Deep question. And you might think completely out of reach of economics. But economics is fundamentally about how to allocate scarce resources in world of seemingly unlimited wants. Many would say life is invaluable. But health research, among others, forces us to think deeper. Suppose a drug extends life of cancer patients by a month on average but costs around 30 thousand dollars. Is it worth it? Assuming there are no other alternative drugs for simplicity, the question behind is how much is a month of life worth? This is not a hypothetical philosophical question. It was actually a case made public by doctors from the Memorial Sloan-Kettering Cancer Center.
If you think life is invaluable, you should then think that one month of life is worth those 30 thousand dollars. But think again. Resources are scarce. There isn't an infinite amount of money available. Suppose that money is coming from public funds, what if that money were used to help other people with simpler/cheaper health issues, which can also extend or improve life? What if that money were used in education? Now suppose that money is coming from your own pocket. Would you rather use it to go travel around the world instead? Or maybe buy a house for your children? Or, even, would you be willing to leave a 30 thousand dollar debt to your family for that extra month of life? If life is thought as invaluable, none of these comparisons can be done.
Doctors from the Sloan-Ketterin Cancer Center pondered about this due to a combination of new treatments available for cancer that were estimated to cost around 600 thousand dollars per year of life extended. Having been approved by the FDA, most insurers had to cover these treatments. But doctors at that hospital decided those drugs were not worth the price, other alternatives were better. If those new treatments were used by everyone, resources available for health would run out very fast. That money could be better used elsewhere. And so they decided to boycott them by going publicly against some of these treatments.
Avastin, $5,000/month; Zaltrap, $11,000/month; Yervoy, $39,000/month; Provenge, $93,000/course of treatment; Erbitux, $8,400/month; Gleevec, $92,000/year; Tasigna, $115,000/year; Sprycel, $123,000/year. (Photo: NYMag, Illustrations by Remie Geoffroi)
OK, so those treatments may not have been very good. Other alternatives were available. But what if the drug in question is really good and no alternatives are available? One such drug has been suggested to be SOVALDI for hepatitis C. Let me clarify that I know nothing about this drug, so let's approach the example more as a thinking process to understand how life sometimes needs to be given a dollar value, instead of a health study. SOVALDI is suggested to have smaller side effects and as much as 95% rate of cure in the US, hence an impressive drug. Its alternatives were suggested to perform much worse, possibly not curing Hepatitis C, just dealing with it temporarily. However, SOVALDI costs one thousand dollars a pill and is to be taken daily for 12 weeks, or around 84 thousand dollars per treatment. This has been taken by around 75 thousand people last year, totaling a cost of around 5 billion dollars in the US.
Given the costs, states have limited the coverage to some special cases. But the bigger picture is that this drug might actually cure you, reducing future costs and allowing patients to get back to their lives faster and with less problems in the future. So it might not be fare to just compare the price tags among the different Hepatitis C treatments. Assume away all other possible life improvements beside work and just suppose that the average patient is able to produce for one more year of life than those that take other cheaper drugs. Moreover, say this person produces the average GDP per Capita of the US: over 50 thousand dollars. This extra year of production can be considered to reduced the actual "cost" of this drug by more than half. Then add all other aspects of life that may improve with such a drug: not taking any more medicine later on in life, enjoying more time with family and friends, and so on.
The first drug was too expensive for what it provided. (Suppose it actually works) second might be worth the price. What is the cut-off? In other words, we return to the same question: what is a month of life worth? Neither zero, nor infinite. Many numbers are actually out there. For example, The World Health Organization typically places the value one year of life between one and three times the GDP per capita of the country, i.e. one to three times of what is produced by the average person in that country. I believe this number should depend on the person, determining the quality of that month (e.g. age, other possible health issues, general happiness): a month of life for an average 20 year old person should be worth more than an extra month of an average 90 year old one. But it gets very complicated to go into these details. However abstract this may seem, this number that values life is supposed to start being used to evaluate cardiology treatments. Independently of the final number, if you thought life was invaluable, think again.
Based on Radiolab's podcast.
A funnier example of scarcity, to finish off laughing...
How do you know how much a kilogram of coffee is? You probably use a scale. But how do you know all scales are the same? How do you know my scale and the scale used by Colombian sellers are the same? Fortunately there is a list of standard measures (including for example how long, heavy or hot something is) that keep all of us under the same standard. In this new post I will talk about the story behind the measures we all use nowadays. You may think I have gone way out of my field and you are probably right. But I just can't imagine any form of Economics without measurement. And I can't imagine measurement without thinking about the beautiful metric system.
Most definitions of these measures are actually quite complicated. For example, what is a second? The Bureau International des Poids et Measures defines is as:
Before then measures were based on Charlemagne’s ideas. Many were simply borrowed from human body, like the pied du roi (or king’s foot) or the toise (the distance across a man's outstretched arms). But what if men were bigger in one part of the world than in another? Hence measure were quite uncertain and clearly not fixed: they varied from town to town, between occupations as well on the type of object to be measured. So agreements on measures were hard.
What gave room to the Metric System we have today? An economic crisis of course. The famine of 1780s meant that food should get more expensive. But bakers were worried about increasing prices (lots of revolts were happening), so they started baking smaller loaves. People started noticing loaves were smaller, but no one could universally check their weight! And the French revolution set the reform environment which started with a new standard. They wanted a system based on nature, that avoided national vanities and could be used by all nations.
And so first came the meter: They took a quarter of the circumference of the Earth and divided it by 10 million. That's a meter. And this gave birth to the kilogram. To define the unit of mass they preferred water to other bodies (such as gold) because it was easy to get anywhere in the world. They divided the meter in 10, formed cubes of that size, filled them with water and voila! The kilogram. And from the kilo they defined other 4 base units...
This object in France makes sure that whenever I buy one kilo of bread from a shop, we can all agree how much that is. Well, unless you go to typical corner store where a kilo of bread may be less than a kilo. But even in that case we can actually determine the real weight and formally complain about it. This is supposedly the story of Poincare (also in France but in the 1900s). From Allen Downy's Think Stats book:
Let me finish with the story of the first kilogram. This "perfect" object has been used as a prototype to build a few other kilogram sub-prototypes (called sisters) over the world. And these have themselves being used to build others, all the way to our day to day scales. Every time each one of us checks his own weight, this can be traced back to this little object in Paris from the 18th century. And the most interesting thing is that recently it was found that (comparing it to its sisters) the perfect kilogram was losing weight! The funny thing is that even though it lost weight - since itself defines weight - the object is actually still one kilogram! Which brings us to the bummer conclusion that we have all gained weight in the meantime. As the definition of a kilogram got lighter, we all got heavier.
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