Let’s head to fantasy land — no you perverts, not that one… the one where Econ 101 is an accurate description of how the health service markets work. In this world, information is widely disseminated, products and services are clearly differentiated, no single buyer or seller has enough market power to set or demand a price that differs from marginal cost, and all costs and benefits of a purchase/no purchase decision accrue to only the parties involved in a deal.
Yes, as I specified this is fantasy land. It is also the model that fuels the belief that the free market will solve everything so that everyone including those without significant incomes or assets will be better off than today’s status. The model is neat, it is clean, and it is wrong.
Now let’s get down and dirty talking about payer-provider negotiations and agreement zones.
In economics, there is a concept called the GINI coefficient or GINI ratio. It can be a measure of concentration within a segment. The GINI coefficient is the sum of the squares of the proportion of market share of all providers. A perfectly competitive market with numerous participants in it will have a GINI co-efficient approaching zero. A perfectly non-competitive market with only a single supplier will have a GINI coefficient of 1.
There are two relevant markets for health care services. The first is the market of paying entities. These can be insurance companies, state governments for Medicaid and CHIP, the federal government for Medicare and individuals who are uninsured. The second market we need to be aware of is the providers of medical services.
If we take a ratio of the Provider GINI Ratio to the Payer GINI Ratio, we can make some strong inferences about how the local health insurance market works and where relative prices lie.
If the ratio of ratios is close to one, the providers and payers are evenly matched. If the ratio is significantly above one, providers have a market power advantage as the largest provider groups control a significant chunk of sub-markets that the payers need access to. If the ratio is significantly below one, the payers have market power. They can pressure providers to take low rates.
The above is a simple first step to understanding how prices are negotiated. The second step is an extension of the case where both providers and payers are evenly matched. There are two scenarios where payers and providers are evenly matched.
The first scenario is when the payers and provider are both highly concentrated. This means there is a dominant payer and a dominant provider. The policy impact is that these two groups will butt heads and usually find ways to grab almost all of the potential consumer surplus because individuals buying insurance and groups buying insurance have no other good options and the insurance company has no other option but to contract with the dominant provider group.
The other scenario is that the providers and payers are matched but both are fairly fragmented. In this case, the basic econ 101 analysis actually is useful. Everyone has options and everyone has the ability to shop around for a better deal, so prices are fairly low for both insurance and actual reimbursed medical services.
Once you have built a mental model of relative local concentration of payers and providers, the structure of negotiations becomes apparent.
Dominant insurers use their ability to steer hundreds of thousands patients to or from different providers as a stick to get rates that are based on Medicare with a small kicker. This works because a dominant insurer does not need to get every provider in a specialty or concentration into the network. They just need to get enough providers in network to satisfy state regulators. Providers who don’t take the low rates from the dominant insurer have a hard time making up at higher price points the revenue they lose in volume. Areas where there is a single dominant provider in either the entire market or a critical set of specialties will see the providers tell insurers “You either take my rate, or you can’t sell in this county as I’m the only provider in the region…”
State regulation can often come into play here. If a hospital is the only hospital in a county in the middle of nowhere, it will often be declared a vital service and it will be made to take high but in-network rates from all carriers.
Areas where there are a multitude of medium and small payers who can’t threaten the economic existence of a multitude of fragmented providers see effective competitive bidding. Providers can not name their price as insurers and other payers can walk across the street to another provider and sign a deal. Insurers can’t force prices down too much as each individual provider has half a dozen other options to make a living. And finally, areas where there is a single dominant provider and a single, dominant payer see very nasty fights over rents.
This analysis can apply to the entire provider-payer matrix within a region or it can apply to only a few specialties. It is quite possible that a region is mostly competitive and fragmented in primary care and community hospital services while there is a provider concentration advantage in cardiology and dermatology.
WereBear
Applying capitalism to health care is the fundamental problem; the rest of it becomes applied calculus to squish it into the “economics” box.
Because there isn’t a consumer/market element in any of it.
*No one wants to consume it, yet everyone eventually does.
*Public health expenditures (broad, community wide initiatives) profoundly reduce medical demand at the individual level.
*Consumers don’t have a bit of choice in the matter; there really isn’t a paid-for range of treatments or spectrum of approach to a particular illness. The “standard of care” has been set by insurance and drug companies.
*The best outcome is no outcome at all.
I appreciate the insight; it just confirms my original intuition that the model is the base FU here.
Liquid
This was a great read and you, Dear Sir, are way WAY overqualified for this site..
