The Inefficiency of Rural Living

Moneybox
A blog about business and economics.
June 6 2012 10:13 AM

The Inefficiency of Rural Living

Living in a truly rural area brings with it a number of advantages, most of them related to the existence of wide open spaces.

But these same wide open spaces carry with them major disadvantages for a would-be participant in a modern economy. Something like high-speed broadband internet access is extremely inefficient to provide at a very low population density. The same is also true of packages and brick-and-mortar mail. One of the main policy goals served by the US Postal Service is to overcharge metropolitan America for mail delivery in order to create a cross-subsidy to provide discount mail to rural America.

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A related issue is that it's completely impossible to provide modern health care services to a rural population. In a metropolitan area even a small medical practice features multiple doctors serving a large pool of patients. Because the pool of patients is large, the doctors can employ non-doctors to provide administrative support and even do some of the health care. Along with that division of labor within a medical practice, you can also have substantial division of labor between medical practices as different doctors who specialize in different things all have offices 15-30 minutes commute away from milions of people. In a rural area none of this works. As Adam Smith wrote, the division of labor is limited by the extent of the market and a feasible travel time simply doesn't support a very large market. The result is very inefficient provision of health care services which, as Sarah Kliff details, is leading some doctors to just up and quit. Since rural areas are disproportionately represented in the American political system we already have a number of programs in place to subsidize this aspect of rural living—just as we disproprotionately subsidize inefficient rural telecommunication and transportation infrastructure—and as health care becomes a bigger and bigger share of the economy we'll probably find ourselves investing even more in this. 

The rural/metro health care gap is, however, a pretty good case study in the limited relevance of health care services to health outcomes. Residents of the extremely low density northern plains states have some of the highest life expectancies in America especially when you consider their relatively low incomes and low levels of educational attainment. That's not because the best doctors in the world are found in Montana or that North Dakota is a good place to find a specialist.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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