Assignment Code: BECE-141/AST/TMA/2022-23

Course Code: BECE-141

Assignment Name: Economics of Health and Education

Year: 2022-2023

Verification Status: Verified by Professor

Maximum Marks: 100

Answer all the questions

A. Long Answer Questions (word limit-500 words) 2 × 20 = 40 marks

Q1) Derive the growth equation showing the conditions under which higher growth can be realised.

Ans) The growth equation showing the conditions under which higher growth can be realised is derived below:

Here, we take into consideration an implicit production function similar to:

where Y represents total output, K represents tangible assets, H represents intangible assets (such as average years of education, enrolment rate, life expectancy, etc.), and L represents the labour force. To distinguish between unskilled and skilled labour, we have purposefully separated human capital from labour.

Differentiating Equation (1) with respect to time t, we get:

Dividing throughout by Y and subtracting

(viz. rate of growth of population) from both sides, we get:

In the standard Solow-Swan growth model, it is assumed that n = r but in reality n ≠ r. Moreover, in less developed economies, r > n because of slow demographic transition. In fact, in the 3rd or last stage of demographic transition, most of the developed economies have witnessed n > r which results in demographic dividend (i.e., rising share of working population). Increases in "n" or decreases in "r" lead to higher per capita growth in output. A higher share of investments in physical and human capital in total production leads to a higher growth in "per capita output" since the marginal productivity of physical and human capital is positive.

Equation (2) demonstrates that the rise of "per capita income" is positively correlated with the proportion of human capital investment (which includes spending on education and healthcare) in total production. The same is discovered to apply to physical capital. Further, the marginal productivity of human capital (MPH) being positive and MPH can be interpreted either by considering education or health as human capital, MPH can be considered as ‘marginal increase in output/income (Y) due to one unit increase in years of schooling.’ In the same way, if we consider health as human capital, incremental increase in output per capita can be considered as due to one unit increase in life expectancy (i.e., MHH).

Q2) Analyse the trend in the public financing of education in India over the period 1980s to 2010s.

Ans) Public expenditure from the government budget and private expenditure incurred directly by the recipients (students/parents) are both included in educational expenditure. In recent years, several different financial sources have been tried out for higher education, including graduate tax, private sector investment, substantial increases in student fees at government-funded institutions to bring them on par with comparable institutions in the private sector, the availability of student loans with lower interest rates to cover the cost of rising fees, etc. Both "internal sources" and "external sources" can be used to categorise the funding sources for education.

The basic minimal needs approach has been made legal in India with the passage of the "right to education" (RTE) Act in 2009, which covers elementary and secondary education. In terms of enrolment at the primary level, the universalization of elementary education is close to being at 100 percent (96.7 percent in 2014). According to the "annual status of education report" (ASER, 2014), the RTE Act and the Sarva Shiksha Abhiyan have improved the facilities in government schools as a whole.

The standard or quality of education, particularly in government institutions, raises serious concerns, as the majority of students in higher courses were unable to demonstrate learning skills that were supposed to be acquired in lower classes. A significant portion of pupils are moving to private schools as a result of the dire situation facing public schools (with the enrolment in private schools having increased from 16 percent in 2005 to 31 percent in 2014). Elementary education received 47% of public spending for the eleventh plan period of 2007–12; university and technical education combined received 27%; secondary education received 20%; and "adult education and others" received 6% of the overall spending in the education sector.

The pattern of public education funding in India from 1980 to 2012 (between the seventh and eleventh plan eras) demonstrates that:

1. The percentage of spending on schooling (elementary + secondary) has consistently been greater than 50% over the course of the period 1980–2012, with the maximum allocation of 78 percent occurring during the ninth plan (1997–2002) period.

2. During the equivalent period of 1980–2012, it fluctuated between 17 and 32 percent for higher education (university + technical).

3. Adult education is included in the 'others' sector, where spending has regularly decreased from 17% in the sixth plan to 3% in the tenth plan (where after there is a slight increase to 6 percent in the eleventh plan).
   

Such a shift in patterns is consistent with the relative priorities for public spending, which have been shifting more in favour of K–12 education and away from higher education, particularly in India between 1980 and 2002. However, due to an increase in institutions and subsequently the capacity for admission in the management (IIMs) and technology (IITs) institutes, public funding of higher education has increased over the period 2002–12.

