UNCERTAINTY AND THE WELFARE ECONOMICS OF MEDICAL CARE

Abstract

This chapter focuses on the way in which the operation of the medical-care industry and the efficacy with which it satisfies the needs of society differ from a norm. The term norm that the economist usually uses for the purposes of such comparisons is the operation of a competitive model, that is, the flows of services that would be offered and purchased and the prices that would be paid for them. The interest in the competitive model stems partly from its presumed descriptive power and partly from its implications for economic efficiency. 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. There is no other allocation of resources to services that will make all participants in the market better off. The most obvious distinguishing characteristics of an individual's demand for medical services is that it is not steady in origin as, for example, for food or clothing but is irregular and unpredictable. Medical services, apart from preventive services, afford satisfaction only in the event of illness, a departure from the normal state of affairs.