Saturday, October 17, 2009

Tragedy of the Commons

One of the primary reasons that I think the current health care proposals before Congress will result in neither cost reductions nor improved care is that the debate has skillfully skirted debate about the nature of care, nor has it explored the fundamental reasons for the ongoing price increases in health care.

Yes, occasionally doctors will appear next to the podium as props. The use of doctors as props is not a substantive exploration of medicine.

On the cost side of the equation, one rarely hears talk of the driving force behind unbridled price increases. For example, one might expect references to Hardin's "The tragedy of the commons."

The tragedy of the commons is that self-interested people (and groups) tend to abuse common resources despite the fact that such abuse is against the one's long term interests.

The term derives from the observation that if a community attempted to provide a common field for grazing, farmers with access to the commons will tend to over use the commons until it is trammeled. Even worse, they will then start underbidding eachother on the price of the products produced by grazing on the commons ... destroying the pricing mechanism and further undermining their long term interest.

The insurance paradigm attempts to regulate unpredictible health care expenses by creating a group pool.

The logic of the insurer is as follows: Medical expenses are unpredictible. To make the expenses regular, one creates a commons into which people pay a calculated premium and withdraw funds as needed.

Once the commons is in existence, self-interested people and groups will try to find ways to exploit the commons.

This exploitation makes the behavior of the commons itself unpredictible ... effectively requiring additional layers of regulation.

The attempt to regulate unpredictible health expenses through the creation of a commons creates an unpredictible commons.

It is easy to get drawn into the unending cycle of creating new regulations to counter the faults of the previous regulations.

A better approach, however, is to look back at the basics and accept that, a system full of rational self-interested beings, is not a good fit for the same regulatory measures that might work in a plumbing system.

As processing capacity is not a primary constraint, one is better off creating a health care funding model wherein the individual owns their own health care resources.

Replacing the commons created by insurance with a Medical Savings and Loan, one reigns in the commons and restores the pricing mechanisms broken by the commons model.

1 comment:

Reach Upward said...

The standard progressive argument against the tragedy of the commons phenomenon is that this only occurs because conservatives won't let government work like it's supposed to.