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Market failure can be regarded as an inefficient allocation of goods and services by the free market. Additionally, Marciano and Medema (2015) define it as “the failure of the market to bring about results that are in the best interests of society as a whole” (p. 1).
Considering this, the overuse of antibiotics in the United Arab Emirates (UAE), as well as many other countries, discussed in the article by Cherian (2018) can be regarded as a form of market failure since it induces the problem of antibiotic resistance and poses a significant threat to public health. In the present paper, the issue will be analyzed from the perspective of the market failure theory, focusing on the description of a government intervention that can be utilized to correct the identified market failure.
Types of Market Failure
Widespread antibiotic overuse and the consequent problem of antibiotic resistance can be considered a negative externality. According to Kenton (2019), an externality is “an economic term referring to a cost or benefit incurred or received by a third party who has no control over how that cost or benefit was created” (para. 1). In other words, it is an effect on a third party caused by the production or consumption of certain goods and services.
An externality can be either positive (such as an impact of a talented labor force on the productivity of a firm) or a negative (such as effects of pollution emitted by a plant on the health of nearby community residents) (Kenton 2019). When speaking of the antibiotic resistance, society as a whole becomes adversely affected by the actions of individuals.
The problem arises because antibiotic drug consumers seek private benefits, including rapid recovery from a disease, without considering the overall social costs. As noted by Cherian (2018), access to antibiotics is extremely facilitated nowadays: anyone can buy them without prescriptions and, therefore, they frequently get drugs to treat even insignificant ailments, such as the sore throat. Moreover, many healthcare practitioners prescribe antibiotics without considering alternative remedies (Cherian 2018).
However, this type of drug is associated with a massive drawback since many bacteria develop resistance to them over time and, in this way, many antibiotics become ineffective. The negative effect of excess antibiotic consumption is a high rate of deaths because of infections that cannot be treated. As reported by Cherian (2018), nowadays, 700,000 people die due to antibiotic-resistant infections worldwide every year and it is expected to rise to 10 million by 2050. Thus, there is a need to stop drug overuse for private benefit and reduce the social costs of this detrimental practice.
The problem of antibiotic resistance may also arise due to such a market failure as information asymmetry, which implies the division and specialization of knowledge. As noted by Merrett et al. (2016), “an important characteristic of the health knowledge economy is the asymmetry in knowledge between experts and the people who rely on their advice” (p. 4).
In the case of antibiotic drug consumption and production, pharmaceutical companies are much more aware of the potentially detrimental effects of antibiotics than the majority of consumers. In other words, people buy antibiotics simply because they do not know about the social costs they induce. It is valid to say that the creation of a proper balance in knowledge by providing more information to consumers would help to reduce the rate of drug overuse and, thus, decrease social costs.
Government Intervention and Government Failure
An intervention aimed at the correction of the discussed market failure will take place at the policy level. According to Cherian (2018), the UAE government is developing legislation, “which will prohibit the sale of antibiotics at any pharmacy in the UAE without a prescription” (para. 2). This action will aim to raise awareness of the problem among healthcare practitioners and encourage them to rationalize the prescriptions of medications.
In this way, physicians and pharmacists will become core actors in eliminating information asymmetry between companies and health consumers. In addition, the law will help resolve the problem of antibiotic overuse by prohibiting purchases of antibiotic drugs for self-medication.
Nevertheless, two of the probable outcomes of government failure in the implementation of the identified intervention would be the creation of surplus and an increase in prices for antibiotics. Since these drugs would be less demanded after the law is enacted, pharmaceutical companies might either over-produce drugs or increase prices for items in the market in order to compensate for potential profit losses. In this case, patients who indeed need antibiotic drugs would be negatively affected because they would have to pay more to receive treatment.
More people in the UAE and around the globe become affected by antibiotic-resistant infections. The overuse of antibiotic drugs is one of the root causes of such an adverse outcome. It is clear that the situation indicates market failure since it produces excess public health costs and involves information asymmetry. The creation of the law that would reduce antibiotic overconsumption can become an effective intervention to the problem.
However, it may lead to an oversupply of antibiotics and an increase in prices for them. Thus, it can negatively affect patients who need these drugs to treat infections. Still, it is valid to presume that the intervention will be able to produce more social benefits than the current situation in the market does and since it will improve the cost-benefit ratio, it is justified.
Cherian, D 2019, ‘Antibiotic resistance and how not to misuse medicines in the UAE’, Gulf News. Web.
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Kenton, W 2019, Externality. Web.
Marciano, A & Medema, SG 2015, ‘Market failure in context: introduction’, History of Political Economy, vol. 47, Suppl. 1, pp. 1-19.
Merrett, GL, Bloom, G, Wilkinson, A & MacGregor, H 2016, ‘Towards the just and sustainable use of antibiotics’, Journal of Pharmaceutical Policy and Practice, vol. 9, no. 31, pp. 1-10.