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Inspired by someone else's microeconomics question and Savio complaining he's always too late to solve these questions I thought it'd be nice to post up a problem Mankiw wrote on his blog, which he claims he'll be using in his class:
"Here is a question I will be asking my freshman seminar this week:
You are a utilitarian social planner. You have a limited number of H1N1 vaccines. How do you allocate them? Do you (A) give them to specific groups, such as high-risk populations, or (B) sell them to the highest bidder and rebate the revenue lump-sum to everyone? If you choose (A), do you allow those individuals allocated the vaccine to sell their dose to someone else? Be sure to specify the economic environment as carefully as possible. And remember: Your goal is to maximize total utility."
Welfare economics is not my forte, but that won't stop me commenting later on. First, I welcome discussion from anyone, especially Savio.
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Need more bio related data ? ( mortality rate etc ... )
(A) -> Coase theorem ?
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I think individual utility is something you model. You are also a social planner, who traditionally knows everyone's utility (since you are modeling it) which should mean Coase is not needed. You plan for these helpless masses.
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motbob
United States12546 Posts
I personally assume that everyone values their own life equally. I know that's often not a realistic assumption, but it's the only way to solve this problem that I know of.
If we make that assumption, the obvious solution is to distribute to high risk populations since if we take the commonly cited $7.4 million per human life figure it's waaaay more worth it to save the lives that we do than to auction off the vaccines.
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It's economics or ethics question?
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Since he's asking his freshmen, I don't think it's a question that's supposed to have a definite answer. Like Manitou said, it's more of an ethics question than economics, because we aren't given any data about the population, their preferences, and their utility functions.
My guess would be to evaluate if the high risk groups are able to pay for the vaccine and determine how many of them will be able to afford it, if you go route B. The problem with B is that you might end up with hoarding and very few people will actually get the vaccine, so you're being a pretty shitty social planner.
I would probably go with A, and allow them to sell the vaccine - i.e. self-discriminate. This ensures that everyone in the high risk category is given the opportunity for a vaccine, but also allows them to self-optimize and take personal risk (getting sick) in exchange for personal gain.
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But discussing the ethics is so uninteresting  Also ethics are too open ended. I'm sure there is a definitive answer once you define the individual utilities and the social planner's utility function.
DIMJkE, I don't know why you edited your post. Yes, I have read his paper on taxing height - I thought it made a very nice point and since it concerns the issue of welfare economics and distribution it's not that off topic. 
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On October 27 2009 21:29 Milton Friedman wrote:But discussing the ethics is so uninteresting
But discussing the economics is so uninteresting
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you are a utilitarian. Nobody's welfare is more important anyone else. The allocation should be as such that total utility is maximized. In this case i feel that utility in plan a>b, but since the question does not allow for calculation, there is no correct answer
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Are these the only two choices?
Total utility can arise in two ways - from the allocation of vaccines, the obvious one, and from the redistribution of wealth. Theoretically one would have to compare the utility of the N people who would derive the greatest utility from having the vaccine, and compare this to the utility of the N people who would buy the vaccine, and add that to the loss of utility associated with said person's purchase of the vaccine, and add the utility associated with the lump-sum rebate (which should be overall positive, because presumably the person able to bid for the vaccine is richer than the general populace, and because of diminishing marginal utility of money.)
One also has to consider the benefit to society based on having the high-risk population vaccinated (to reduce transmission of the disease, as opposing to having a low-risk population eventually vaccinated.)
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Katowice25012 Posts
I am proud to be part of a forum where Milton Friedman comes to ask for insight to economics problems
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If you assume everyone is educated enough to know the true value of the options offered to them (a high-risk person that wants the money to send his kid to a good school can correctly balance the trade-off) then the problem is easy.
Give the vaccine to the high-risk people (since they are likely to have the most utility from it) and then allow them to sell it, so if they have bigger utility from money they can trade.
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Baa?21244 Posts
On October 28 2009 03:00 heyoka wrote:
I am proud to be part of a forum where Milton Friedman comes to ask for insight to economics problems
He even posted on my threads! :D
We really need more background information to make an economics decision here I feel, right now it really is, as people have said, just an ethics problem.
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On October 28 2009 03:00 heyoka wrote:
I am proud to be part of a forum where Milton Friedman comes to ask for insight to economics problems
I guess death made his brain rot out.
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On October 27 2009 20:00 motbob wrote:
I personally assume that everyone values their own life equally. I know that's often not a realistic assumption, but it's the only way to solve this problem that I know of.
If we make that assumption, the obvious solution is to distribute to high risk populations since if we take the commonly cited $7.4 million per human life figure it's waaaay more worth it to save the lives that we do than to auction off the vaccines.
I doubt it's actually that high. You could take what the average person earns in their lifetime and add to that however much it cost to feed them and house them until they started working. It should add up to about 1.5$ million for US.
But it's still much much higher than what anyone would pay for the vaccine, even if you discount the revenue stream of lifetime earnings.
So yeah option A all the way, and allow them to sell.
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EPT
