Uncertainty and the Economics of Medical Care in The American Economic Review 53 No 5, December 1963, pp. 941-973. Kenneth J. Arrow.

Uncertainty and the Economics of Medical Care in The American Economic Review 53 No 5, December 1963, pp. 941-973

Wisconsin: American Economic Association, 1923. 1st Edition. FIRST EDITION IN ORIGINAL WRAPS (housed in custom case) OF KENNETH ARROW’S SEMINAL PAPER LAUNCHING THE FIELD OF MODERN HEALTH ECONOMICS. Arrow’s paper is famous for many reasons – its “dazzling accuracy”, its creation of an entirely new field of study, and also the skill and beauty with which it was written. “One is struck by the frequency with which a single sentence or paragraph opens up a concept, hypothesis, or relationship which will, years later, be expanded into a major subject of research” [for example the issue of ‘trust’ as it relates to medical care] (Fuchs, Health Affairs, March 8, 2017). To date, Arrow’s paper remains “one of the most widely cited articles in the field of health economics” and is sometimes referred to as “the article that launched a thousand studies” (Savedoff, Public Health Classics, BWHO, Feb. 2004, 82).

In 1963 Arrow was already a highly regarded economist; by the time of his death in early 2017 many considered him “the foremost economist of the second half of the 20th century” (Fuchs). In 1963, however, he had never written about the economics of health care. The Ford Foundation, attempting “to promote greater exchange between economists and other professions in the areas of health, education and welfare”, extended an invitation to Arrow to apply his “pioneering research,” on asymmetric information in markets to the issue of medical care (ibid).

Arrow was fascinated by “the problems caused by asymmetric information in markets. In many transactions, one party (usually the seller) has more information about the product being sold than the other party. Asymmetric information creates incentives for the party with more information to cheat the party with less information; as a result, a number of market structures have developed, including warranties and third party authentication, which enable markets with asymmetric information to function” (Wikipedia). Before he could even begin to approach the task at hand, Arrow had to educate himself about health care and insurance – like many other economists, he had avoided the field.

The paper Arrow ultimately wrote, this paper, did more than exceed the Ford Foundation’s goals, it created the field of health economics and remains highly influential to this day. Prior to the article’s appearance, economists had largely limited their research to descriptive and institutional studies. After Arrow’s paper, the economics of health care became not just a respectable field of study, it was considered an “exciting” one (Fuchs).

In this paper, Arrow characterized the differences between the healthcare market and normal competitive markets with regard to (1) the nature of demand – medical services are irregular and unpredictable (2) the expected behavior of the physician (3) product uncertainty (4) supply conditions (5) pricing practices.

Arrow endorsed the view that ‘the laissez-faire solution for medicine is intolerable’ and that the delivery of health care deviates in fundamental ways from a normal free market, thus requiring government intervention to mitigate those deviations. Arrow wrote: “the operation of the medical-care industry and the efficacy with which it satisfies the needs of society differs from… a competitive model… If a competitive equilibrium exists at all, and if all commodities relevant to costs or utilities are in fact priced in the market, then the equilibrium is necessarily optimal” (Hastings, Kenneth Arrow on Healthcare Economics, AHEB, March 7, 2017).

The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1972 was awarded jointly to John R. Hicks and Kenneth J. Arrow "for their pioneering contributions to general economic equilibrium theory and welfare theory" (Nobel Prize Committee). Item #1325

CONDITION & DETAILS: 4to. Original wraps housed in a pristine custom clamshell case gilt-lettered at the spine and on the front board. The issue is also pristine save for some very slight sunning at the spine. Near fine.

Price: $900.00

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