Market failures, the environment, and human health

Abstract

Knowledge of the important role that the environment plays in determining human health predates the modern public health era. However, the tendency to see health, disease, and their determinants as attributes of individuals rather than characteristics of communities meant that the role of the environment in human health was effectively forgotten throughout the 20th Century. Instead, research began to focus on specific risk factors that correlated with diseases of greatest concern, i.e. the noncommunicable diseases such as cardiovascular disease, asthma and diabetes. Many of these risk factors (e.g. smoking, alcohol consumption, and diet) were aspects of individual lifestyle and behaviors, and freely chosen by the individual. Within this individual-centric framework of human health, the standard economic model for human health became primarily the Grossman model (1972) of health and health care demand. In this model, an individual’s health stock may be increased by investing in health (by consuming health services, for example) or decreased by endogenous (age) or exogenous (smoking) individual factors. Within this model, individuals used their available resources, their budget, to purchase goods and services that either increased or decreased their health stock. Grossman’s model provides a consumption-based approach to human health, where individuals purchase goods and services that is required to improve their individual health in the market place. Grossman’s model of health, assumes that the goods and services required to optimize good health can be: 1) purchased through market-based interactions; and 2) these goods and services are optimally priced; that the value of the goods and services are reflected in their price. In reality, many types of goods and services that are good for human health are not available to purchase or if they are available they are undervalued in the free market. Across the environmental and health literature, these goods and services are broadly referred to as ‘ecosystem services for human health.’ This can lead to the under or over production of these goods and services. Within this context, this chapter aims to explain why the quasi-public good nature of the environment means that the private market will generate a sub-optimal environment for both the individual and public health outcomes. Building on the wealth of evidence that demonstrates the role that the environment plays in maintaining human health, this paper argues that protecting the environment should be a primary goal of health policy. In demonstrating the inherent failure of the private market to deliver a healthy environment for human health, this paper provides a rationale for the use of economic instruments such as subsidies or taxes to ensure a healthy environment from a public health perspective.