A Rigged Game?
of reflection shows that reality is different. Although administrative
The Tragedy of the Commons
staff and top management work for the same company, their ability to
influence outcomes is not the same, their compensation schemes are
vastly dissimilar, and in general their payoffs have little in common.
Furthermore, the interests of top management can be, and usually are,
in conflict with the interests of owners, whose business knowledge
is limited. Economists have coined a term for this type of game with
asymmetric information: the principal-agency problem.[ 1]
How can real players be identified? Understanding motivations
and payoffs is often the key. They range from a sense of patriotic
duty, to disinterested care for the wellbeing of others, to desire
for status, to envy, to hunger for power, to monetary gain. The
following penetrating question helps uncover the players’ true
identity: “Cui bono?”—“For whose benefit?” The answer can
provide meaningful insights into the game at hand.
and the Invisible Hand
The Tragedy of the Commons is an analytical framework in game
theory that has justly become famous. It was described by biologist
Garrett Hardin from the University of California at Santa Barbara
in his article by the same name published in Science.[ 2] Hardin
depicts a situation, particular in its details but applicable to many
real-world problems, where individual interest and freedom to
choose lead to societal catastrophe. [ 3] Mayhem, it turns out, can be
avoided by restricting the individual choices that affect others. The
conclusion is unavoidable but contradicts the widely held belief that
“the invisible hand” maximizes the benefits to society. How can this
be? The answer lies in the common
misunderstanding of Adam Smith’s
reasoning—the result of careless
reading of his writings, or worse yet,
relying on hearsay to form opinions.
Smith’s message is simple.
However, the popular conclusion—
that unfettered ability to choose is
optimal for society regardless of con-
sequences to others—remains an
article of faith to many who have never understood the context of
Smith’s writings. To appreciate the serious limitations of the “in-
visible hand” it is important to realize that Smith saw the market
as the effective regulator of the use of resources: The assumption
is that if I acquire or use something, the price I pay compensates
society fairly for the resources consumed to create such good or
service. And here is the rub: The “invisible hand,” at best, applies
to markets with a robust price system.[ 4] It turns out that there are
instances, many of them crucially important to society, where a
price system does not exist, or if it exists it does not work prop-
erly. A famous example is the pollution produced by factories. In
this case, manufacturers never pay a commensurate price for the
environmental destruction they generate. Another example, one
that has been studied carefully, is the U. S. health care system, where
some of the major determinants of prices are the ability of one party
to extract concessions from others and the opportunity to game
the system. Furthermore, in many instances, the relation between
price and quality is elusive at best, information is imperfect—in
some cases really imperfect and asymmetric—competition is far
from perfect, and so on. Given the poor track record of the U.S.
health care system, it is clear that the “invisible hand,” instead of
maximizing societal benefits, has produced an inefficient scheme
that benefits certain powerful groups at the expense of the many.
Are there conditions that allow or force better results? In researching
the subject (and in the process, winning the 2009 Nobel Prize in eco-
nomics), professor Elinor Ostrom from Indiana University developed
a list of conditions that foster cooperation—but, she concluded, “the
dilemma never fully disappears, even in the best operating systems.
… Instead of thinking of overcoming or conquering tragedies of the
commons, effective governance systems cope better than others.”
Students of strategy, applying common sense or mathematical models,
have come to the same conclusion from different angles.
Let’s apply these concepts to the U.S. health care system.
About the U.S. Health Care System
What is the problem with the U.S. health care system? Answering
this question is important because it specifies the game. Accordingly,
it should be expected that players attempt to define it in ways that
advance their cause. Let’s explore the real problem first and then
the problem that has been presented to the public.
The real problem, stated in objective economic terms, is the
following: The U.S. health care system is expensive, inefficient, doesn’t
cover a substantial portion of the
population, and if left unchecked
will continue to deteriorate. How
.do we know that? All serious studies on health care economics that
compare the United States with
other industrialized countries agree
with the following:[ 5]
■ Cost—The United States devotes
much more than any industrialized
country to medical care. Here is a snapshot of spending as a percentage of GDP: 7% in 1970, 9% in 1980, 12% in 1990, 13% in 2000,
14% in 2010, 18% in 2016. Unless the system is revamped—not
patched—the trend will continue until it reaches unsustainable
levels. Is the U.S. health care system wasteful? Yes, for two reasons:
The United States pays more and gets less than other countries,
and resources that could be used elsewhere are consumed by an
inefficient scheme.[ 6]
■ Access—By virtue of being the only industrialized country that
lacks universal coverage and that conditions access on ability to
pay (as opposed to medical need), the United States scores low
in this category.
■ Quality—The United States is in the middle of the pack when
it comes to effective care, safe care, coordinated care, and pa-tient-centered care. This outcome—that the United States is not
the leader in quality—may surprise many.
If you can’t convince them,