economics writing

1. Please use easy sentences and words to answer questions in “Assignment2”.

2. Read the question carefully, like the question should use “3-2-1 report” format and before doing question 3 of a&b, please read the pdf of lecture 6 carefully. 

3. Please give me in 24 hours. Thanks a lot.

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ECON 317 SPRING 2020 – INDIVIDUAL ASSIGNMENT

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TO BE SUBMITTED VIA COURSESPACES BY 11:59 PM ON JANUARY 28th, 2020

Name (First, Family)

Last 3 digits of SID

TO SPEED UP MARKING, PLEASE ANSWER THE QUESTIONS IN THE FORMS AND SPACES
PROVIDED. THE T.A. RESERVES THE RIGHT TO NOT MARK ANY QUESTIONS THAT ARE NOT
ANSWERED IN THE EXPECTED LOCATIONS.

By submitting this assignment you agree to the following honor code, and understand that any
violation of the honor code may lead to penalties including but not limited to a non-negotiable
mark of zero on the assignment:

Honor Code: I guarantee that all the answers in this assignment are my own work. I have cited
any outside sources that I used to create these answers in correct APA style.

Marking scheme – Make sure you answer all the questions before handing this in!

Question Marks

1 a 12

2 a 6

3
a

3

b 3

Total 24

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1. [Reading] Read the following article:

Patel, A., Dean, J., Edge, S., Wilson, K. & Ghassemi, E. (2019). Double Burden of Rural Migration
in Canada? Considering the Social Determinants of Health Related to Immigrant Settlement
Outside the Cosmopolis. International Journal of Environmental Research and Public Health,
16(5), 678. Retrieved from https://www.mdpi.com/1660-4601/16/5/678

This article summarizes the results of other articles, and also explains how the authors searched
for and selected the articles that were summarized. Being familiar with this will be useful to you
in Group Assignment 2, where you will be asked to do much the same thing on a smaller scale.

a. (12 marks) Write a 3-2-1 report using the form provided on Coursespaces.

2. [Analysis] Becker’s rational addiction model predicts that changes in the price of addictive
substances will have a strong effect on use of those substances. This was seen in Canada in 1994,
when tobacco tax cuts led to increased smoking: “The effect of tobacco tax cuts on cigarette
smoking in Canada.” Price is not the only thing that affects addictive behaviour, however. View
the following 40-minute documentary on the fentanyl crisis in Vancouver:

VICE. (2018, February 15). Overdose Crisis on the US-Canada Border: Steel Town Down [Video
File]. Retrieved from https://youtu.be/d2kqgX2KjTY

a. (6 marks) Connect the information in the documentary about the nature of addiction, how it
affects communities, and/or how communities respond to it, to at least two of Canada’s
Determinants of Health (see link for a list of determinants). If you need help with this question,
ask! You may contact the instructor for help in person or via e-mail at willmore@uvic.ca.

Determinant I: _____________________________________________________________

Connection to the video:

https://www.mdpi.com/1660-4601/16/5/678

https://www.cmaj.ca/content/156/2/187.short

https://www.cmaj.ca/content/156/2/187.short

https://www.canada.ca/en/public-health/services/health-promotion/population-health/what-determines-health.html

mailto:willmore@uvic.ca

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Determinant II: _____________________________________________________________

Connection to the video:

3. [Analysis] This question is based on and inspired by

Desveaux, L., Saragosa, M., Kithulegoda, N. & Ivers, N. M. (2019). Family Physician Perceptions
of Their Role in Managing the Opioid Crisis. Annals of Family Medicine, 17(4), 345-351.
Retrieved from http://www.annfammed.org/content/17/4/345.short

Consider the following fictional scenario: A family physician in Ontario sees a new patient who
has just moved to the province from Vancouver and suffers from chronic pain. According to both
the patient and available medical records, the pain has existed for many years, and is expected
to last for the rest of the patient’s life. According to the patient, the pain is severe enough that
without painkillers, the patient needs to spend most of the day in bed, and is unable to
concentrate or work at their job as a software engineer. The patient says that over-the-counter
painkillers don’t work, and only fentanyl and other opioids can take care of the pain. The
physician confirms from the records that the patient has, in fact, been taking fentanyl by
prescription for the last two years. Apart from the pain reported by the patient, there are no
other symptoms. Various medical tests across the years have failed to come up with a specific
reason for the chronic pain, but this is not unusual in chronic pain patients – the causes of chronic
pain are often difficult to pin down and in some cases are poorly understood.

