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Using a landmark article published in by Nobel Prize winning economist Kenneth J. Arrow as a launching point, the analysis of medical economics is presented from the perspective of medical care in a competitive market.
A series of retrospective articles presented in the "Journal of Health Politics, Policy and Law" provides further perspectives on Arrow's article. The essay concludes with a brief look at work in the area of market forces in the medical care market and a consideration of the role of the Internet in providing information on quality and price to medical providers and consumers.
The Economics of Medical Care Overview Is the medical care market a "competitive" market as defined by the discipline of economics? Health economics research paper the general norms and theories of economics be applied to medical care?
These are the questions that are discussed in this article. First, it is important to note that the language used here is "medical" economics and not "health" economics. Medical economics refers to the study of the medical industry as represented by goods and services produced and provided by physicians, ancillary providers, clinics, and hospitals.
Health economics implies a state of being that includes factors such as diet, exercise, and individual risk behaviors such as smoking, drinking, non-seat belt use, etc.
The exploration of health economics is not considered in the scope of this article and best left for a separate discussion. The importance of Arrow's article was observed some forty years later as the October issue of the "Journal of Health Politics, Policy and Law" provided a series of retrospective articles examining the thesis set forth in Arrow's article in light of the tremendous changes in medical care delivery and finance in subsequent decades.
First, to put his article in context, Arrow was writing before the era of health maintenance organizations HMOsmanaged care, and many of the major technological advances in medicine that are commonplace today. These would include advanced imaging such as magnetic resonance imaging MRIand major new classes of drugs used in infection control, cancer treatment, mental health, and other conditions.
Thus, the retrospective analysis published in October sheds additional information on Arrow's original thesis in the context of our current understanding of medical economics.
Arrow's thesis in his article was that "the role of moral hazard in medical insurance arises from inequalities of information between the insurer on the one hand and the physician and patient on the other" as restated in Arrow, The concept of moral hazard is defined as the effect of insurance on the behavior of the insured Nicholson, In general, the availability of insurance creates the potential for increased demand.
This is clearly seen in the medical care market where the spread of insurance, in particular Medicaid and Medicare, has created an increased demand for medical services Millenson, ; Arrow, Arrow and others argue that medical care markets fail to address increased demand through increased prices because medical care is a non-competitive market.
Arrow's contention that medical care is a special market distinct "from the norms of welfare economics" is explored in the following sections Reinhardt, Pareto Optimality The concept of Pareto optimality, as first described by Vilfredo Pareto instates that competitive equilibrium exists in a market when an allocation of resources is such that giving one additional allocation to one person results in making another person worse off.
Stated another way, a condition of Pareto optimality resource allocation is such that all participants in a market are in equilibrium and a change to make one better off makes another one worse off. Pareto optimality can be further understood by examining the First and Second Theorems of Optimality.
There is no other allocation of resources to services which will make all participants in the market better off" Arrow,p. Reinhardt further states that the assumptions underlying the First Theorem are:Research at RFF on the way land is used and managed spans natural, rural, and urban settings, including analysis of innovative policies to limit urban sprawl, the cost and effectiveness of natural infrastructure, and the costs and benefits of recreational land use, among other topics.
Research. Joseph Doyle, MIT Sloan Curriculum Vitae. Published Papers. Birth Order and Delinquency: Evidence from Denmark and Florida (with Sanni Breining, David Figlio, Krzysztof Karbownik, and Je¤rey Roth).Journal of Labor Economics forthcoming..
Evaluating Measures of Hospital Quality (with John Graves and Jonathan Gruber).Review of Economics and Statistics forthcoming. Forum for Health Economics & Policy, , Forum: Biomedical Research and the Economy: Article 4.
Download the paper in Acrobat PDF format. This paper studies the interactions between health insurance and the incentives for innovation. Biophilia, the innate human attraction to nature, is a concept that has been recognized for several decades by the scientific and design communities, and intuitively for hundreds of .
IDEAS is the largest bibliographic database dedicated to Economics and available freely on the Internet. Based on RePEc, it indexes over 2,, items of research, including over 2,, that can be downloaded in full text.
Economic Terms and Health Care History In this paper the author will describe the history of health care economics along with the evolution and timeline of health care funding. Gaining insight from economical terms can assist with understanding the history and future changes; terms such as, elasticity, inelasticity, supply and demand.