Antimicrobial resistance and externalities


In economics antimicrobial resistance (AMR) is considered to be an externality which implies that the costs and benefits associated with the consumption of an antibiotic are unlikely to be felt directly by either the consumer or the supplier of the antibiotics, but has an impact on the overall welfare of the society. 

In a free market, with no externalities, social cost is equal to private cost and social benefit is equal to private benefit. In this situation, social welfare is maximised when demand equals supply. However, in the case of antibiotics, consumption creates a situation where social cost and benefits would not be equal to private costs and benefits. This results in a welfare loss to society since the consumers and suppliers of antibiotics do not face the true cost of consumption. For example, although AMR impacts the current generation, its major effects are likely to be incurred by future generations. These future generations cannot influence the policy decisions which are taken in the present and so form an “inter-generational” externality. From a societal perspective, there are positive consequences from consumption of antibiotics e.g. it makes the patient feel better, reduces the risk of infection etc. However, it also has negative consequences in terms of the development of AMR. As a result of this, there is the need for a balance between meeting the present needs of patients for antibiotic treatment and preserving the effectiveness of antibiotics for sustained use in the future. Some of the economic and policy solutions for dealing with externalities associated with AMR include: 


Taxes are a tool that can help deal with the excess consumption of antibiotics by nudging the quantity consumed by society down in order to get back to the optimal levels. When a tax is imposed, the price of antibiotics would increase, and people would consume less of it. If the tax is set to the level of the externality in the market, it will offset the externality and the welfare of society is maximised. Theoretically, a tax is expected to reduce the consumption of antibiotics. However, this would depend on how high the tax is, how much money people have, and also whether there is an alternative which may be cheaper or more expensive. Other issues with taxes relate to how to set the tax at the right level and who will pay for the tax (patient, government etc.). In addition, demand for health may be inelastic (unresponsive to price changes) which implies that a very high tax would have to be placed on antibiotics for the quantity consumed to fall. Taxes may also lead to equity issues since poorer members of society may be priced out as a result of their inability to pay.


Permits are another mechanism that can be used to reduce the consumption/demand for antibiotics. With this approach, rules are set in order to limit the quantity that can be consumed for a particular period e.g. a year, a month etc. For example, geographical regions in a country could be allocated a certain number of permits based on factors such as population and underlying healthcare needs. Permits could be organised in such a way that doctors or hospitals could be incentivized to reduce antibiotic prescriptions to a regulated optimum level. There are also some challenges associated with permits such as the possibility of buying and selling permits. In addition, permits do not directly address the problem associated with inappropriate use of antibiotics and there is also the added difficulty associated with monitoring and policing the permits. 

Education of the public and influencing prescribing behaviour 

One of the mechanisms that can be used to reduce consumption of antibiotics to optimal levels would be massive educational campaigns which would involve informing the public about when it is appropriate and when it is not appropriate to use an antibiotic. Such campaigns involve convincing the public not to demand antibiotics from their doctors or purchase them over the counter. It is believed that this policy would help tackle the unnecessary use of antibiotic e.g. in cases where the infections are viral or self-limiting and could help reduce consumption to optimal levels. Campaigns that are aimed at influencing prescribing behaviour through interventions which provide social norms such as prescribing levels that are socially acceptable could also help reduce the consumption of antibiotics to the optimal levels. 


In economics antimicrobial resistance is considered to be a negative externality which results from the consumption of antibiotics and as a result, economic policies such as taxation and permits could be used to help reduce the overconsumption of antibiotics. However, the main issue is how best to design these policies for them to be effective. Theoretically, taxes and permits may be an effective option, but the question is how much the tax should be and who bears the burden. Also, there are issues relating to how to monitor and police the permits. In designing effective strategies for dealing with the problem of antimicrobial resistance, a lot can be learnt from how other similar challenges such as climate change have been dealt with. Economics offers a range of potential solutions to the externalities that arise from the overconsumption of antibiotics and there is the opportunity for future research into how economics can best contribute to the debate on controlling antimicrobial resistance. 



  • Raymond Oppong

Lecturer in health economics, Health Economics Unit Institute of Applied Health Research at the University of Birmingham



A note on language
Select language