument was first proposed by the economist Ronnie Horesh in the year of 2000 and its first implementation was made in 2010 in Peterborough, a town in Britain. The city issued bonds raising £5 million to finance a project that aimed at preventing recidivism, managed by the group Social Finance. Over 6 years recidivism rate will be compared between Peterborough and other similar towns. If, in 2016, its rate is 7.5% lower than the control group, the British government will repay the bond holders with interest. If that threshold is not met, investors will lose their money. The main outcomes will just be published in 2014. However Tina Rosenberg at the New York Times argues that according to local police the program looks like being paying off through a decrease in crimes.

In the US a similar project is being developed, but instead of being financed by philanthropic organizations, it is being financed with $9.6 million by the bank Goldman Sachs, a Wall Street institution. Alicia Glen, head of Goldman’s Urban Investment Group, said to The Economist that it is a real loan. Furthermore, she stated to the Financial Times that this bank would get involved in more transactions of this type in 2013.

If this proves to work there is a huge market to be explored. For instance Jannet Currie from UCLA shows that early childhood education programs to disadvantaged children may increase future earnings, reducing welfare dependence and crime. This would then be a good candidate to be financed by Social Bonds.

Improving poor neighbourhood’s environment, encouraging civic participation and promoting social activities, could be a next stage aspirant. The only need is for independent monitoring and consulting organizations that are capable of estimating social as well as financial returns.

In conclusion, Social Bonds are a veil of promoting social value in a sustainable and profiting way. This, besides leading to a better society, helps governments to be more efficient, sharing its extra savings with the lenders of these investments, which leads to the right incentives. These projects are just being launched, though we may be starting to watch a new form of social oriented financial innovation that may radically change the way we face social problems.

 

Diogo Silva Pereira Teles Machado, nº546


Pollution problem in central Lisbon: imposing a tax or restricting access?

When individuals impose costs on others, without having any economic incentive to take those costs into account, we are in the presence of a negative externality. As explained by the economic theory, externalities may lead to individual decisions that are not optimal from the point of view of society as a whole. Without any intervention, the market will tend to overproduce negative externalities.

Air pollution is often presented as a classical example of a negative externality. In recent years, we have been confronted by the media with some news pointing out pollution problems in central Lisbon and claiming urgency towards action. Avenida da Liberdade, a key point for those who enter or leave the capital by car, is today one of the most polluted avenues in Europe. Several times, the legal admissible levels of air pollution were exceeded. In this context, not respecting the EU Directive of Air Quality might have severe consequences, especially when Portugal is under external assistance and so financially constrained. Would we like to pay a fine of 1.9 Million Euros plus 630 Euros per day until compliance with the EU Directive?

Furthermore, the problem is even worse due to the daily traffic congestion during rush hours. As we know, urban traffic congestion is a modern example of a “tragedy of the commons”. If we consider the trips by car along the Avenue as a good, immediately, we will agree on its non-excludable nature. However, since there is free access, there will be rivalry in consumption, that is, the access creates scarcity of space and thus congestion. 

How should this problem be addressed? As a science, Economics can offer its contribution. Indeed, from very simple models, we can extract powerful insights. The 2012 Prize for Shapley and Roth clearly demonstrates the growing acknowledgment for the use of abstract theory to ongoing efforts to find practical solutions to real-world problems.

We decided to use a simple model with marginal benefits and marginal costs. The model incorporates both pollution and congestion problems. We have assumed that there is demand for a certain good Q, which will represent the number of trips by car along the Avenue. The cost structure has two major components: (1) private costs, including costs related to car use such as fuel and maintenance, and also time costs derived from traffic congestion that drivers partially take into account; (2) external costs, which include all those costs that drivers impose on others and that they have no economic incentives to take into account (e.g. reduced air quality, increased level of noise and higher risk of certain diseases, as well as the external portion of congestion that is not internalized). The sum of private with external costs gives the social cost function.

