In this chapter, we introduce economic thinking in healthcare, provide a (very) brief history of health economic theory and then introduce the idea of the political economy of healthcare systems. Finally, the role and limitations of mathematics in health economics are discussed.

Economic thinking in healthcare and the role of health economics

What does “economic thinking” mean? As a first approximation, it entails elements of rationality, efficiency and cost. These concepts are not particularly difficult to understand but involve two challenges: the first is internalizing this form of thinking and looking at the world with an economic preconception and the second is being able to translate such concepts into either a model for explaining a phenomenon and/ or using it for deriving a practical or policy solution. The internalization can often reveal fascinating insights into why certain phenomena occur.

For example, if we assume that you want to sell your house, which is estimated to be worth €300,000, you hire an agent to help you sell it. The agent will receive a 3 per cent commission on the sale price. After a week the agent suggests dropping the price to €290,000. This comes as a surprise to you because you had assumed he would push for the highest price possible to earn as much commission as possible. The mistake here is to only account for the potential commission, not the time invested by the agent. If the agent can sell the house in a week and receive a commission of €8,700, this is more profitable than selling it after six weeks of work for €9,600 – or €900 for an additional five weeks of work. One needs to take into consideration the personal interests of the agent and the cost–benefit of time spent versus money earned and how that time might be better spent.

One of the differentiating features of economics from social or political sciences or ethics is the use of simple conceptual and theoretical models to understand situations and decision-making, and, more importantly, to advise on the choices that involve trade-offs.