Now, back to rats and cooking.
bg
The negotiating process can have an awful impact on the patients. Last year, I was in the middle of treatment for something that thankfully turned out not to be cancer, when my insurer decided not to renew their agreement with my oncologist’s group because they wouldn’t agree to a lower rate. So my options were (1) pay full freight; (2) find another oncologist and start over or (3) wait for the surgery until they resolved their differences.
My oncologist’s group was huge, as I found out, the dominant group in the area. It was very hard to find another oncologist who wasn’t part of that group and to get an appointment. By the time I was able to get an appointment, my first oncologist’s group had resolved their contract issues and I went back to him to get my surgery (delayed by a month) and finish treatment.
Is there anything in the Affordable Care Act that will prevent situations like that?
Punchy
This is NOT the average Mistermix drivel I’ve come to expect each morning…
jenn
@bg: ugh, that sucks. Thank goodness it wasn’t a fast-moving cancer, where that month delay could’ve held huge consequences.
I’m really enjoying the addition of another fact-based front-pager to help out Kay! Not that I don’t enjoy other FPers, but I do like learning something :).
Baud
@jenn:
Ditto.
Liquid
Wait… you wouldn’t happen to have a brother, would you?
Valdivia
you are a pleasure to read. So glad you’re here, provoking our minds! :)
Richard Mayhew
@Liquid: Yes, but he is taken
Richard Mayhew
@bg: Not that I know of — provider-payer negoatiations are in the purview of the state regulating agencies, not a federal “problem” per se.
currants
@WereBear: Yep. But that DOES seem to be the way our healthcare system is structured (and thus the huge mess).
raven
Don’t be so hard or the FP’ers. Some are writing about a wide range of issues while others have a great deal of expertise in one or two.
Baud
@raven:
Nah. We need fresh blood at the top. Anyone know how to stage a coup d’blog?
MazeDancer
Richard, hope you’re after-marketing these great columns some place that pays you. Or at least, eventually, will compile them in a PDF download where we all pay 5 bucks to benefit the bumblebee’s first year at Julliard or MARC or both.
Question: Will the ACA allow people to cross state lines to get care? (Actually, does Medicare for that matter?)
In the NorthEast, compressed geography means people could live closer to a good doc 10 miles away in another state than one in their home state. Further, there is another market imbalance problem about Big City medicine versus Boonies.
In NYC, you can find world famous surgeons taking Medicare to replace joints because they’ve done it so well for so long that they are fast and just churn ’em out – sometimes all day on a Saturday – every surgery a gem. Where an inexperienced surgeon upstate would not get the same results. You can also find many, many of the best doctors simply giving up on taking insurance. Rich people will pay for the best, and so all they take is cash.
In Western MA, there are few PCP’s to be found. Also few in Eastern NYC and Northern CT which border. Premiums are about to be lower for the self employed in NY than for Romneycare. And the Hudson Valley, Berkshires, and Litchfield County abound with self-employed, many who left NYC.
Some insurance companies allow some CT/MA mix. But no one wants to play with NY. Right now, for good reason. (And many self-employed joined NY Chambers of Commerce just to get the group insurance.) But no getting around great docs are in NYC. Also great docs in Boston. But there are more self-employed ex-New Yorkers in this particular multi-state area.
And what about people from all over the country who want the best? Want their cancer treated at MSK or MD Anderson, for example? Do they have to move to NY or Texas to qualify?
A real market would allow people to move and keep their doctors if they were willing to travel – and in compact geo areas, an easy option. A real market would allow customer choice. Just wondering if ACA going to help in any way with the ability to cross state lines.
I'mNotSureWhoIWantToBeYet
Thanks for the informative articles. You’re doing us a great service here.
Along these lines, could you address things like Anthem BC-BS merging a few years ago and converting to a for-profit insurance company? http://en.wikipedia.org/wiki/Anthem_(insurance) I vaguely recall a bunch of bogus-sounding arguments about how they would be so much more efficient and rates would be lower and they’d have economies of scale, but it seems to me that non-profits would always have lower rates under equivalent circumstances.
Or to make it less specific: Is there any objective evidence whether health care and health insurance inflation accelerated due to Wall Street getting involved by pushing mergers, moves to for-profit status (in insurance and hospitals), etc.?
I think a lot of us have a gut reaction that the banksters have been ruining this part of the economy, too. Is there good evidence, or are the banksters right, or is it a wash?
Thanks again.
Cheers,
Scott.