We have assumed that until QA there is enough environmental assimilative capacity to absorb the emissions associated with the number of trips in the Avenue, and that congestion only starts after that level. In other words, below QA there are no external costs to society (no pollution and no congestion problems), but only the private costs to drivers, which we considered as constant. Then, after QA, the marginal private cost function (MCp) becomes increasing due to the portion of time costs internalized by the drivers. Additionally, after that level, the number of trips along the Avenue starts causing external damages to the society: congestion not internalized (cong) and air pollution (e). It is important to note that in our setting, we have assumed complete independence between the damages of congestion and the damages of pollution. In practice, it is plausible that there is a relationship between these two functions, which would further complicate the analysis of the problem. Here follows the graphical analysis (the Q-axis is normalized):

The optimal number of trips in the Avenue is given by Q*, where marginal social costs (MCs) equal marginal benefits (MB). At that point, from a social perspective, there are no economic incentives to increase or decrease the number of trips. Obviously, if doing nothing is a possibility, drivers will freely choose Q0, where they are minimizing their private costs.

From our simple setting, we will be able to analyze, from an economic perspective, two alternative policies to solve the pollution problem.

The first one, which is already implemented by municipal authorities, consists in changing traffic laws in a way that access is restricted. Due to restriction of access, the number of trips that starts causing congestion will be lower than QA and marginal private cost will become an increasing function after that level. However, restriction of access will change the social optimum. Since the government is trying to solve the pollution externality by restricting the access to the Avenue, in reality, it is creating a bigger problem by correcting one externality aggravating the other. Now, as traffic starts congesting at an earlier stage, the new social optimum will be lower than Q*.

An alternative policy would be the imposition of a congestion charge, covering a vaster area in the center of Lisbon (including the Avenue), similar to the one already implemented in London since 2003 (for further details: www.cclondon.com). Theoretically, that charge would be a Pigouvian tax, which is, by definition, a unitary tax equal to the difference between marginal social costs and marginal private costs at the optimum. While raising revenue through the implementation of this tax, authorities force drivers to internalize the damages that were previously not taken into account. The net losses associated with higher private costs due to traffic congestion are now a net transfer of welfare from drivers to the government.

Both policies attain the objective of reducing the number of trips. However, restricting access to the Avenue leads to an inefficient outcome, since those losses incurred by drivers are not appropriated by the government. On the other hand, a Pigouvian tax will lead to an efficient outcome as it maximizes net benefits from a social perspective, that is, we will reach Q* again. Additionally, this measure will not aggravate the existing externalities.

In conclusion, our example illustrates the distinction between an efficient policy and a feasible one. While it is efficient to apply a Pigouvian tax, it might not be practical, since it imposes a higher burden to drivers than restriction of access.

Tiago Silva

Nuno Salva

Yan Yang


How to make diabetics buy medicines for hypertension – polish example

This time I really wanted to write something positive about the polish health care system, however, after some hours of looking for a proper topic I came across very interesting information and then I changed my mind.

On January 1st 2012 a very controversial Medical Refund Act came into effect in Poland, arousing loads of discussions and objections not only from consumers but also from pharmacies, medicine producers, doctors and hospitals. Actually it was the most complex and bringing most changes act on the polish drug market since 20 years. The idea of the Act is to make changes in conditions of refunded medicines, food intended for special purposes and medical devices. According to the common assumption it should have increased the availability of medicines for patents through decreasing the drugs’ prices and patients’ co-financing level, however, it also excluded over 800 preparations from the list of refunded medicines. How does the situation look like after 9 months?

The first reaction was a mass purchase of refunded medicines in the end of 2011 by polish people. It led to loads of funny situations and paradoxes. For example my grandmother, who has been a diabetic since many years, bought some packages of medicines for hypertension and neurosis, although she does not need it at all. When I asked her about that, she answered, that you never know what can happen and it is always better to be prepared. Her colleagues did the same and millions of other polish people as well. They contributed to the fact that in December 2011 the sales of refunded medicines was about 35% higher than in comparable period of 2010.

December 2010 December 2011 Change (%)
Refunded medicines (m PLN) 1 100 1 484 35%
Non-refunded medicines (m PLN) 448 541 20,7%

The biggest loser of Medical Refund Act implementation are the pharmacies. The end of 2011 was extremely profitable but then everything collapsed. While the gross revenue from the sales of medicines amounted to 13.2 trillion PLN in 2011, rising at the rate of 5.6% comparing to 2008, the forecast for the end of 2012 accounts for 11.6 trillion PLN, which means a decrease of 11,3%.

