Review of the Last Lecture. Finished our discussion of the second source of market failure in the HC market: externalities Today begin our discussion of the third source of market failure in the HC market: information asymmetry.
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HC professional is a supplier of skills: true for many non-HC goods, e.g. auto mechanics
this type of information asymmetry need not lead to market failure
we may not have the technical skills, but we do know the Marginal Benefit (MB) of the good/service produced
for example: most of us don’t know how to fix an automatic transmission but we do know what the MB will be to us if spend $1,200 having the transmission in our car repaired.
We rely on the mechanic’s advice on what work needs to be done and how much it will cost, but we generally do not need the mechanic to describe how the repair will affect the functioning of the car we can assess MB of the repairautonomous demand. ///
Information asymmetry not limited to differences in technical skills as in mechanic-client relationship
HC Provider also advises on the HC HS relationship
patient is generally unable to assess what the MB of the suggested HC will be, relies on the physician for this info; this is very different from the mechanic-client relationship
IMPLICATION since the patient cannot assess the MB of proposed HC independent of the HC provider’s input, the demand curve is notautonomous, i.e., it cannot be defined independent of supply side conditions