The Journal published by Kenneth J. Arrow (December 1963), Father of Health Economics

1. UNCERTAINTY & THE WELFARE
ECONOMICS OF MEDICAL CARE
Presented by:
Dr. S.M. Yasir Arafat
MBBS (DMC), MBA, FCPS (P1)
Psychiatry,
MD Phase A Resident Psychiatry,
BSMMU.
MPH, Batch-11, ID: 14-2-42-0004
ASA University Bangladesh, Dhaka.

2. Uncertainty & The Welfare
Economics of Medical Care
 Kenneth J. Arrow, December 1963
 The American Economic Review
 Reproduced by permission of the American Economic
Association
 Bulletin of the World Health Organization|February
2004, 82 (2)

3. Introduction: Scope & Method
 Explorative & tentative study of medical care
as an object of normative economics
 Comparison between medical care industry
with welfare economics
 Subject is medical care industry not the health

4. Scope & Method: Complexities
 Causal factors in health are many, but the
provision of medical care is only one
 Complex services that centered about the
physician, private & group practice, hospitals
& public health
 Focus of the discussion is the difference from
the norms

5. The Norms in Competitive Model
 Market equilibrium
 Open market situation
 Economic efficiency

6. Competitive Model
 Competitive equilibrium
 Marketability of all goods & services
 Nonincreasing returns

7. Medical Care Market, Competitive &
Welfare Model
 The risk and uncertainty
 Failure of competitive preconditions as not for
welfare
 Societal role in market failure
 Special structural characteristics of medical care
market to overcome the differences

8. Characteristics of Medical Care Market
 Nature of Demand- Irregular & unpredictable
 Expected Behavior of Physicians- Not as like a
sales man at all
 Product Uncertainty- Incidence, Treatment
options, Recovery, Outcome, level of knowledge
regarding services all are uncertain
 Supply Conditions- High entry barrier
 Pricing Practices- Extensive discrimination

9. Medical Care Market & Under Certainty
Competitive Model
 Nonmarketable Commodities- Epidemic,
Government funding, Donation
 Increasing Returns- Allocation of resources
(low density, low income)
 Entry: High entry barrier
 Pricing: Extensive discrimination, collective
monopoly

10. Medical Care Market & Under
Uncertainty Competitive Model
Introduction:
 Comparison between Medical Care & other
uncertain market conditions
 Welfare economics of uncertainty: loss & risk
can be insured
 Nonexistence of suitable insurance for such
conditions

11. Problems of Insurance
 The moral hazard
 Funding-Govt., NGO
 Health policy
 Professional relationship
 Alternative methods of insurance payment
 Prepayment
 Fixed schedule
 Pooling of unequal risk- redistribution of
income
 The concepts of trust and delegation
 Licensing and educational standards