What comes to the issue of patients’ co-financing level of refunded drugs, instead of decreasing it is still increasing and according to the forecasts it will amount to 37,8% whereas in the same period of 2010 it stood by 35,1%. It is a result of the fact, that the patients still must buy some medicines, although they are not refunded anymore. It means a negative change for consumers by 2,7 percentage points, which is in my opinion a big failure of this “great idea”.

To sum up, so far the new Medical Refund Act neither dropped the drug’s prices nor the co-financing level of patients. Evidently polish legislator did not like the fact that an average expenditures on drugs per capita in Poland is about two times lower than in the whole Europe (for Poland: 114 EUR, for Europe: 218 EUR) and decided to “improve” the statistics by removing refunded medicines from the list. In the end the only institution, which benefits from the Act implementation is so far Polish Government because of less expenditures. Let’s see what future brings.

Sources:

  1. Report on the Medical Refund Act, IMS, November 2011,             http://www.farmacja-polska.org.pl/cms/uploads/IMS_raport_06.12.2011.pdf
  2. Presentation of Maciej Pikiewicz (Country Manager, IMS Health Poland), May 2012   http://www.radoslawmarter.pl/
  3. Who profits from the war with medicines?, M. Czarkowski,                     http://www.przeglad-tygodnik.pl/pl/artykul/kto-zarabia-na-wojnie-lekami

Izabela Tomasiewicz


Be ill only if you have time for that (If you are Polish)

As during the last lecture the issue of the role of waiting time to medical care was touched, and as I have some personal experience with this topic, I decided to describe how the situation of patients looks like in my country in terms of waiting for medical treatment.

First, I want to define what I mean by waiting time – it is namely the time which goes by from symptom appearance to beginning of the treatment. So what I did was asking my family members about their experience in this field – the conclusion was: It is bad. Then I wanted to check what Google would ‘say’ about that. I put the phrase “Health care, waiting time, Poland” and the first article I saw was “Polish health care system is one of the worst in Europe” – so the second conclusion is: it is really bad.

Here are some examples of waiting time in particular health units in Poland:

Medical Practice Health care unit Waiting time (in days)
Ophthalmology Euromed in Zduńska Wola 2880
Endocrinology University Clinic in Gdańsk 922
Cardiology Railway Hospital in Wałbrzych 730
Ophthalmology Ophthalmology Centre in Wrocław 352

How does the Polish Ministry of Health want to deal with this problem? The latest idea was to introduce additional insurance, which would enable wealthy citizens to avoid the lines (but it would not mean that they would be treated in different places than “normal” citizens). But then the poorer part of society would have to wait even longer for medical treatment, which seems to be unfair. Apart from that, the majority of wealthier patients in Poland use the private health care, therefore this solution seems to be pointless because neither would it improve the situation of richer nor poorer people. Personally, I would rather improve the communication between particular health care units and the staff working there. For example in the hospital in the city which I am from, the waiting lists were prepared by few different people and the lack of communication between them led to the situations, in which one person was on many waiting lists making unnecessary chaos and delaying  thereby their own treatment. What is more, the more shrewd people use this fact and try to enroll for a lot of lines, thinking that it will make them wait shorter, however, it does not work. Just one month ago the IT system was introduced there and hopefully it will improve the present communication and organization. In 2010 there were 2.2 physicians and 5.3 nurses per 1000 Polish population, while the OECD overage amounted as follows: 3.1 and 8.7. The situation is similar in terms of medical equipment: for example the number of MRI scanners stood for 4.7 per million Polish citizens, well below the OECD overage of 12.5 scanners. However, in my opinion the biggest problem of polish health care is not the distinct lack of staff and medical equipment but rather the poor organization.

To compare: In Sweden the longest possible waiting time amounts to 125 days, but only in theory, because after having asked my Swedish friends it appeared that in practice waiting more than one month for a medical treatment is treated as a scandal. They should definitely visit my country.J

As a social response to problems and absurd caused by Polish Health Care there was established the Watch Health Care Foundation, which is in my opinion a very interesting initiative that collects and presents reliable data regarding health care services and health procedures to which access is aggravated. Not only the patients, but also service providers, decision-makers and regulatory authorities receive free of charge access to information presented in the form of rankings. Moreover, the website enables users to report cases of limited access to Health Care as well as solutions to those  problems. This platform has been not very known yet, but I really hope it will develop in close future.

