to provide sufficient vaccinations. There is good empirical evidence of this in
developing countries. The economic benefits in urban-slum Calcutta of a
typhoid-cholera vaccine were almost four times the cost of delivery
(Whittingdon et al.,2009). A survey in Tigray, Ethiopia estimated the gains to
households from the free provision of a malaria vaccine to be twice the value
of income losses and treatment costs incurred by households because of the
disease (Cropper et al., 2004). Basic vaccinations were found to have a signif-
icant effect on the ability of children to acquire education in the Philippines
(Bloom et al.,2005:33).
A third important market failure is that demand and supplyin health care
cannot operate as in other markets. In most markets suppliers have an incentive
to supply good-quality products or services to ensure repeat demand and a
reputation for quality. Consumers have an incentive to invest in acquiring
information on the quality of goods or services to help ensure they make good
consumption decisions. Consumers of health care (the sick) typically lack the
necessary information to make a judgement on the quality of treatments so
have to depend on medical professionals to determine their demand. This
implies that the same individual (often the doctor) would determine both
demand (the doctor’s diagnosis) and supply (writing a prescription for treat-
ment) in the market. There are evident opportunities for doctors and pharma-
cists in developing countries to collude and push expensive and unnecessary
treatments onto patients. The captive nature of consumers gives an important
role to government in regulating quality but regulatory standards in many
developing countries are very low, as attested by the proliferation of poor-qual-
ity medical treatments. Only 52 per cent of private-sector doctors in one
sample in Delhi held the required medical degree (Das and Hammer, 2007).
The most extreme cases have been the development of (bogus) domestic cures
for AIDS given semi-official government sanction in Kenya and South Africa.
The systematic breakdown of the health insurance marketis a consequence
of imperfect information. Only the most ill or those vulnerable to the condition
for which they are seeking insurance are likely to insure themselves (adverse
selection). The insurance company is less able to observe health status than the
individual seeking insurance (asymmetric information). Once insured, people
may take fewer precautions to prevent illness such as not exercising to reduce
blood pressure when costly medicines to control the problem are available and
covered by insurance (moral hazard) and insurance companies will go bank-
rupt. In the absence of insurance almost everyone is exposed to catastrophic
loss of income in case of serious illness. In India out of pocket payments
(OOP) form a disproportionately large component of total health expenditure;
they include direct payments for consultations, diagnostic testing, medicines,
and transportation (Sakthivel, 2005). In 2004–06 the average direct health
expenditure on outpatient care per treated person in rural areas was nearly 20
per cent of total household expenditure (30 per cent for the poorest consump-
tion class) and 13 per cent in urban areas (Baru et al.,2010), largely financed
from households’own resources and borrowing. Nearly 29 per cent of the
Education and Health 135