Many years ago in medical school, the physician was taught that chronic pain was under-treated,
and that best practice was to prescribe painkillers for the patient based on the patient’s self –
reporting of their pain. However, the physician is also aware that Vancouver is in the middle of a
fentanyl addiction epidemic, and wants to “do the right thing” for both their patient and society.

http://www.annfammed.org/content/17/4/345.short

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Note: Fentanyl, an opioid, is a powerful prescription painkiller that has legitimate uses in treating
severe chronic pain. It is also an addictive drug that can easily be abused, and overdosing can
lead to death. For more details, see

Fentanyl [Web Page]. (2020). Retrieved from https://www.camh.ca/en/health-info/mental-
illness-and-addiction-index/street-fentanyl

a. (3 marks) Suppose the physician continues the treatment that the patient was on in
Vancouver, and prescribes a three-month supply of exactly the same dosage of fentanyl as the
patient was receiving in Vancouver. After three months, the patient has to come back for another
appointment, and to renew the prescription, as appropriate. In this case, would the physician
be acting as a perfect (or close to perfect) agent for the patient? Why or why not? Use material
from Lecture 6 in your answer.

Perfect or nearly-perfect agency with regard to the patient? Yes/No

Why or Why not?

https://www.camh.ca/en/health-info/mental-illness-and-addiction-index/street-fentanyl

https://www.camh.ca/en/health-info/mental-illness-and-addiction-index/street-fentanyl

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b. (3 marks) Arguably, physicians in Canada do not only have a duty to their individual patients,
but also to the health care system and Canadian society as a whole. Suppose that, as in part a.,
the physician decides to continue the fentanyl treatment the patient was on in Vancou ver. In
this case, is the physician acting as a perfect (or close to perfect) agent for the health care
system and society as a whole? Why or why not? Use material from Lecture 6 in your answer.

Perfect or nearly-perfect agency with regard to the health care system/society? Yes/No

Why or Why not?

PURPOSEFUL READING (3-2-1) REPORT Version 2.0
Lightly Adapted from a template by Geraldine Van Gyn.

Question 1: In your own words, what are the 3 most important concepts, ideas or issues in the
reading? Briefly explain why you chose them.

Concept 1 (In your own words) (2 marks)

Concept 2 (In your own words) (2 marks)

Concept 3 (In your own words) (2 marks)

Question 2: What are 2 concepts, ideas or issues in the article that you had difficulty
understanding, or that are missing but should have been included? In your own words, briefly
explain what you did to correct the situation (e.g. looked up an unfamiliar word or a missing
fact), and the result. Cite any sites or sources used in APA format.

Issue 1 (In your own words) (1 mark)

Citation 1 (in APA format) (1 mark)

Issue 2 (In your own words) (1 mark)

Citation 2 (in APA format) (1 mark)

Question 3: What is the main economic story of the reading? (Economics studies the allocation
of scarce resources.)

Story (In your own words) (2 marks)

ECON

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The Economics of Canadian Health Care

Lecture

6

: The physician as
the patient’s agent

January

17

th ,

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020

Version 1.1 (Jan 17) – Added slide 10.

Required Reading

• Weinstein, M. C. (2001). Should physicians be gatekeepers of medical
resources? Journal of Medical Ethics, 27, 26

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-27

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. Retrieved from
http://jme.bmj.com/content/27/4/268.full

• This paper examines the tragedy of the medical commons, and the
nature of physician responsibility to society as a whole vs their
individual patients.

• You only need to read pages 271 to 273, plus the first paragraph on p.
274. Start with ‘The role of physicians’ on p. 271.

• Note: A QALY is a ‘quality adjusted life year’, a standard unit of
measure of health gains. 1 QALY = 1 year in perfect health.

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http://jme.bmj.com/content/27/4/268.full

Optional Readings

• Mooney, G. & Ryan, M. (1

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93). Agency in health care: getting beyond first principles. Journal of Health
Economics,

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, 12

5

–

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3. Retrieved from
http://www.sciencedirect.com/science/article/pii/0

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7629693900238

• An excellent summary of standard agency theory, and its limitations when applied to health care.