B. Medium Answer Questions (word limit-250 words) 3 × 10 = 30 marks

Q3) Delineate the four characteristics of healthcare services.

Ans) The four characteristics of healthcare services are as follows:

1. It is exceedingly challenging to measure health care services due to their wide variety and heterogeneous character. Some of them are intangible, which means that you cannot perceive them by sight, sound, touch, taste, or smell. Sometimes, they are also interwoven by nature, requiring simultaneous production and consumption (for instance, medical consultation).

2. A patient frequently performs both roles of producer and consumer (e.g., awareness about health and hygiene learnt from internet and then applied to oneself).

3. Health care services cannot be provided or used if a patient is not actively involved. There is no room for inventory or stock hoarding when it comes to services that cannot be separated.

4. The same amount of service may provide various results for different persons, e.g., the same hours of a doctor's service may produce different outcomes for two different patients. Finally, health care services are frequently characterised by inconsistency.

Although quality is a critical factor in health care services, it can be challenging to quantify. This is due to the possibility of structural quality differences (such as the type and age of medical equipment, staff training and experience, etc.), process quality differences (such as waiting times, nurse behaviour toward patients, etc.), or outcome quality differences (such as post-treatment mortality rate, patient satisfaction with treatment, etc.). Health economists frequently gauge the availability or utilisation of healthcare services due to the extremely nonquantifiable nature of these services. Availability takes into account factors like the number of beds or doctors per thousand people, whereas utilisation analyses how frequently the service is really provided (e.g., number of inpatient days of a hospital, number of hospitalisation cases in a year, etc.).

Q4) Discuss the method of ‘Impact Evaluation (IE)’ for evaluating the benefits from health projects.

Ans) The method of ‘Impact Evaluation for evaluating the benefits from health projects are as follows:

Randomised Evaluations

These employ a randomly assigned initiative across a sample of participants, and the development of treatment and control subjects is compared over time based on pre-programmed criteria. The benefit of randomised experiments is that they can be conducted without selection bias at the level of randomization. Since it uses a random approach to determine who gets access to the programme and who doesn't, randomised assignment of therapies is regarded as the gold standard of effect evaluation. Every eligible unit has an equal chance of being chosen for treatment by a programme under the randomised assignment.

Propensity Score Matching (PSM) Methods

PSM approaches use the assumption that the selection bias is only based on observed features and that they are unable to take into account factors impacting participation that are not observed. It is necessary to approximate the qualities that led each programme participant to choose to enrol in the programme in order to find an appropriate match for each one of them. This method eliminates the need to try to pair up every enrolled unit with a non-enrolled unit by computing the chance that each unit in the treatment group and non-enrolled group will enrol in the programme based on the observed values of the explanatory variables.

Double Difference (DD) Methods

The treatment effect is calculated using the difference in outcomes between treatment and control units, much like in a before and after the programme intervention. DD techniques presume that unobserved selection is present and that it is time invariant. Both experimental and non-experimental contexts can make use of DD techniques. Since we are comparing the same group to itself, differences between before-and-after results for the enrolled group control for variables that are stable across time in that group. Therefore, the effect brought on by these factors must be subtracted from the effect of SSA. In order to determine the difference in enrolment between sub-regions where more new schools have opened up and those where fewer have, both before and after SSA, one must first determine the corresponding estimations in each sub-region.

Q5) Present an overview of the early contributors to the concept of ‘human capital’.

Ans) A "merit good" is what education is categorised as. This is so that others who profit other than the particular consumer from its consumption. For instance, compared to someone who is illiterate, a person with a higher level of education is aware of the health benefits of immunisation. Thus, acquiring information or furthering one's education has both internal and exterior benefits. Thus, a merit good is something that society appreciates and decides everyone should own, regardless of their financial situation. Thus, the benefits of education are not just private but also public. Education is a quasi-public good or merit good since it is intended to advance objectives like ensuring equitable opportunity and providing every student with access to a quality education, both of which benefit society as a whole.

By increasing their incomes and food expenditures, as well as by encouraging them to make better and healthier decisions, education of the underprivileged contributes to an improvement in their dietary intake. Even when the overall cost of food is held constant, educated people prefer to eat a healthier diet. Education, improved health, and a longer life expectancy are related in that there is causality in both directions. This is due to the fact that higher rates of return on education investments are caused by better health and lower mortality rates, which are both associated with longer projected working lives. Thus, it has been determined that education is the main factor determining human capital, yet over time, it has also been determined that health and nutritional expenditures play a significant role in "human capital investment." In conclusion, investments in any of these areas can improve the outcomes of the others. These areas include education, health, nutrition, water, and sanitation.