Baud
@MazeDancer:
Isn’t the key question with all insurance, public or private, whether the particular doctor is in-network or out-of-network, and what benefits the insurance attaches to each? I don’t think the ACA affects that question, except to the extent it produces greater competition that encourages insurance companies to offer more choices.
Jane2
Every time i read your excellent posts, I thank The Lord that I have provincial and federal governments negotiating health care costs. No wonder my drugs are 1/3 of the cost they’d be 70 or so miles south in Montana.
And there has never been a question of keeping my doctor.
Elizabelle
OT (good morning Richard and all): possibly cool old movie on Turner Classic Movies up shortly at 8:45 a Eastern.
Gabriel over the White House, from 1933.
http://www.tcm.com/tcmdb/title/1553/Gabriel-Over-The-White-House/
Leonard Maltin blurb:
Might be kind of interesting. Wm Randolph Hearst financed it; Wikipedia calls it a siren call for fascism and totalitarian propaganda. Who knows.
Movie is maybe 87 mins running time.
MosesZD
You really don’t address Econ 101 fairly.
Econ 101 also talks about inelastic demand, oligopolistic/monopolistic markets, imperfect information and other features that appropriately discuss and describe why Health Care is not something that responds to ‘competitive market forces.’ In fact, there are many aspects of health care that are incredibly dysfunctional and are used as examples of why ‘Chapter 1 of Econ 101 Widgit Economics’ don’t work.
In the the late 1980s, early 1990s, the medical topic I remember when it came to market inefficiencies was the insane proliferation of MRI machines. That it would be better for hospitals to set up MRI centers they could all use and send the patients there instead of them each buying MRI machines that didn’t, under good medical practices, have enough utilization to be cost effective through economies of scale.
Of course, what happened was Hospitals and Doctors turning MRIs into ‘best abused practice’ to the point that you strain your shoulder and the first they want is an MRI instead of saying “here’s a sling, rest your arm, take some ibuprofen, and make sure you do range-of-motion exercises.” (And, btw, that is a real-life example from my life.)
And the same goes for medical tests, etc. It’s not necessarily about ‘best medicine’ or ‘defensive medicine.’ It’s about “I’m paying $1500 a month for a testing machine I might really need to use twice-a-month, but I’ve got to cover the nut so we’ll just find ‘excuses’ to use it…”
So, let’s not blame Econ 101. Econ 101 teaches us these things. It’s just people ignore the inconvenient parts because of confirmation bias.
jeffreyw
So… this post is not about the descent into alcoholism of the spouse of a Supreme?
What Have the Romans Ever Done for Us?
This was enlightening as far as insurers and providers go. You don’t mention patients/health insurance customers though. Also, perfect markets require perfect information – I’m not sure about providers and insurers, but patients rarely have anything approaching perfect information in either health care treatment options or insurance. That’s a big problem for them (us).
But, if you extend this analysis to patients/customers, it explains why folks on the individual market are so screwed. They face high information costs and have no market power. They also have limited power/resources to go after insurers if there’s a breach of contract on the insurer’s part. I think that’s a big reason a lot of young healthy people don’t buy health insurance – why pay some of your limited income to protect yourself in case the worst happens if the protection will be yanked away when you need it anyway. From their perspective, buying health insurance means there’s a good chance your giving your money away for nothing.
Zifnab25
@MosesZD:
Econ 101 skims over these topics in the vocabulary section. I don’t recall ever making indepth quantitative calculations on expected price averages over time in my high school level Econ class. Econ 101 is foundational, not exhaustive. But there are plenty of people that will insist that because they recognize a collection of vocab words, they’re familiar with all the special cases and trends within an active marketplace.
Fair Economist
Is it actually the ratio of GINI coefficients that counts? I haven’t worked out the math, but intuitively it seems that the problems would be related to the absolute difference. Specifically, if one GINI were twice the other, but both were still small (indicating basically competitive markets) I don’t think there would be much of an issue.
negative 1
Isn’t this a little simplistic given that insurance companies don’t directly sell a service, per se? If company A will only deal with hospital A and company B will only deal with hospital B, the pricing differential would actually be the higher value of B’s hospital service. I realize that the answer is “who cares, for the purposes of the market model it’s almost like insurer A includes the hospital”. But… if a contract from hospital A is signed with company B than company A could lose half of its customer base overnight. The irony is these kinds of scenarios I would argue happen more in a more concentrated market, meaning though only a few providers may have essentially oligopoly-like pricing power they are heavily at risk. Why so much in this market? Because they have to negotiate with an outside party (doctors, hospitals) to determine their pricing. Also, their pricing is regulated by market costs. Is there a specific study out there that looks at the GINI coefficient and the health insurance industry exclusively?
