Economic Tools and Concepts in Sports Drugs - Literature review Example

Economic Tools and Concepts in Sports Drugs Franklin P. Adam once said, "Health is the thing that makes you feel that now is the best time of the year." In fact, the simplest rule that gives us an economic sense of health to a rational man is given by Charles Caleb Colton who once said, "The poorest man would not part with health for money, but the richest would gladly part with all their money for health.” Thus, for the spots person all around the world health is an important of issue and sports drugs is an answer to this concern. Thus, according to Wikipedia sports drugs is a growing industry with great business potential. Therefore, in this paper I will examine some of the tools and concepts that can be used in the case of sports drugs. When talking about economics in relationship to issues as serious as health, we are warned that the application of the terms and theories of economics to the situations of healthcare is not a straightforward exercise. This is because most the factors that affect the economic decisions in the healthcare are beyond control, unknown or misunderstood. Thus, the economic relationships keep changing in case of the issue relating to healthcare (Scott II et al., 2001). There are however, two distinctive general features of the healthcare market that guide rational consumers to develop risk aversion behaviour and allow us to make some sense of the markets of sports drugs: scarcity of resources and the efficiency needed in their allocation (Scoot II et al., 2001; Greene & Baron, 2001; Finkelstein et al. 2008). Thus I, at first, discuss the allocation of resources in sports drugs and following that is the utility function. Resource Allocation to Sports Drugs While we are discussing the issue of resource allocation in the sports drugs market, we should bear in mind that the market for healthcare is non-competitive and its characteristics differ for those of perfectly competitive markets. There are certain reasons behind this claim: first of all, the market for health care and insurance is heterogeneous in the sense that a patient can experience a range of outcomes within given circumstances. Secondly, there is, resultantly, no means of measuring the value a patient places t the resources used in the healthcare industry (Scott II et al., 2001). Thirdly, Ringle et al. (n.d.) found that the demand for sports drugs is relatively inelastic, yet another indication of imperfect completion. An important distinction of the healthcare economic decision making is that the perspective of the sports drugs means differently to hospital patients, healthcare providers, insurance companies, government and society. The consumer takes the need as a relaxation to his pains and achievement of other results which may, somewhat, be irrelevant to the concepts of costs but would be very relevant to sports drugs providers. However, one aspect is common for all the parties: efficiency or getting most out of limited resources (Scott II et al., 2001). We can, thus, develop a relationship between the inputs and output to obtain a combination of resources utilized in sports drugs in order to yield maximum possible benefits (Scott II et al., 2001). According to classic production function we the economic theory gives rise to a standard curve as shown on figure No. 1 which shows relationships between one input and one output. A variable input as opposed to another fixed input results in the setting in of the law of diminishing marginal returns. This means when the quantity of the variable input changes, the output tends to change; fixed input, however, doesn’t change- yet it is considered to be an important factor in the production of the given output- and once the fixed output is overextended, the marginal output tends to fall. This can be seen in figure 1. (Scott II et al., 2001). Figure 1. Shows that when the variable input increases, the output, though at first tends to rise up to OB, falls after OB because of the application of the law of diminishing marginal return. Thus, a rational producer would like to produce somewhere between OA and OB. This is where maximum production can be obtained from the use of given input constrained by another fixed input. In this description we, however, ignore the dollar value of the output. Hence, if the dollar value of the input calculated in the process to produce the output which a value reasonably and sufficiently above that of the input, the producer is going to earn from this production. The producer, however, will keep producing the output only by the time the value of input is at least equal to the cost of the inputs. This is a situation we cal the maximization of profit in the short run (Parkin, 1996). In case of sports drugs, a producer will attempt to produce the drugs as soon as their marginal cost equals the marginal revenues they earn to him. The Utility Function of the Sports Drugs Utility is the satisfaction that a consumer drives from the use of some goods or services (Parkin, 1996). In case of sports goods it is the fulfillment of the purpose that these drugs have for the sportsmen. The utility derived from the use of sports drugs may be in the form of pain killers, sprays for reducing the impact of injury, improving the