Health care in a web

Consider an example: a factory making widgets pollutes the environment. This cost is borne by people who are downstream or downwind. The cost is not borne by the faraway consumers who purchase the widgets; nor is it reflected in the factory’s balance sheet. In social science parlance these costs are “externalities”—they are consequences that affect parties other than those engaged in a transaction.

Another example is this: you make an investment to improve your garden, and your neighbour not only enjoys a better view but also benefits because the value of his home rises. Strictly speaking, according to economic theory, you should tax your neighbour to recover some of the value you have created.

This idea of externalities can be extended to health and health care. The care we give to one patient can have adverse health consequences (negative externalities) but may also have beneficial health implications (positive externalities) for others to whom a patient is connected and …