Market Failures, the Environment, and Human Health

Abstract

Knowledge of the important role that the environment plays in determining human health predates the modern public health era. However, the tendency to see health, disease, and their determinants as attributes of individuals rather than characteristics of communities meant that the role of the environment in human health was seldom accorded sufficient importance during much of the 20th century. Instead, research began to focus on specific risk factors that correlated with diseases of greatest concern, i.e., the non-communicable diseases such as cardiovascular disease, asthma, and diabetes. Many of these risk factors (e.g., smoking, alcohol consumption, and diet) were aspects of individual lifestyle and behaviors, freely chosen by the individual. Within this individual-centric framework of human health, the standard economic model for human health became primarily the Grossman model of health and health care demand. In this model, an individual’s health stock may be increased by investing in health (by consuming health services, for example) or decreased by endogenous (age) or exogenous (smoking) individual factors. Within this model, individuals used their available resources, their budget, to purchase goods and services that either increased or decreased their health stock. Grossman’s model provides a consumption-based approach to human health, where individuals purchase goods and services required to improve their individual health in the marketplace. Grossman’s model of health assumes that the goods and services required to optimize good health can be purchased through market-based interactions and that these goods and services are optimally priced—that the value of the goods and services are reflected in their price. In reality, many types of goods and services that are good for human health are not available to purchase, or if they are available they are undervalued in the free market. Across the environmental and health literature, these goods and services are, today, broadly referred to as “ecosystem services for human health.” However, the quasi-public good nature of ecosystem services for human health means that the private market will generate a suboptimal environment for both individual and public health outcomes. In the face of continued austerity and scarce public resources, understanding the role of the environment in human health may help to alleviate future health care demand by decreasing (or increasing) environmental risk (or benefits) associated with health outcomes. However, to take advantage of the role that the environment plays in human health requires a fundamental reorientation of public health policy and spending to include environmental considerations.