muscular abilities to reduce the experience of fatigue or any other relaxants etc. In today’s sports world, drugs are used very popularly and sometimes notoriously, however, my analysis only looks at the positive study of utility and not the ethical or controversial problems. According to Finkelstein et al. (2008) the utility analysis in case of drugs, sports drugs in my case, gives rise to a range of implications and the behaviors by the users. There is a large amount of research going into the utility functions for drugs and the results are discrepant. Some researchers, like Feldstein, (1973); Feldman and Dowd, (1991); Brown and Finkelstein (2008); Golosov and Tsyvinski (2006), (cited in Finkelstein et al., 2008) have established that utility has no meaningful relations to health. On the contrary, there are other researchers, for example Hall and Jones (2007); Zeckhauser, (1970); Arrow, (1974), (cited in Finkelstein et al., 2008) who are of the opinion that there is some utility in health related economic concerns. All in all, these economists argue that the utility of health increases as the income of customer increases. This is one of the reasons we find internationally famous sports persons found to be using more of sports drugs than the club level players. Moreover, it is also argued that the utility is also a function of the life cycle savings of an individual. Thus, if the marginal utility falls with the increased consumption of the sports drugs. Research, as discussed earlier, has shown that the utility has been experienced to have diverse behaviors in case of healthcare. As is the case with many consumption goods, the marginal utility falls in case deteriorating health. As a person consumes more of sports drugs and the outcomes does not turn out to be as desired the marginal utility will tend to fall. Quite contrary to this, the utility function may be a direct one in relation to the deteriorating health when health becomes a substitute to may consumption goods for example good food outing etc. (Finkelstein et al., 2008). Finkelstein et al. (2008) has adopted an approach to compare how the difference in individual utility between healthy and sick states of the world varies with consumption. He writes, “If the difference in utility increases with consumption (as in Figure 1A), we infer that the marginal utility of consumption declines as health deteriorates, a phenomenon we refer to as negative state dependence. By contrast, if the difference in utility declines with consumption (as in Figure 2) we conclude that marginal utility increases as health deteriorates (positive state dependence). Moreover, the magnitude of the change in the difference in utility across health states by consumption level allows us to quantify the magnitude of any state-dependent utility.” Figure 2 Source: Finkelstein et al. (2008) Figure 2. gives us a case to apply to sports drugs. We can see in panel A that the marginal utility falls as more of drugs are consumed in case of sports drugs this might be true if the sport person is not able to vitalize on the desired results are outcomes form the drugs. On the contrary, in Panel B, we see that the utility rises with the increased consumption as the sicknesses increases, this might well also be true in case of sports drugs where a player becomes desperate to achieve the desired results and when the consumption increases and fails to have the outcomes, his utility from the use of additional drugs increases. In short, in the modern sports world the use of drugs has become almost a necessity. The concepts and tools commonly used in the subject of economics do not give very dependable answers to the questions relating to healthcare and consequently to those in case of sports drugs. However, proper allocation of scarce resources is said to be based on the well known principle of efficiency. Moreover, when we talk about scarcity in connection with we come across the concept of utility as well. In case of sports drugs, the behavior of the consumer is not well-known or established. Thus we can conclude that the behavior of customer in case of sports drugs is ambiguous and needs ample research and sound foundations in order to enable us draw reliable conclusions. References Finkelstein, A., Luttmer, Erzo F.P. & Notowidigdo, Matthew j. (June 2008) What good is wealth without health? The effect of health on the marginal utility of consumption. NBER Working Paper Series. Retrieved May 17, 2010 from http://www.nber.org/papers/w14089.pdf?new_window=1 Greene J. & Baron, J., (2001). Intuitions about declining marginal utility. Journal of Behavioral Decision Making, 14: 243-255 Parkin, M., (1996). Economics (3rd Edition). Addison Wesley Publishing Company Ringle Jeanne S., Hosek, Susan D., Vollaard, Ben A. & Mahnovski, Sergej.(n.d.) The elasticity of demand for healthcare: a review of the literature and its application to the military health system. National Defense Research Institute. Retrieved May 16, 2010 from http://www.rand.org/pubs/monograph_reports/2005/MR1355.pdf Scott II, R. D., Solomon, Steven L. & McGowan, John E. Jr., (2001). Applying economic principles to healthcare. Centers for Disease Control and Prevention, Atlanta, Georgia, USA. Retrieved may 17, 2010 from http://www.cdc.gov/ncidod/eid/vol7no2/scott.htm Read More