The Oxford Health Alliance |

You are here: Frontpage > Initiatives > Economics > An economic perspective
The Oxford Health Alliance |
An economic perspective

This major report, 'Chronic disease: an economic perspective', written by Marc Suhrcke, Rachel A. Nugent, David Stuckler and Lorenzo Rocco for OxHA, demonstrates that chronic diseases – heart and lung disease, cancer and diabetes – are having a negative economic impact on both the developed and developing world and should thus be adequately addressed by domestic and international policy makers.

The Executive Summary is below.

  • Click here >> to download the report as a pdf.
  • Click here >> for a press release introducing the report.
  • Click here >> for the Web-Annex of supplementary graphs and tables.

Executive summary

Chronic diseases account for the greatest share of early death and disability worldwide. Over the next few decades this burden is projected to rise particularly fast in the developing world. The lack of research on the economic implications of chronic disease contrasts with the available knowledge on the sheer epidemiological burden of the problem. This paper assesses and evaluates the current state of knowledge, with a primary focus on low- and middle-income countries, and a secondary focus on high-income countries (where information on the former is lacking). Very few such attempts have been undertaken, especially with an interest in developing countries. Thus a critical review of the available evidence is a necessary first step in exploring the case for governments and donors to invest in chronic disease prevention and in clarifying areas in which further research is required.

As the evidence is complex, the report should meet the needs of technical audiences for whom detailed knowledge is central as well as be accessible and useful to those for whom synthesised understandings are sufficient.

Who is affected by chronic diseases?

Chronic diseases have traditionally been considered ‘diseases of affluence’ that affect only the elderly and wealthy. While the observed patterns defy over-simplified conclusions, the data presented in this report strongly suggest that chronic diseases and related risk factors impose a significant burden on both the poor – across countries and within countries – and those of working age. To the extent that the traditional view has prevailed among economists, it may be partly responsible for the lack of research into the economic implications and public-policy relevance of chronic disease.

Chronic diseases account for the largest share of the overall mortality in all regions of the developing world, except sub-Saharan Africa. While the prevalence of risk factors varies across countries, it is clear that they are significant in countries other than the most affluent. Within countries, in particular low- and middle-income countries, the picture is clearest for smoking (which is concentrated among the poor) and female obesity (where above a fairly low national per-person income level, the burden is concentrated among the poor). The picture appears more mixed for other indicators, such as physical inactivity.

Contrary to widespread views, a substantial share of the chronic disease burden rests on the shoulders of working-age populations (even when ‘working age’ is conservatively defined as 60 years or younger), particularly in developing countries. Approximately 80% of all disability-adjusted life years (DALYs) are lost due to chronic disease before the age of 60. Yet, even the disease burden on the elderly has a significant and sometimes underappreciated economic impact because a person’s main economic importance is as a consumer, not a worker – though the elderly may no longer be formally employed, they are still consumers.

What are the economic consequences of chronic disease and related risk factors?

The report distinguishes three (partly overlapping) sets of evidence that illustrate the economic impact of chronic disease: ‘cost-of-illness’, microeconomic and macroeconomic data. Taken together, there exists evidence enough to conclude that there are important economic consequences of chronic disease – important for the individual and his/her family, but also potentially important for the economy at large. Chronic diseases and related risk factors have an impact upon consumption and saving decisions, labour-market performance, and human-capital accumulation. There is also recent evidence that chronic diseases have significantly detracted from economic growth in high-income countries. To the extent that this evidence points to future impacts in developing countries, it may function as a reminder to policymakers to act now to stem the growing burden of disease not solely as a use in itself but in addition as a means to promote economic development.

Are there market failures that justify public-policy intervention to prevent chronic disease?

It is far from obvious that there is an economic justification for governments to interfere in the private sphere of the individual, especially as the largest share of the costs of disease are borne by the individual directly concerned (i.e. they represent private or ‘internal’ costs). There are, however, conditions under which the market fails to achieve socially optimal outcomes on its own, potentially justifying government intervention to improve social welfare. There are four potential market failures for the risk factors that give rise to chronic diseases: externalities, non-rational behaviour, insufficient and asymmetric information and time-inconsistent preferences (causing serious self-control problems). Since there is little work that has directly examined the rationale for intervention against chronic disease in developing countries, much of the evidence discussed relates to developed countries. In short, the main conclusions of this chapter are as follows:

  • The presence of health or social costs of an individual’s unhealthy behaviours that are borne by society at large (‘externalities’) or by family members (‘quasi-externalities’) may represent a justification for intervention, although the former, in particular, are typically not considered to be large in comparison with internal costs.
  • There is widespread recognition that parts of the population, in particular children, are not (yet) the rational actors that economic theory assumes. Therefore, interventions that protect children stand a good chance of finding support.
  • Information is a public good and as such it will generally be undersupplied compared to the social optimum. Hence, there is in principle a case for governments to intervene to provide information, especially in developing countries. 
  • A recently defined justification for intervention, grounded in behavioural economics, is the idea of time-inconsistent preferences (giving rise to ‘intra-personal’ externalities or ‘internalities’): individuals accept instant gratification at the expense of their long-term best interests.

Though more research is needed, the latter argument (as well as non-rational behaviour and imperfect information) can in principle justify an acceptance of some of the large internal costs of chronic diseases as relevant to public policy, on top of any external costs that may exist.
Is there evidence that interventions can prevent chronic diseases for a reasonable cost?
There is evidence that cost-effective interventions exist to address chronic disease in developing countries. Some of this evidence has come from studies carried out in developing countries, some is from modelling based on available data, and some is from experience in developed countries that suggests a likelihood of cost-effectiveness in developing countries.

Cost-effective interventions include tobacco-cessation programmes, tobacco taxes, contextually appropriate mass-media education campaigns to improve diet, community-based physical activity programmes, and secondary prevention through pharmacological interventions. However, much more investment in carefully designed and conducted interventions trials in developing countries is needed. Many of the interventions that are generally thought to be effective or even cost-effective have not been evaluated in a developing-country context. Because there is little economic incentive for the private sector to conduct such research, it could be an excellent investment for the public sector as the burden of chronic diseases grows with ageing populations and the factors contributing to many chronic diseases spread around the world.

Overall, though significant evidence is available to suggest that chronic diseases merit a marked increase in policy attention, there remain gaps that point to a need for more research on the burden and cost of chronic diseases, as well as on the effectiveness and cost-effectiveness of interventions, particularly for developing countries.