Picture of Anthony M DiGiorgio, DO, MHA, FAANS

Anthony M DiGiorgio, DO, MHA, FAANS

Economic Concepts in Neurosurgery Public Goods

What does healthcare have to do with lighthouses or firework displays? You might be surprised. A ship relies on a lighthouse for safe navigation without directly paying for it, just as a spectator enjoys a firework show at no cost. This introduces us to the “free rider” problem, a classic example of market failure. Such goods—fireworks and lighthouses—are termed non[1]excludable because it’s tough to prevent people from using them. They’re also non-rivalrous; my daughter’s enjoyment of a dazzling fireworks display doesn’t detract from anyone else’s experience. These conditions—being non-excludable and non-rivalrous—define a “public good.” In this discussion, I’ll demonstrate why healthcare doesn’t fit this mold.

Remember, public goods aren’t simply things that are “good for the public.” Healthy food, cell phones, housing, and internet access certainly benefit the public, but they don’t qualify as public goods. These essentials are efficiently delivered by the free market. After all, we don’t want the government supplying iPhones or haggis—that would be a recipe for disaster, marked by inefficiency. Public goods are identified as such mainly because of the free-rider problem and poorly defined property rights, not just because they’re beneficial.

So, is healthcare more akin to a lighthouse or an iPhone? It clearly flunks the non-rivalrous test. If I’m performing a craniotomy, I can’t simultaneously be doing a lumbar fusion. If one patient occupies a hospital bed, that bed is unavailable to another. This alone disqualifies healthcare as a public good. “Health” may be non-rivalrous, but we’re not discussing this abstract concept; we’re talking about healthcare services, which are unequivocally rivalrous.

Excludability in healthcare is somewhat trickier. Revisiting our old friend, transaction costs, we see that all goods can potentially be excludable if the costs are high enough. Consider the fireworks at Disney theme parks, where elaborate setups effectively exclude non-visitors from viewing. Or imagine a lighthouse that emits light in a non-visible frequency, requiring sailors to buy special visors to see it—impractical, yes, but it illustrates potential excludability.

In healthcare, certain services are legally deemed non[1]excludable, like emergency care under EMTALA. However, most healthcare services are excludable. Doctors are not required to accept new referrals or perform elective surgeries. Hospitals can sidestep EMTALA by shutting down their emergency departments (a high transaction cost, indeed), illustrating that healthcare is often a private good—both excludable and rivalrous—and occasionally a “common resource” (non-excludable but rivalrous).

Does this quasi-private, quasi-common resource status make healthcare unique? Not in the slightest. Consider roads, which can be either excludable or non-excludable (think tolls), and either rivalrous or non-rivalrous (depending on traffic). Few goods perfectly fit these economic textbook quadrants.

So, while healthcare might share the spotlight with public spectacles like lighthouses and fireworks in economic textbooks, in reality, it often demands a ticket of entry, just like any private affair. The majority of healthcare, being both excludable and rivalrous, suggests that the market should primarily handle its provision. Government intervention might still be justified to support those unable to afford care or for the aspects of healthcare that lean towards being non-excludable, although even this remains a contentious debate. Maybe we should just stick to the simpler things—like figuring out how to get the government out of the haggis business.