ChainWhat it assumes · how to break it
Start
Parents decide whether to have their child vaccinated against measles; a vaccinated child also protects others by reducing the spread of the disease.
1
As a result, each person vaccinated lowers the chance that others catch the disease, so the marginal social benefit of vaccination is above its marginal private benefit.
external benefit · MPB · MSB
external benefit · MPB · MSB
Assumes: Vaccination reduces transmission to others.
But: Some vaccines protect only the person vaccinated; tetanus does not pass between people, so its vaccine gives little external benefit.
2
Since people decide whether to be vaccinated by weighing their own benefit against the price, they ignore the protection they give to others.
self-interest · consumer decision-making
self-interest · consumer decision-making
Assumes: Individuals take no account of the benefit to others.
But: Many people are vaccinated partly to protect vulnerable relatives, so some of the external benefit already shapes their decision.
3
Therefore, in a free market consumption settles at Q1 where MPB = MPC, below the social optimum Q* where MSB = MSC, so too few resources are allocated to vaccination.
underconsumption · merit good · social optimum
underconsumption · merit good · social optimum
Best link to attack
Assumes: Vaccines are sold at a market price.
Assumes: Vaccines are sold at a market price.
But: In the UK the NHS provides childhood vaccines free at the point of use, so actual uptake is well above the free market level Q1.
End
Vaccination is underconsumed: in a free market consumption at Q1 is below the socially optimal level Q*, so too few resources are allocated to it.
Evaluation chain
- E1However, the underconsumption depends on vaccines being sold at a market price.
- E2If the government provides vaccines free at the point of use, price is no longer a barrier.
- E3As a result, uptake may reach or even exceed Q*, and any shortfall comes from hesitancy or lack of information instead of price.
- E4So underconsumption is a problem of the free market; where vaccines are free, remaining underconsumption is smaller and is better tackled with information campaigns.
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Questions this answers
- Explain why a positive consumption externality leads to underconsumption.
- Using a diagram, analyse why a free market would provide too few vaccinations.
- Assess whether merit goods are underconsumed when left to the market.
Diagram
MSB above MPB, with MPC = MSC (supply): market output Q1 where MPB = MPC, social optimum Q* where MSB = MSC, so Q1 < Q*. Mark the underconsumption as the distance Q1Q*.
Reverse and related
Negative consumption externality → MSB below MPB, so the good is overconsumed.