2021 EXAMINATIONS



MSc Economics



ECON515 Health Economics (MAIN) (2 hours 30 minutes + 30 minutes uploading time)

Candidates must answer three questions. All questions carry equal marks. If a question has
more than one part, all parts carry equal marks, and candidates must answer all parts.

































PLEASE TURN OVER

Question 1:
Consider the model introduced by Rothschild and Stiglitz (1976). Suppose a population
comprises risk averse people, facing either sickness or health, who are either robust or frail.
Furthermore, insurance companies are unable to distinguish risk type before making a
contract. Suppose a separating equilibrium has already arisen. Now suppose that the
government creates a mandatory national health insurance scheme which offers a single
contract of full insurance to all people, while also banning private health insurance. For the
scheme to be sustainable, what characteristics should the single contract have? Will either
robust or frail people be better off under the scheme? Draw and explain a diagram to justify
your answer.

Reference: Rothschild, Michael & Joseph Stiglitz. 1976. “Equilibrium in Competitive Insurance Markets.”
Quarterly Journal of Economics 90 (4): 629-649.


Question 2:
Suppose a disease is prevalent in 20% of a population of 300 people. Consider a screening
test for the disease. Of those who actually have the disease, 36 test positive. Of those who do
not have the disease, 192 test negative. What is the sensitivity and specificity of the test? If a
person has a positive test result, how worried should they be that they have the disease?

Compare and contrast the relative costs of false-positives and false-negatives for cancer
screening tests relative to screening tests for Covid-19.



Question 3:
If prices are regulated, how would one expect the introduction of competition for the supply
of healthcare to affect the quality of healthcare provided? To what extent has the introduction
of competition into the NHS improved patient outcomes?



Question 4:
Explain the channels through which education and/or income might, from a theoretical
perspective, affect health. To what extent does the empirical evidence support the idea that
education and/or income might have a causal effect on health?




END OF PAPER