• Gafni, A., Charles, C. & Whelan, T. (1998). The Physician Patient Encounter: The Physician as a Perfect Agent
for the Patient Versus the Informed Treatment Decision-Making Model. Social Science & Medicine, 47(3),
347-354. Retrieved from https://doi.org/10.1016/S0277-9536(98)00091-4

• Charles, C., Gafni, A. & Whelan, T. (1999). Decision-making in the physician-patient encounter: revisiting the
shared treatment decision-making model. Social Science & Medicine, 49(5), 651-661. Retrieved from
https://doi.org/10.1016/S0277-9536(99)00

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5-8

• These two papers investigate the nature of shared decision-making and what it takes to be a perfect agent.

• Labelle, R., Stoddart, G. & Rice, T. (1994). A re-examination of the meaning and importance of supplier-
induced demand. Journal of Health Economics, 13(3), 347-368. Retrieved from
https://doi.org/10.1016/0167-6296(94)90036-1

• An excellent article on the meaning and consequences of supplier-induced demand in health care. The basis
of much of the second half of this lecture.

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http://www.sciencedirect.com/science/article/pii/0167629693900238

https://doi.org/10.1016/S0277-9536(98)00091-4

https://doi.org/10.1016/S0277-9536(99)00145-8

https://doi.org/10.1016/0167-6296(94)90036-1

Learning objectives

• Gain an introductory understanding of principal-agent problems.

• Gain an introductory understanding of how incentive constraints are
calculated.

• Gain an introductory understanding of the ways in which agency in
health care deviates from standard agency theory.

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The principal-agent problem

• A poorly-informed principal employs a well-informed agent…

• …to perform some duty in a way that will maximize the principal’s utility.

• The agent has her own, independent utility function.

• Because the principal and agent have different goals, and because the agent
is better-informed, there is an incentive for the agent to cheat.

• The principal’s task is to come up with a contract that will ensure the agent
acts in the principal’s best interest.

• Often, the agent only observes the outcome of the task, so the contract can
only be conditioned on that outcome.

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Moral hazard and physician agency

• For our purposes, the patient is the principal and the physician is the agent. The
physician has superior information on health care, and the patient can (often)
only observe the outcome of treatment.

• The agent can put High effort, H, or Low effort, L, into treatment. Effort is costly
to the physician. Only the physician knows whether effort was H or L.

• Patients can be sick, S, very sick, V, or Terminal, T. S always recover, T always die, V
recover only with effort H. Patient type is unknown to agent and principal.

• Each patient type is equally likely (1 in 3 chance)

• The physician has an incentive to always work with effort L, and in case of patient
death, claim the patient was T – a moral hazard.

• (This drastic teaching example shares features with more realistic cases.)

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Finding the right incentives

• In our simplistic example, the patient (or her estate!) can only
observe the outcome of treatment: recovery or death.

• The patient would like the agent to employ H effort.

• Since effort can’t be observed directly (the patient only has the
physician’s word for it), this must be done by rewarding the agent for
patient survival.

• The contract, then, must take the form of an up-front payment P, plus
a bonus payment B if the patient recovers after treatment.

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The situation graphed

Agent Income,Y

Agent Utility
U(L,Y)

U(H,Y)

Reservation Utility, U

Cost of
effort, C

PL PH

• Given effort L, the agent is willing to take payment PL.

• To make effort H, the agent needs payment PH.

• If offered PH, the agent could earn an extra utility of C
by only putting in L effort.

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Calculating optimal payments
• The physician will be paid P(rice) at the start of treatment, and B(onus) if the patient recovers.

• Suppose the chance of recovery is θH for high effort, and θL for low effort.

• Moreover, θH > θL.

• We must have expected utility from low effort be less than or equal to expected utility from
high effort (the bonus payment allows this):

• 1 − θL

U L,P

+ θLU(L,P + B) ≤ 1 − θH U H,P + θH

U(H,P + B)

• To minimize costs, this should bind with equality.

• We also need expected utility to be at least equal to U. This constraint should also bind with
equality for cost minimization.

• The end results will be that P < PL, but (P + B) > PH.

• Your turn: what’s the intuition for each of those?

• The second is a function of risk aversion in the way we drew the utility functions. Physicians
need to be compensated for the risk: expected utility is less than the utility of the expected
income.

• (Expected utility will be on the line connecting the two outcomes on the graph.)

