ABSTRACT
This chapter discusses externalities involving health and the medical care system, both positive and negative. A fruitful discussion of externalities must begin with a discussion of property rights because, externalities cannot occur when property rights are fully defined, and when property rights are not fully defined or enforceable, externalities occur commonly, if not inevitably. Contagious diseases and their control provide perhaps the classic example of externalities in health and medical care. For some contagious diseases, scientists have discovered vaccines that make people much less susceptible to the diseases, often totally eliminating the risk for the vaccinated person. The national Vaccine Injury Compensation Program (VICP) was created in 1986 to help encourage vaccine production and distribution in the US by reducing the financial risk to vaccine manufacturers from fault-based personal injury lawsuits. The combination of the VICP and these Institute of Medicine (IOM) recommended "demand supports" could go a long way toward stabilizing the vaccine supply, but several problems remain.
