This volume revisits the Nobel Prize-winning economist Kenneth Arrow’s classic 1963 essay “Uncertainty and the Welfare Economics of Medical Care” in light of the many changes in American health care since its publication. Arrow’s groundbreaking piece, reprinted in full here, argued that while medicine was subject to the same models of competition and profit maximization as other industries, concepts of trust and morals also played key roles in understanding medicine as an economic institution and in balancing the asymmetrical relationship between medical providers and their patients. His conclusions about the medical profession’s failures to “insure against uncertainties” helped initiate the reevaluation of insurance as a public and private good.

Coming from diverse backgrounds—economics, law, political science, and the health care industry itself—the contributors use Arrow’s article to address a range of present-day health-policy questions. They examine everything from health insurance and technological innovation to the roles of charity, nonprofit institutions, and self-regulation in addressing medical needs. The collection concludes with a new essay by Arrow, in which he reflects on the health care markets of the new millennium. At a time when medical costs continue to rise, the ranks of the uninsured grow, and uncertainty reigns even among those with health insurance, this volume looks back at a seminal work of scholarship to provide critical guidance for the years ahead.

Contributors
Linda H. Aiken
Kenneth J. Arrow
Gloria J. Bazzoli
M. Gregg Bloche
Lawrence Casalino
Michael Chernew
Richard A. Cooper
Victor R. Fuchs
Annetine C. Gelijns
Sherry A. Glied
Deborah Haas-Wilson
Mark A. Hall
Peter J. Hammer
Clark C. Havighurst
Peter D. Jacobson
Richard Kronick
Michael L. Millenson
Jack Needleman
Richard R. Nelson
Mark V. Pauly
Mark A. Peterson
Uwe E. Reinhardt
James C. Robinson
William M. Sage
J. B. Silvers
Frank A. Sloan
Joshua Graff Zivin

Peter J. Hammer is Assistant Professor at the University of Michigan Law School. Deborah Haas-Wilson is Professor of Economics at Smith College. Mark A. Peterson is Professor of Policy Studies and Political Science at the University of California, Los Angeles, School of Public Policy and Social Research. William M. Sage is Professor at the Columbia University School of Law.

  

  

  

  

Table of Contents
Forword Mark V. Pauly vii
Preface Victor R. Fuchs xiii
Kenneth Arrow and the Changing Economics of Health Care: “Why Arrow? Why Now?” Peter J. Hammer, Deborah Haas-Wilson, Mark A. Peterson, and William M. Sage xvii
Uncertainity and the Welfare Economics of Medical Care (American Economics Review, 1963) Kenneth J. Arrow 1

PART 1: SUPPLY, DEMAND, AND HEALTH CARE COMPETITON
General Equilibrium and Marketability in the Health Care Industry Michael Chernew 37
Arrow’s Concept of the Health Care Consumer: A Forty-Year Retrospective Frank A. Sloan 49
Uncertainty and Technological Change in Medicine Annetine C. Gelijns, Joshua Graff Zivin, and Richard R. Nelson 60
Human Inputs: The Health Care Workforce and Medical Markets Richard A. Cooper and Linda H. Aiken 71
Health Care as a (Big) Business: The Antitrust Reponse Clark C. Havighurst 84

PART 2: RISK, INSURANCE, AND REDISTRIBUTION
Health Insurance and Market Failure since Arrow Sherry A. Glied 103
Can Efficiency in Health Care Be Left to the Market? Uwe E. Reinhardt 111
Valuing Charity Richard Kronick 134
Medical Service Risk and the Evolution of Provider Compensation Arrangements Gloria J. Bazzoli 142
The Role of the Capital Markets in Restructuring Health Care J. B. Silvers 156

PART 3: INFORMATION, KNOWLEDGE, AND MEDICAL MARKETS
Arrow and the Information Market Failure in Health Care: The Changing Content and Sources of Health Care Information Deborah Haas-Wilson 169
The End of Asymmetric Information James C. Robinson 181
Managing Uncertainty: Intermediate Organizations as Triple Agents Lawrence Casalino 189
Moral Hazard vs. Real Hazard: Quality of Care Post-Arrow Michael L. Millenson 202

PART 4: SOCIAL NORMS AND PROFESSIONALISM
Arrow’s Analysis of Social Institutions: Entering the Marketplace with Giving Hands? Peter J. Hammer 215
The Market for Medical Ethics M. Gregg Bloche 230
The Role of Nonprofits in Health Care Jack Needleman 243
Arrow on Trust Mark A. Hall 259
From Trust to Political Power: Interest Groups, Public Choice, and Health Care Mark A. Peterson 272
Regulating Health Care: From Self-Regulation to Self-Regulation? Peter D. Jacobson 290
The Lawyerization of Medicine William M. Sage 302

PART 5: RESPONSE BY PROFESSOR ARROW
Reflections on the Reflections Kenneth J. Arrow 321
Contributors 327
Index 335