Sources:

  1. National Health Fund’s internet page, http://www.nfz.gov.pl/
  2. Nie zapłacisz, to tyle poczekasz (If you do not pay, you have to wait), 07.03.2011, http://www.fakt.pl/
  3. http://www.watchhealthcare.eu/
  4. OECD Health Data 2012: How Does Poland Compare, June 2012, http://www.oecd.org/poland/BriefingNotePOLAND2012.pdf

Izabela Tomasiewicz


Fires in Portugal

Fires are a scourge that every summer assault the world. We focus on fires in Portugal, which is the country where this problem is bigger in South Europe (the total burned area over the total area of the country is bigger than in France, Italy, Greece and Spain).

First of all, we should understand the development of fires through time. Data about the number of fires and the total burned area (in hectares) from 1980 until 2010 was collected. The moving average of 7 years was calculated, and it was possible to observe that the number of fires and their dimension have been increasing during the years although a decrease in the last few years can be noticed; nevertheless it is important to point out that most of the decrease observable in the moving average charts are due to the fact that in 2008 there were very few fires. What can explain this increase is now the most important question. Therefore, we decided to investigate the relationship between temperature and fires.

After we discovered that this is not a significant variable to explain fires, we tried to look at the political agenda, to see if would affect the number of fires. To do so we ran a simple regression that turned out to be insignificant, but nevertheless suggested a positive correlation between fires and elections, and for that reason we suggest further investigation in that direction.

In a nutshell, causes of fires are still not identified, which makes it harder to create an effective policy. Nevertheless, Portugal has been developing several interventions in the forest sector, such as the creation of an environmental fund, the Fundo Florestal Permanente (FFP).

The FFP was the first environmental fund in Portugal. It was created in 2004 due to an increased concern about sustainable forest management. It is managed by Instituto de Financiamento da Agricultura e Pescas (IFAP), part of Ministério da Agricultura, Desenvolvimento Rural e Pescas, and it is financed mainly by a part of the tax on petroleum products: 0,005€/l of petrol and 0,0025€/l of diesel, limited by 30 millions euros/year.

FFP finances activities that develop its goals through subsidies, credit lines, guarantees and insurances. Its main beneficiaries are municipalities and other public entities responsible for forestry administration as well as associations of forest owners. Since 2004, the volume of subsidies increased rapidly, but from 2010 onwards it has been decreasing. We could not find data about the projects financed. This lack of transparency should be a motive of concern since it is not possible to ensure that this money is being efficiently used.

 

 

Maria Martins – 540

Sofia Amaral – 538


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Congested roads are one of the worst nightmares affectingcity life. The number of cars moving through, into and out of the cities can reach dramatic levels. Consequently, whenever traffic volumesbecome greater than the road’s capacity, traffic speed slows down and the final result is congestion. Thus, trip times, car accidents and uncontrolled parking increase. From an environmental perspective, traffic leads to higher levels of harmful emission and to noise.

 

Local governments and administrations are thus required to take actions in order to regulate traffic congestion, introducing environmental policies that aim at modifying people’s behaviour to obtain the desired outcome. One actual policy that has been introduced in several cities is a congestion charge, whichtaxes the users of the public good in order to mitigate congestion.

 

A concrete example of this pricing policy is the congestion charge applied in Milan, Italy. The city counts 1.3 million inhabitants and 716.431 cars on an area of 180 km2. This policy aims at regulating traffic within the central area of the city; it has been named “Area C”, where C stands for Centre and forCongestion. Each polluting vehicle entering this area will be charged a tax of five euro. The revenues of the policy are the reduction of polluting emissions and noise, a fostered and faster public transportation system, raising money that would be invested in soft mobility infrastructures, namely cycle lanes and pedestrian zones. The whole city population can therefore enjoy an improvement in the quality of life.

 

According to economic theory, a pricing system will allow to reach an efficient solution, as long as the tax is paid by every pollutant– drivers in this particular case – is somehow linked to the emissions he is responsible for.