C.Short Answer Questions (word limit 100 words) 2 × 3 × 5 = 30 marks

Q6) Differentiate between:

(a) Healthcare Market and Markets for other Goods.

Ans) The differences between Healthcare Market and Markets for other Goods are as follows:

1. The patient may experience a variety of results, making healthcare a heterogeneous product or service.

2. The third-party payer reimburses some patients with health insurance for their medical expenses.

3. The "market price" does not accurately reflect the worth of the resources employed in healthcare. This is due to the fact that healthcare is a service offered by organisations that uses a variety of inputs, some of which are qualitative and others of which are quantitative. In addition to these expenses, the healthcare provider includes a profit margin when determining the cost of a particular service. This may occur in other product marketplaces as well, though less frequently than in the market for healthcare services.

4. There is information asymmetry, meaning that healthcare practitioners (doctor or supplier) know more about illness and treatments than their patients.

5. People who are unwell have a stronger motivation to buy health insurance than people who are healthy.

(b) Cost Effective Analysis (CEA) and Cost Utility Analysis (CUA).

Ans) The differences between Cost Effective Analysis and Cost Utility Analysis are as follows:

(c) Social Marginal Cost and Social Marginal Benefit.

Ans) The differences between Social Marginal Cost and Social Marginal Benefit are as follows:

1. Social marginal benefit (SMB) is the total of direct advantages to consumers (from consuming an extra unit of a good, or private marginal benefits; PMB) and the costs incurred by other people as a result of the use of the good (i.e., negative Marginal Cost or expense for others). Thus: SMB = PMB + MC.

2. Similar to how producer's marginal cost (PMC) and marginal damage (MD), or any additional costs imposed on an outside party associated with the production of the good but not covered by the producers of those goods, are defined, social marginal cost (SMC) is defined as the sum of direct cost to producers for producing an additional unit of a good. So, producer's marginal cost plus marginal harm make up social marginal cost i.e., SMC = PMC + MD.

Q7) Write short notes on the following.

(a) Health Equity.

Ans) Health equity is concerned with how resources are distributed and other factors that contribute to a certain kind of "unjust and unfair" health inequalities. Disparities of any kind are not all unfair (e.g., a young person is healthier than an elderly, females naturally are prone to reproductive tract infections and not men). It is "unjust and unfair" because access to treatment for HIV-positive people may differ based on factors including gender, location, financial level, etc. Given these, the definition of healthcare equity is "equal access to preventable treatment for equal need, equal utilisation for equal need, and equal quality of care for all."

Such a need can be classified into two types viz.

1. Horizontal equity i.e., equal treatment for equal need and

2. Vertical equity i.e., different treatment for different need or more resources for greater need.

(b) Linkage between Health and Education.

Ans) By increasing their incomes and food expenditures, as well as by encouraging them to make better and healthier decisions, education of the underprivileged contributes to an improvement in their dietary intake. Even when the overall cost of food is held constant, educated people prefer to eat a healthier diet. Education, improved health, and a longer life expectancy are related in that there is causality in both directions. This is due to the fact that higher rates of return on education investments are caused by better health and lower mortality rates, which are both associated with longer projected working lives. Thus, it has been determined that education is the main factor determining human capital, yet over time, it has also been determined that health and nutritional expenditures play a significant role in "human capital investment." In conclusion, investments in any of these areas can improve the outcomes of the others. These areas include education, health, nutrition, water, and sanitation.

(c) Merit Good.

Ans) A merit good is one that someone believes to be beneficial to another person in a way other than the immediate utility it offers. As a result, there is a market for merit goods. Even if it is impossible to predict with certainty when the benefit would materialise, many types of healthcare, such as "immunisation against a contagious disease," are beneficial since they offer protection to both the individual and others. It has a personal benefit for the immunised person as well as an indirect benefit for other people who are shielded from contracting the sickness from the immunised. Consuming a good generally results in positive externalities, which are described as merit goods where societal benefits outweigh private gains. Either the public or private sectors may create these items. When it comes to merit goods, consumers could not completely comprehend the personal advantages of their purchasing, which could lead them to behave against their own interests.