[Discussion] Physician Increase from the Perspective of Opportunity Cost and Rent-Seeking Behavior

Rent from Imports Arising in Cases of Supply Restrictions
Medical Licenses as Legal Monopolies
Government Role Requires Scalpel if Excessive

Doctors also need to be born in good places to receive their true value. There is a story about an Argentine doctor who changed his fate by going to Qatar to watch the World Cup. The hospital owner, who took notice of him as a medical part-timer, offered him a job. He promised a house, a car, and a monthly salary of about 20 million won. Since this was the amount a doctor in Argentina would earn after working for a year, he had no reason to hesitate and settled in Qatar.

In 2024, the expansion of medical school quotas is a heated debate in South Korea. The goal is to increase the number of doctors working in essential (unpopular) departments and in rural areas. The essential medical policy package includes four issues: expanding medical personnel, strengthening regional healthcare, expanding safety nets against medical accidents, and fair compensation (raising fees for essential medical services while lowering prices for non-reimbursed treatments). If the medical market has failed, government policy intervention is justified. Of course, even if the direction is right, side effects may occur, so the government must properly prepare for potential policy failures.

How about examining the issue of increasing the number of doctors from an economic perspective?

In economics, income generated from limited supply is called rent. Singers like Lim Young-woong or soccer player Son Heung-min are irreplaceable, allowing them to pursue pure rent. Their market value is determined by the market, but if they are popular, they can demand high fees. Nvidia, the leader in the AI semiconductor market, posted Q4 sales of $22.1 billion, about three times higher than the same period last year. Nvidia’s AI semiconductor market share is about 80%. Its high operating profit margin is a virtue of companies like Nvidia that possess economic moats. Thanks to this, who can blame Nvidia for surpassing Google and Amazon to become the third-largest company by market capitalization in the U.S.?

If the high-priced medical practices of doctors in popular specialties are due to a shortage of doctors, this is an example of rent-seeking behavior. A medical license is not a reward for creative destruction called innovation but merely a legal monopoly granted by law. If excessive, it must be cut with a scalpel. While medical licenses are granted because they deal with human lives, the appropriate scale should be considered in light of general public sentiment. Excessive rent should be reduced by the government to increase social welfare. In economics, all acts by interest groups to influence policy decisions to protect government permits and approvals are condemned.

Next is the opportunity cost perspective. Opportunity cost refers to the highest value of what is given up when making a choice. Suppose the market is filled only with students aiming to become doctors who earn well. News that a significant number of students drop out from the top science and engineering programs at Seoul National University and the Korea Advanced Institute of Science and Technology (KAIST) has become an annual event. They are preparing for lives as doctors or pharmacists. Our excellent future talents should be scientists, not doctors. To reduce the dropout rate from science and engineering, it is not enough to merely talk about the importance of fostering science and technology and nurturing talent. After World War II and the Cold War, the leadership of world universities shifted to U.S. research universities. The knowledge and technology they create have led to economic innovation represented by Silicon Valley, beyond national security. Excellent universities have become the driving force of national development.

If parents’ desperate wish is for their children to enter medical school and have job security, the opportunity cost our society must pay is enormous. Some say that if medical school admissions are expanded, the number of current university students reapplying for medical school might increase. Even so, increasing the number of doctors is a desperate measure to reduce the future opportunity costs that the nation and people will have to bear. Reducing the social opportunity cost caused by the concentration in medical schools is as important as reducing the opportunity cost of childbirth to increase the population.

Jo Won-kyung, Professor at UNIST · Director of the Global Industry-Academia Cooperation Center

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