Nevertheless, some problems arise by considering the distributive effects of such a policy. In Milan the local administration had to face the opposition of the shop owners located within the Area C, who claim that the restricted access to the city centre will negatively affect their selling volumes and transportation cost and therefore their income. Furthermore, the residents of the area showed opposition towards the policy. Typically, people are more concerned about the financial burden of the fee than about the benefits that could derive from those expenses.

 

Some adjustments to the policy can then be made in order to reach a greater consensus. A flexible tax can be introduced, instead of a fixed fare, so that each vehicle will be charged according to its engine-power emissions. Further, whenever criticism arises, it is crucial to be transparent. The main issue with this kind of congestion charge is therefore to provide citizens with clear information about the disposal of their money; secondly, it is fundamental to share data that show the effects of the restriction on the level of emissions. An intensive investment plan in public transportation should be the priority of the local administration, in order to compensate for the restricted viability of the city centre, as well as the supply of alternative mobility vehicles: electric car sharing and free city bikes could be a desirable alternative.

The pricing mechanism appears to be a reasonable policy to cope with traffic congestion. In a real-world scenario, no policy will perfectly fit the demand and supply needs though. Governments are making efforts to come up with effective solutions to environmental problems, but the best and moreover socially accepted outcome has not been reached yet.

 

Mariaelena De Lio

Adrian Loeffler

 

 


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“(…) while it is always a misfortune to die when one wants to go on living, it is not a tragedy to die in old age; but it is on the other hand both a tragedy and a misfortune to be cut off prematurely.”

John Harris, The Value of Life (1985)

While the end of September was approaching, the country was confronted by somewhat controversial headlines.[i] This time, surprisingly or not, we did not have an announcement from the Finance Minister, regarding the implementation of new austerity measures. So, what happened?

Answering a request from the Health Minister, the National Ethics Council for the Life Sciences (CNECV) produced a report, proposing a decision model for financing the costs of medicines in three specific areas: HIV/AIDS, oncology and rheumatoid arthritis.[ii] The main conclusion taken from the report is the existence of ethical arguments supporting healthcare rationing – indeed, a conclusion that might harm the most delicate sensibilities.

Within this line, I think it is of utmost importance to reveal the most inconvenient truth: it is not possible to have everyone having access to everything. Moreover, the situation is even more complicated when there is a tight budget constraint. The MoU mentions that reforms in healthcare system should aim at improving efficiency and effectiveness, inducing a more rational use of services and control of expenditures. The constraint is even clearer in the area of pharmaceuticals, where it is expected to reduce public spending to 1.25% of GDP by the end of 2012 and to about 1% of GDP in 2013.[iii]

The growing cost of healthcare services jointly with increased costs arising from technological innovation are causing expenditures to overshoot. Since there are limited resources and theoretically unlimited needs, these cost-drivers are creating new challenges to health professionals, scientific investigators and policymakers. In this sense, knowing the social preferences is crucial for priority setting. However, the answer to whether an efficient allocation is better or worse than an equitable one cannot be given directly by economic analysis, requiring a value judgment that weights equity and efficiency. On the other hand, there is also no consensus about the adequate form of the Social Welfare Function. Nevertheless, as we have seen, today it is very unreasonable to adopt a Rawlsian Welfare Function (pure egalitarian), despite the attractiveness of the justice argument of choosing under a “veil of ignorance”.

In fact, setting priorities accordingly to social preferences is a very difficult task. For instance, at a first stage, we can often recognize that some groups may have priority against the others. However, at a second stage, when we attach the opportunity costs, it can well be the case that we do not detect evidence towards any social preference.[iv]

Most people tend to believe in the idyllic picture that if a given treatment is available, regardless of what it costs and no matter the chances of success (i.e. surviving), it should be made available to us. But let me ask: is it ethical to spend thousands of Euros in treatments with modest or null effects, when they are consuming large amounts of resources that could be used with better outcomes, including saving lives? Let me put it concretely: do 20,000€ justify two additional months of life, especially when it can be painful for the patient? It seems clear to me that some equity should be traded-off by efficiency when prioritizing in healthcare. The question is not if there should be rationing or not. Rationing does already exist and, currently, it is decided by the doctor when treating the patient. The focus should be instead in what type of rationing we want to have. And, in this context, I think it should be clear, explicit and responsible in order to avoid the so called “random rationing”.