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The contract graphed

Agent Income,Y
Agent Utility
U(L,Y)
U(H,Y)
Reservation Utility, U
PL PH

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P P+B

1 − θH U H,P + θHU H,P + B = U

U(H,P + B)

U H,P

1 − θL U L,P + θLU(L,P + B) = U

U(L,P + B)

U L,P

What if the physician is risk neutral?

• If the agent is risk neutral, the situation is much easier.

• The principal can pass on all the risk to the agent, and the contract becomes:

• ‘Pay the agent the value of the outcome, minus a share reserved for the
principal.’

• This is tricky to picture in health care, but not uncommon in agriculture:

• A landlord charges a fixed rent to the farmer, and the farmer is free to keep
any extra income she makes from harvesting (risky, uncertain) crops.

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Concepts of Agency in Health Care

• Patient: has private preferences

• Physician: has private knowledge

• View 1: a perfect agency would be one in which the physician
transfers to the patient all necessary information, and the patient
then makes the decision.

• Problem: what information? Health outcomes? More?

• View 2: a perfect agency would be one in which the patient
communicates to the physician the entirety of her preferences, and
the physician uses her knowledge to make a decision consistent with
them.

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Types of Information Exchange

• Recent models of patient/physician relationships have looked at
shared decision making. Information flows in two directions:

• Medical knowledge, from the physician to the patient.

• Preferences, from the patient to the physician.

• Physician  Patient: makes sure all options are on the table and the
consequences understood.

• Patient  Physician: makes sure the options are evaluated according
to the patient’s unique (cultural, social, personal) context rather than
assuming ‘one size fits all’.

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What does it take to be a perfect agent?
• This is trickier than it looks. To act as a perfect agent for her patients, a

physician must know the entirety of each patient’s utility function.

• (And utility functions can change with health status.)

• Simple questions aren’t enough to do this, especially with uncertainty
involved. (e.g. Would a patient prefer pre-emptive chemo now or to live with
a higher risk of cancer down the road?)

• One approach is to use decision trees. The physician fills them out with her
knowledge of treatments and probabilities….

• …and the patient then attaches a valuation to each possible outcome.

• The tree is then ‘rolled back’ to find the most appropriate treatment option.

• We’ll learn how to do this later in the course.

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A few more issues

• Not all patients have preferences compatible with expected utility theory.

• Not all patients understand or can be led to accept expected utility theory.

• Understanding the implications of the decision-tree approach to decision-
making is non-trivial… we’re spending a few university lectures on it!

• Information flow in the other direction (medical information from the
physician to the patient) is more manageable.

• In the past few decades, there have been great advances in decision boards
and other visual aids.

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Why don’t we see these schemes?

• In practice, we don’t often see complicated outcome-based payment
schemes for medical professionals.

• Mostly fee-for-service, capitation, salary and so on.
• (But see pay-for-performance, which we’ll cover later in the course.)
• Elaborate incentives are needed in agency theory because we assume that

the utility functions of the principal and agent are separate.
• If this is NOT the case, and patients and physician utility functions are

interconnected, then these incentives may not be needed.
• More importantly… in many settings there is a SECOND ‘principal’

(government or insurance company) with the power to determine or strongly
influence the methods of payment.

• This second principal may also impose other, non-monetary constraints…

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The tragedy of the second principal

• The Tragedy of the Commons: Common pasture is over-grazed due to each
farmer only looking to her own cattle.

• There exists a ‘medical commons’ of limited resources. Physicians, especially
in a single-payer health care system, have a responsibility not just to their
patients but to society as a whole.

• This implies that physicians can and should ration care to their patients. This
goes against the expectation of perfect agency…

• …but is accepted and understood in settings such as emergency room triage
and (regrettably scarce) organ donation.

• Society or the single-payer health care system can be thought of as a second
principal in the agency problem. Just how the two principals’ conflicting
objectives should be reconciled is an open, difficult and fascinating question.

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Imperfect Agency

• In order to act as a perfect agent for her patients (and society):

• Maximize the patient’s health

• Maximize the patient’s utility

• Maximize health status or utility of society as a whole

• BUT physicians have their own utility functions:

• They may change their actions in response to financial (or other)
incentives, even when this does not benefit the patient or society at
large.

• To the extent physicians prioritize their own utility over their principals’,
they are imperfect agents.

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