• A must read

    I don’t make declarations like this often: Uwe Reinhardt’s Economix post today is a must read for readers of this blog. It’s the beginning of a straight-forward summary of Arrow’s seminal 1963 paper on health care. Reinhardt promises a follow up that I’ll declare a must read before I even see it (I’ll announce it anyway).

    In case you don’t know, Arrow is a Nobel-prize winning economist. His 1963 paper arguably launched or defined the field of health economics. It’s not an easy paper to read. The ideas are so densely packed scholars have been discussing them since. I’ve written about that paper and Arrow before. And so has Reinhardt. In a 2001 paper, which I’ve summarized, Reinhardt masterfully unpacked some of the content of Arrow’s paper. Reinhardt’s paper is, by comparison to Arrow’s, quite readable.

    So is his post:

    It is easy to see why Professor Arrow’s paper fired the imagination of generations of economists around the world in their argument that public health policy should confine itself strictly to making the market of health care perfectly competitive and then to redistribute income — perhaps by means of tax-financed vouchers to help subsidize the purchase by poorer people of needed health care — in order to achieve whatever distributive ethic society wishes to impose on health care. That free-market approach would automatically take care of whatever moral aspect society wishes to impute to health care.

    Having established this normative benchmark, Professor Arrow explored in the rest of his paper how close the market for health care actually comes to the characteristics of a perfectly competitive norm.

    I encourage you to read Reinhardt’s post for reasons given above and also because his message gets to the heart of a question I’ll ponder further next week. Have health economists played a meaningful role in shaping our current health care system? That is, do we have a private, market-based system for the non-elderly because health economists advocated and justified exactly that? I’ll give you my opinion on these questions next week.

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