Page 913 Annetine C. Gelijns, Joshua Graff Zivin, Richard R. Nelson Columbia University At the heart of Kenneth Arrowâs landmark article on the economics of medical care is the pervasive inï¬uence of uncertainty, both in regard to the occurrence of disease and to the efï¬cacy of treatment. These uncertainties, as Arrow contends, have led to the following distortions in the operation of health care: (1) health insurance schemes that have insulated patients and physicians from the ï¬nancial implications of their medical decisions (i.e., the moral hazard argument), and (2) delegation of medical care decisions from patients to physicians because of the extreme information asymmetry between the two parties (the principal agent theory). These arguments are made with little reference to technology or technological change, issues that Arrow explores in numerous other works (1962, 1969). Yet these issues of moral hazard and agency provide a signiï¬cant thrust behind technological development in medicine. In the past forty years, physicians have faced strong clinical, economic, and social incentives to adopt and use new technologies in management of disease. The insulation of patients from true medical costs through insurance has compounded these effects. The growth of insurance has led to strong, positive
Journal of Health Politics, Policy and Law – Duke University Press
Published: Oct 1, 2001
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