Dictionary of Evidence-based Medicine.pdf
Dictionary of Evidence-based Medicine.pdf
Dictionary of Evidence-based Medicine.pdf
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60 <strong>Dictionary</strong> <strong>of</strong> <strong>Evidence</strong>-<strong>based</strong> <strong>Medicine</strong><br />
Figure 8 Exponential survival model<br />
Externality<br />
Allocative efficiency occurs when the marginal benefits equal the marginal<br />
costs. In a number <strong>of</strong> instances, the marginal private cost (that which the<br />
consumer pays) does not fully reflect the marginal cost to society. A classic<br />
example arises when manufacturing <strong>of</strong> a particular product causes pollution.<br />
The additional cost <strong>of</strong> cleaning up the environment is not usually<br />
reflected in the market price <strong>of</strong> the product and can hence be viewed as the<br />
subsidy provided by society to the consumer <strong>of</strong> the product. Such costs<br />
are referred to as external costs or externalities. In the presence <strong>of</strong> a negative<br />
externality (E), a quantity (Ql) which is more than the optimum<br />
quantity (QO) <strong>of</strong> the product is produced and the resources are not allocated<br />
efficiently (Figure 9). Externalities can be positive too. For example, by<br />
vaccinating a child, not only is the child better protected from the potential<br />
invading micro-organism but society as a whole benefits from lower transmission<br />
rates <strong>of</strong> the infection through the development <strong>of</strong> herd immunity.<br />
It has also been argued that human beings generally do not like to see<br />
others suffer from untreated illness and that they care for the welfare <strong>of</strong><br />
others. Therefore, there is associated with health care a positive caring<br />
externality (Culyer AJ (1980) The political economy <strong>of</strong> social policy. Martin<br />
Robertson, Oxford).