Just Some Fuckhead, Thought Leader
@Punchy:
What ever happened to the black guy that had the webcast show?
wrb
My Econ 1 prof was a marxist who spent much of the course on market failure and barriers to economic mobility.
Maybe that’s why I could never get my head around what candidate Bush called “Voodoo economics
” that same year.
BubbaDave
@Baud:
Steve does, but he ain’t sharing.
Eric S.
Richard, thank you for the posts (and JGC, thank you for having him). I read them and I think to myself, “I kind of knew that.” But you are bringing together a bunch of snippets of knowledge into a concise form to make a more complete picture.
Again, thanks!
Gian
price elasticity of demand is a huge problem for health care.
this drug will help you stay alive, how much do you have….
wrb
@MazeDancer:
Great question I live a few miles from a state line
20 minutes away in other state is an OK hospital for emergency care with 70 beds (they fly people to a big hospital for serious stuff, if they have time.)
30 minutes away in this state is a nightmarish one with 20 beds.
Sure don’t want to go there
wrb
A related issue: that 70 bed hospital is looking to cut the number of beds to 40 or less because that would allow them to qualify for special rural medicare rates. That would also end most semi-advanced care they do offer.
That is unfortunate.
mai naem
@MazeDancer: Medicare does allow you to go across states as long as you have old fashioned Medicare not the Medicare HMO stuff and, then, I remember some years ago, a few HMOs advertising that they would cover medicare benefits out of country.
My local rag had a blurb that the “average” health exchange premiums are going to be between $100- $250 but the range of premiums are $100-1700. I know its statistically possible but, geez, you get an average of 250 but your highest is $1700. Also too, what the heck do you get for $1700/mo(concierge docs?) and how the hell was that allowed under the ACA? Anyhow, they didn’t have any details. No listed source that you could go to. I went to the state insurance website and they don’t have anything up.
negative 1
@wrb: That’s awesome, me too. If you don’t mind me asking where did you go? Proud URI grad here – in my opinion one of the best schools for looking at Econ as a philosophical discipline instead of just using it as a shorthand for Capitalism/Econometrics 101 (not that they didn’t teach that either).
mai naem
@wrb: Well, maybe being that the GOP represents rural areas overwhelmingly, this would give the Dems something to bargain with the GOP over minor fixes to the ACA. This is assuming the GOP will picking helping their constituents over their hatred of Obama.
wrb
@negative 1:
Stanford. Prof John Gurley
The Moar You Know
@Just Some Fuckhead, Thought Leader: That the commentariat here has managed to chase off every single African-American front pager is something that ought to at least cause someone – like the guy who owns the blog – to stop and think for a minute that maybe he needs to change his management approach.
And should really compel some people to take a hard look at their attitudes, words, and lives.
I am not hopeful. Cole is a great guy but not a fast learner.
Sorry to go off topic on your post here, Mr. Mayhew. I work for my family’s business. I don’t know a lot about our current healthcare system, save that the expense for our employee’s healthcare cost more than any other expense we have including the combined lease payments for ALL of our offices, and that’s simply an expense we’re not going to be able to bear much longer the way the costs have kept climbing. God knows we are not swimming in money, precisely the opposite in fact.
And for all that money we’re spending, we’re still getting second-class treatment and care compared to any other industrialized nation in the world.
Thanks for the articles. You’re not getting a lot of replies to them, but there’s really not much for anyone to say as all you’re doing is simply presenting the facts. I hope you keep this up. I’m reading every one of them with the hope that I can figure it out and see a way to something better.
wrb
@negative 1:
BTW- My wife is from RI and went to RISD. She loved the place
Richard Mayhew
@Fair Economist: For the sake of a 1200 word post written after Kid #2 went to sleep, the ratio of ratios is simple enough framework.
For the sake of detailed negoatiations, then yes, absolute size matters. I agree with you, the impact of a ratio of 3:1 in favor of providers when the provider GINI is .25 is very different when the provider GINI is .75, but the basic intuition is correct that when the ratio of ratios gets far from 1, someone has market power… the detail is how much….
Richard Mayhew
@mai naem: Real easy, cheapest rate is for an 18 year on catastrophic coverage, while the most expensive rate is for a 64 year old on a platinum plan with an unlimited network.
When you do the projection as to who is choosing what plans, that is how the $1600 range compresses down to an average somewhere around $200 before subsidy.
