Friday, August 6, 2010

Is health care different?

In what Austin Frakt calls must read, Uwe Reinhardt has blog post at economix that reviews the 1963 ("Uncertainty and the welfare economics of health care") paper by Kenneth Arrow that discusses whether health care is different from other goods. Put another way, do the following principles of perfectly competitive markets hold in health care (from Reinhardt):

"The crucial characteristics of a perfectly competitive market are (1) that all of the quality dimensions of the good or service traded in that market are accurately understood by buyer and seller; (2) that potential buyers have full transparency on the price they will have to pay per unit of that good or service; (3) that it is easy and relatively costless for potential sellers to enter and exit this market; (4) and that there are so many potential buyers and sellers that none individually can affect the market price of the thing being traded."

By the way, Reinhardt's overview is a lot easier to understand than the original paper.....and he promises a follow up post that provides an overview of Arrow's conclusion about whether health care is different.

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