Health Economics Series: Uncertainty and Asymmetric Information

Uncertainty is a situation where it is impossible to know the likelihood (unknown probabilities) of an event occurring while information asymmetry is a situation in which one party has more / better information than the other party.

Many Filipinos exhibit the first type of information failure: uncertainty. Filipinos are not keen on examining the financial implications of contracting a disease/illness. Because of the perceived uncertainty of acquiring the disease and its associated financial repercussions, many Filipinos do not know their need for health care. Two policy responses are widely accepted in the country (social health insurance and private insurance) to help address this. Through these insurance schemes, financial uncertainties directly connected to future disease or disability are minimized.

Information asymmetry is seen in the classic case of tobacco smoking. Smokers usually do not know the addictive properties and health consequences of tobacco use. As such, in 2014, the Graphic Health Warnings bill was signed into law. This law seeks to curb tobacco smoking by providing health information through graphic health warnings in tobacco product packages. The law is the government’s response to information asymmetry happening between tobacco manufacturers and tobacco smokers.