Richard Mayhew
@The Moar You Know: If you can, talk about your perspective, as I know it is very different than mine….
The Moar You Know
@Richard Mayhew: I don’t actually have that much to say save for this:
1. We work in a field where the employees consider themselves (and assuredly are) professionals, they expect decent healthcare and expect that they won’t have to pay very much for it. We lost some good folks several years back when we went from paying 90% of their healthcare to 85%. Herein lies a huge problem – not a one of my employees knows what their healthcare actually costs. Our guys bitch about paying $150 a month, and think that Obamacare is a sky-high expensive abomination when the cheapest plan costs $300 per month – when their actual premiums are a thousand or more. I’ve got to be honest, I was all in favor of the McCain (I think it was McCain) proposal a few years back to tax health care premiums as income, not because I want to kill my employees with taxation and not because I think McCain has ever had a good idea in his life, but because it might ram home to the majority of the American voting public how much their healthcare costs. Nobody knows. They know what comes out of their paychecks, but that amount has nothing to do with how much it really costs. A consumer/voter who doesn’t know what an item costs makes bad decisions.
2. Everyone in politics and healthcare, up to and including the president, thinks dumping even more of the burden on business is great. They should. The costs stay hidden as I just noted. Hey, business guys are all swimming in money, right? Well, I can’t speak for anyone else’s business but I can speak for mine. My parents are the owners. They’ve cut their salaries every year for the last five years. A third of our workforce is making more money then they are. That’s unexpected but fine, those guys do good work and I don’t grudge them a cent. Me, I haven’t had a raise in five years. This year, for the first time, I won’t even get a nominal bonus. Hey, it keeps the doors open and a roof over my wife’s head, so that’s all to the good but I’m getting really tired of it, and my parents – who by all rights should be getting ready to retire – are mentally ready to just say fuck it and bail out, but they need the money more than ever now and retirement has receded to a distant dream on the horizon. I frankly want nothing more than to leave at this point, but finding a new job at age 49 in the current economy is a non-starter, and it would screw my parents royally.
3. The administration has done a horrendous job of explaining the ACA to the public. That goes quadruple for business owners. Not a one I’ve met, including my own parents, know how it works or what it does, the only thing they know is that in spite of the legislation, their health care costs are still going up.
I’ve got more but I’ve got to deal with work. Please keep writing.
Sister Machine Gun of Quiet Harmony
@MosesZD: There are a couple of issues this poster briefly noted or didn’t bring up that makes healthcare different than standard markets. The one he mentioned, was the lack of information in consumers. Econ 101 doesn’t discuss what happens when patients DON’T know that an MRI isn’t needed. They don’t understand that a test isn’t necessary. Doctors do take advantage of that. Some do mean well (ie defensive medicine), some are deliberately over prescribing procedures to pad their bottom line. Further, medical providers do NOT compete on price. They compete on quality. Seriously ill people would rather risk bankruptcy than death.
joel hanes
From your list of fallacies in the “free-market” delusion system, you omit
“Human beings act as rational utility maximizers”
and its corollary
“And to the extent that they don’t, they’re morally deficient”
which is usually softened to
“And if they don’t, they ought to.”
Of course, human beings very seldom act as rational utility maximizers, and when they do, it’s within a very narrow sphere of action.
Just Some Fuckhead, Thought Leader
@The Moar You Know:
Is that what happened?
fuckwit
@WereBear: Best comment ever. You not only made your point, but you drilled into the fucking ground, from a bunch of different angles. Stick a fork in it, it’s done, you win, there is no argument. The ONLY problem here, is trying to do medical care as capitalism. Everything else is bullshit.
fuckwit
@The Moar You Know: The problem is us, really. I noticed Billmon shut off comments first, rather than just saying fuck it and not policing his commenters (as Cole seems largely to have done), because quite frankly it’s a losing battle. You’d never get anything else done otherwise. Then of course Bill mon just shut downt the blog.
I don’t think there’s a good answer really. Your choices are either to take a completely hands-off approach to commenters or go crazy trying to keep it safe/sane/consensual.
WereBear
@fuckwit: Thanks.
Jane2
@The Moar You Know: What you are saying just is not fair to employers. I’ve heard many times people refer to “free” health care in Canada, but in 2012, allocations to health were 41.2 percent of my province’s overall budget.
Health may be cheaper here in some ways (certainly Canada has a lower GDP percentage spent on health) due to rationing and the ability to negotiate bulk pricing, but it’s still a hefty cost. How does any entity smaller than a major corporation or a government afford to pay the real costs?