Finally, some notes are worth to be mention, due to the introductory quotation by John Harris. Throughout this text, we have been discussing priority setting in healthcare. Let us now assume that there is only one medicine available and two patients to be treated: one aged 22 and the other aged 82. What to do? From my point of view, the “fair innings argument”, as exposed by Alan Williams, seems to be very attractive, implying greater discrimination against the elderly.[v] However, it is also subject to some criticism. What about those who consider that an individual has a greater right to enjoy additional life years the fewer life years he has already had? Moreover, what about the growing population above 65 and the possibility of lobbying in order to change government priorities?

The discussion will surely not end here. This issue is far from being consensual. Curiously, one of the thorniest issues is a question of semantics, that is, the negative connotation associated to the word “rationing”, which reminds us of times that we do not want to live again.


[ii] The report produced by the National Ethics Council for the Life Sciences (CNECV) can be found here:

http://www.cnecv.pt/admin/files/data/docs/1348745574_Parecer%2064_2012%20CNECV%20Medicamentos%20SNS.pdf

[iv] For an interesting example:

Desser et al., Societal views on orphan drugs: cross sectional survey of Norwegians aged 40 to 67, British Medical Journal (2010).

[v] Williams, Alan, Intergenerational equity: an exploration of the ‘fair innings’ argument, Health Economics, Vol. 6: 117-132 (1997).

By Tiago Silva


Should patients choose generic drugs over branded drugs?

Generic drugs are copied branded drugs which have been approved by the Food and Drug Administration (FDA). The generic manufacturer does not have to invest in research and development in order to produce the generic drug, a process that is very costly and time-consuming. Therefore, the prices of generics are usually 50 to 70 per cent less than branded drugs. A study which has recently been conducted in the U.S. states that these drugs have saved the health care system more than $1 trillion in the past ten years.

According to the FDA, generics have to be “identical, or bioequivalent, to a brand name drug in dosage form, safety, strength, route of administration, quality, performance characteristics and intended use.” They have to contain the same quantity of the same active ingredient (the one that helps to cure the disease) as a branded drug. However, these drugs may differ when it comes to inactive ingredients (the ones that give the product amongst others its smell, taste, shape but do not affect the body and the healing/curing process). Generics are legally manufactured copies of the original product (in contrary to counterfeit drugs, which are produced illegally and which might contain a different active ingredient) and are sold under a different name.

There are several advantages that come along with generic medicine. There is a huge economic benefit provided by generics as they are usually much cheaper than the original products and can lead to a great amount of money saved. Furthermore, because of its lower price they are widely available also to poor people who were not able to afford the drug before.  Due to the Branded Premium or Minimum Pricing Policy, generics cannot be sold for a higher price than its original counterparts. This policy has been introduced for various reasons: It encourages price competition between pharmaceutical companies as they are allowed to decide on their own prices for multi-branded medicine. The policy also leads to an enhanced awareness of differences in medicine costs to both, consumers and prescribers. Doctors should be encouraged to prescribe medicine according to its active ingredient and not brand name. The generic industry is able to develop and companies can monitor the prices of medicine and establish competitor prices effectively. Still, there are some disadvantages to be mentioned: Not all drugs have a generic substitute, the absorption rate in generics might possibly be slower due to different inactive ingredients used (although it has the same effectiveness as the branded drug), the inactive ingredients might also possibly lead to allergic reactions for some patients and as generics are produced in foreign countries, the FDA is not able to inspect, monitor and control all overseas manufacturing sites.

I think that it for sure is more profitable to substitute branded drugs and purchase generic ones, especially as the prices are most often much lower for the same effectiveness. However, I would first seek advice from my doctor before switching to a generic substitute. S/He might help to estimate potential risks that might occur when taking the generic, answer all questions and eliminate doubts.

 

Magdalena Glanc

 

 

 

Sources:

http://thehill.com/blogs/healthwatch/medical-devices-and-prescription-drug-policy-/241871-study-generic-drugs-have-saved-us-1-trillion

http://www.ehow.com/way_5150203_advantages-generic-drugs.html

http://www.livestrong.com/article/75375-disadvantages-generic-drugs/

http://www.examiner.com/article/brand-name-drugs-vs-generics-advantages-disadvantages

http://www.virtualmedicalcentre.com/treatment/generic-and-branded-medication-similarities-and-differences/147