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  • Print publication year: 2020
  • Online publication date: May 2020

1 - The Political Design of Health Systems

from Part I - Political Incentives in Healthcare Systems


What is the role of the government in healthcare? Can healthcare services be efficiently delivered by markets alone? In a seminal 1963 article, Kenneth Arrow remarked that when economists argue that free markets are able to allocate scarce resources better than any alternative mechanism, they probably do not have healthcare in mind. More precisely, he pointed out that: ‘it is clear from everyday observation that the behavior expected of sellers of medical care is different from that of business’ (Arrow, 1963, p. 949). He later proceeded by stating: ‘it is the general social consensus, clearly, that the laissez-faire solution for medicine is intolerable’ (Arrow, 1963, p. 967). Arrow’s claims were likely in support of the controversial idea of adopting what would, only two years later, become the first widespread public health insurance scheme in the history of the United States (USA), the joint introduction of Medicare and Medicaid programmes. Arrow’s groundbreaking view has had an enduring effect on the health system choices of many different countries around the world.