Looking at the history of Medicare in Canada, it started much like Obamacare and evolved into the publicly funded system of now. I think Obama’s fundamental achievement was to establish the base for a public system, and that’s good news for businesses and people in the long run.
fuckwit
@Gian: I had this happen to me. I had what I thought was a serious problem (turned out to be nuthin, luckily), and the hospital people calmly and patronizingly said, as they were rifling through my bank statements and tax returns, it’s OK, we’ll just bill you for everything you have, and then when you have nothing, not a penny to your name, not even enough for a sammich, we’ll stop. This of course was after “bankruptcy reform” laws had been passed so they didn’t even mention the option of bankruptcy, since even that was no longer an option. I do not think I’ve heard anything so horrifying in my life, and said so calmly like it was no big deal. The “healers” were saying, basically, we’re going to destroy your life. I remember sitting there and thinking “If I ever get sick, the only thing I’d need to buy is a handgun”. Literally, any significant illness would have been a death sentence.
Bg
@Richard Mayhew: thanks. I live in Florida which is doing everything it can to make ACA fail so chance of any state help on this is slim to none right now
Latest is the legislature has prohibited insurance commissioner from regulating health insurance rates for two yrs and requiring insurers to tell customers increases are due to ACA
I really appreciate all the info you are sharing with us.
Bg
@The Moar You Know: how do you know all front pagers are white?
KenK
Paragraph 12 starts ” dominant providers use their ability….” I’m pretty sure that should read “dominant payers use their ability.”
Mnemosyne
@Elizabelle:
Fun fact — the studio delayed the release of the film until after the 1932 election so it wouldn’t give FDR a boost in the polls.
I’m going to be writing about it at some point, so peeps interested in my upcoming website (link in my name) should try to catch it.
Villago Delenda Est
@fuckwit:
Health Care should NOT BE A BUSINESS.
Period. End of discussion.
Richard Mayhew
@Villago Delenda Est: Let’s deal with what is instead of what ought or ought not to be
jl
Thanks. Very interesting post on an important but neglected side of the health care market.
The market is so opaque, and data is so secret and hard to get, I don’t know of many empirical studies on local provider market power with good data. So reports from the players are important.
You probably could get the data, but it would cost $ bazillions from bigshot consultant companies and corporate association data venders who service the contract negotiators.
What Have the Romans Ever Done for Us?
@Zifnab25: The problem with the Econ 101 as foundational is that the the “special cases” are so ubiquitous that they shouldn’t really be considered special cases. Also, that the theory is based on unrealistic assumptions. Way back before Galileo, astronomers assumed everything revolved around the earth. That’s basically where Econ 101 is – they’re trying to study the movement of planets with faulty assumptions that cannot be challenged because they’re “foundational”.
Econ 101 used to be taught as the history of economic thought. I think that would be more enlightening and interesting than studying supply and demand curves. But a lot of those guys in the history of economic thought were heterodox, and the discipline doesn’t know what to do with them in the context of neoclassical economic theory. So instead, we get the theory, which is kind of boring and not very relevant to a whole host of markets and behaviors.
jl
@What Have the Romans Ever Done for Us?:
” Econ 101 used to be taught as the history of economic thought.”
I didn’t know that.
Maybe the problems with Econ 101, and microeconomics, as an empirical science would be clearer if you got a few lectures about the trials and tribulations of people like Walras, Jevons, and Wicksteed in trying to ram their ideas into something that could be called an empirical science, either ‘soft’ or ‘hard’.
wrb
@jl:
That’s what my (marxist-taught 1979 Stanford) Econ 101 class was like. We had to read Smith, Keynes, Marx and the little “up from the bootstraps little match boy” success propaganda pamphlets of the 19th century.
WereBear
If we are going to do “health care economics” we have to use the language of the Commons.
Public health, Public care, Public good.
Not the current, Dickensian, plan to render down the poor for their protein and fat.
Uncle Jeffy
Not to detract from the essence of this post, but the Gini coefficient is actually used to measure the degree of income inequality in an economy. The concept you’ve described is known as the Herfindahl-Hirschmann index, and it measures industry concentration and the probable level of competition (or the lack thereof) by summing the squares of the market shares of all firms in an industry (market shares are expressed as integer values, not as decimal fractions).
Other than the terminology confusion, the post is excellent – and illustrates some, though not all, of the problems with applying “conventional” economics to a market that meets virtually none of the criteria for markets where conventional economics can be fruitfully applied.