Economics & Finance,Social Responsibility
• 8 minute read
How Should Governments Intervene in Allocation of Anti-Pandemic Resources?
Does ensuring market efficiency in the distribution of pandemic-related goods and services necessarily undermine equality? Researchers at CUHK Business School provide insights into this economic and moral dilemma
By Ella Chen
The COVID-19 pandemic has entered a new phase, where the urgency and mortality experienced in the beginning has given way to an ongoing management of the spread of new variants. Shortages of goods and services to prevent the spread of the virus and to treat the sick are less acute. Nonetheless, the demand for these goods and services remains high. The global personal protective equipment (PPE) market, for instance, was worth US$77.36 billion in 2020, and is estimated to grow annually at 7.3 percent in the following eight years. In light of this, how do public health policymakers maximize the distribution efficiency of these goods and services, while at the same time improving equality among different population groups?
Guo Liang, Professor of Marketing, and Wendy Xu Xun , a former postdoctoral fellow, at The Chinese University of Hong Kong (CUHK) Business School, find in their research paper titled “We are the World”: When More Equality Improves Efficiency and Anti-Pandemic Consumptions are Intervened that efficiency and equality need not be conflicting with each other.
What are Anti-Pandemic Resources?
Anti-pandemic resources, the subject matter of the research, refer to products and services that help people protect themselves from the impacts of a pandemic, such as COVID-19. When people consume these goods and services, they not only reap personal benefits but also contribute to the welfare of others in their communities and society as a whole. By the same token, each person also benefits from others who consume these products and services.
“Our research provides theoretical support to recommendations for a more equitable distribution of resources that are vital to public health.” – Prof. Guo Liang
For example, when individuals wear personal protective equipment (PPE), such as face masks, goggles, gowns and gloves, they not only protect themselves from viral infection, but also help to reduce disease transmission on the community level as other individuals would be less likely to be infected. This can also have broader social-economic implication: If restrictions like social distancing and lockdowns become less necessary, the economy would stand a better chance of recovery. All of these spill-over effects will in turn benefit everyone.
There are other types of anti-pandemic resources, including hand sanitisers, disinfectants, thermometers, test kits, medical devices and facilities like respirators, ventilators and ICU beds, medications and vaccines. In addition to these tangible products, services and new technologies have emerged to make people’s lives easier and safer during the pandemic, such as contactless payment systems, home delivery services and robots that disinfect public places and deliver goods.
“While the end goal or benefit of these products and services is to improve public health, their manufacturers and providers mostly come from the private sector,” says Prof. Guo, who led the research. “With that in mind, it’s usual that the availability and distribution of these products and services are driven by market forces. This may create two problems. First, even though people know about the merits of using these products and services, they don’t always feel motivated to consume a sufficient amount of them in order to achieve adequately positive impact on public health. Second, there would be a dilemma in increasing the efficiency and enhancing the equality of consuming these resources. Nevertheless, we prove theoretically that these common wisdoms or concerns are not always valid.”
Reconciling the “Social Dilemma”
The researchers illustrate their ideas by considering the consumption patterns of two distinct groups – those with high incomes versus those with low incomes. The theory can be equally applied to other demographically, socioeconomically, or geographically varied groups. Their basic idea is that, if the low-income individuals could consume more of these anti-pandemic resources, the spill-over marginal effect on the greater public health and economy would be relatively higher than if the high-income individuals did the same. Intuitively, giving a face mask to a person who can afford barely none, would be more effective in halting the spread of a pandemic, than to someone who can afford, say, a thousand. The same can also be said if people in the latter group can donate a proportion (say, one hundred) of their own to people in the former group.
This finding is especially useful in situations where the demand for pandemic-related resources spikes while manufacturers and service providers are unable to catch up with their limited capacity.
“The more low-income citizens could purchase products and services to protect themselves, the more the society as a whole benefits from their consumption. This happens when they consume more than they would in a normal supply-and-demand scenario based on their ability to afford these products and services,” says Prof. Guo. “This is why the common wisdoms or concerns may not always hold for pandemic-related resources. The high-income group may need to consume less than they could, in order to keep the market prices of the resources to be affordable for the low-income earners. In the same vein, more equal consumption across groups may lead to greater efficiency in enhancing the total welfare of the society.”
Improving Both Efficiency and Equality
How does one encourage more consumption by low-income individuals? The answer lies in economic interventions such as subsidies and rations, which allow low-income individuals to consume more protective equipment. In the case of COVID-19, Prof. Guo says, many local and central governments all over the world have mandated masks and vaccines. This effectively constitutes a minimum-consumption policy that can be socially beneficial because the low-income population will make a relatively bigger contribution to the social good as a result of consuming these goods, as compared with the high-income group.
“It is in this way that enforcing a mandate to make sure everyone consumes a minimum level of resources that fight the pandemic becomes a win-win for all,” he says. “It also highlights that providing subsidies or free access to a fixed number of PPE to help low-income individuals comply with the mandate certainly helps.” In addition, the researchers also find that when subsidies are applied evenly to both high- and low-income groups, then such a policy not only benefits the society as a whole less, but also leads to more inequality, than if more benefits are provided to the low-income group.
The other type of consumption restraint is rationing, or restricting consumption by individuals, particularly those who have an economic advantage. This strategy helps to ensure sufficient supply for more people, and drives down prices so that more low-income people can purchase anti-pandemic resources, explains Prof. Guo. “At the end of the day, this will improve the welfare for both groups of the population,” he says. “An important caveat to this is that any government mandate on the consumption of pandemic-fighting resources may be perceived as an interference on an individual-freedom or even human-rights level, and could become something with the potential to cause social conflict. ”
Helping Others and Helping Ourselves
The researchers note that encouraging minimum consumption while setting limits to prevent overconsumption by certain groups of the population can both improve the efficiency of the distribution of pandemic-fighting resources and enhance equality among citizens in a global pandemic. In practice, however, the consumption of such resources during a pandemic remains largely unbalanced. For example, the authors point out that, as of June, only 18 percent of the population in low-income countries has received at least one dose of a COVID-19 vaccine. By contrast, the number is 81 percent in high- and upper-middle-income countries. In such countries, stockpiling of vaccines have led to a tremendous amount of wastage, which could have benefitted low-income countries.
“Our research provides theoretical support to recommendations for a more equitable distribution of resources that are vital to public health, not just within national boundaries but across the globe. This is obviously highly relevant in a pandemic that affects the entire human population,” emphasises Prof. Guo. “Prioritising worse-off populations can definitely improve overall social welfare, as these groups are less likely to want to purchase or be able to afford protection from the pandemic compared with wealthier people. With the emergence of new variants, we can’t continue to leave the majority of the world unvaccinated and unprotected. After all, helping others is helping ourselves and saving our resources for others is protecting ourselves, too.”
“We are the World”: When More Equality Improves Efficiency and Anti-Pandemic Consumptions are Intervened
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