Arrow Uncertainty and the Welfare Economics of Medical Care 861 ARROW: UNCERTAINTY AND MEDICAL CARE Conformity to collectivity-oriented behavior is especially important Bloche, since it is a commonplace that the physician-patient relation affects the Hall Ro ality of the medical care product. A pure cash nexus would be in- equate: if nothing else, the patient expects that the same physician (physician-patient will normally treat him on successive occasions. This expectation is relationships) strong enough to persist even in the Soviet Union, where medical care is nominally removed from the market place [14, pp. 194-96]. That purely psychic interactions between physician and patient have effects which are objectively indistinguishable in kind from the effects of medication is evidenced by the use of the placebo as a control in medi C. Product Uncertainty Uncertainty as to the quality of the product is perhaps more int oan here than in any other important commodity. Recovery from disease is(consumer s unpredictable as is its incidence. In most commodities, the possi- decision making bility of learning from ones own experience or that of others is strong because there is an adequate number of trials. In the case of severe ill- ness, that is, in general, not true; the uncertainty due to inexperience is added to the intrinsic difficulty of prediction. Further, the amount of uncertainty, measured in terms of utility variability, is certainly much greater for medical care in severe cases than for, say, houses or auto mobiles, even though these are also expenditures sufficiently infre- quent so that there may be considerable residual uncertainty. ferent on the two sides of the transaction. Because medical knowledge Robinson o? Further, there is a special quality to the uncertainty; it is very dif-Haas-Wilso is so complicated, the information possessed by the physician as to the consequences and possibilities of treatment is necessarily very much greater than that of the patient, or at least so it is believed by both arties. Further, both parties are aware of th ity, and their relation is colored by this knowledge To avoid misunderstanding observe that the difference in informa- tion relevant here is a difference in information as to the consequence of a purchase of medical care. There is al ways an inequality of infor- mation as to production methods between the producer and the pur chaser of any commodity, but in most cases the customer may wel luding the fees of physicians, who will therefore tend to prefer nity-sponsored Without trying to assess the present situation, it is clear in retrospect that at some actual cans my not knowledge) But from the economic point of view, it is the subjective belief of both parties, as manifested in their market behavior, that is relevan
862 Journal of Health Politics, Policy and Law THE AMERICAN ECONOMIC REVIEW have as good or nearly as good an understanding of the utility of the Cooper and tive theory, the supply of a com Aiken net return from its production compared w from the use of the same resources elsewher with the n governed by the are several sig nificant departures from this theory in the case of medical care education Most obviously, entry to the profession is restricted by licensing icensing, of course, restricts supply and therefore increases the cost of medical care. It is defended as guaranteeing a minimum of quality. Restriction of entry by licensing occurs in most professions, including A second feature is perhaps even more remarkable. The cost of medical education today is high and, according to the usual figures, is borne only to a minor extent by the student. Thus, the private benefits to the entering student considerably exceed the costs. (It is, however possible that research costs, not properly chargeable to education swell the apparent difference. ) This subsidy should, in principle, cause a fall in the price of medical services, which, however, is offset by ra tioning through limited er ted entry to schools and throug nination of students during the medical-school career. These restrictions basicall render superfluous the licensing, except in regard to graduates of for he special role of educational institutions in simultaneously sub- idizing and rationing entry is common to all professions requiring dvanced training. It is a striking and insufficiently remarked phe- nomenon that such an important part of resource allocation should b performed by nonprofit-oriented agencies Since this last phenomenon goes well beyond the purely medical ill not dwell on it long anomaly is most striking in the medical field. Educational costs tend to be far higher there than in any other branch of professional training While tuition is the same, or only slightly higher, so that the subsidy is much greater, at the same time the earnings of physicians rank high est among professional groups, so there would not at first blush seem to be any necessity for special inducements to enter the profession en if we grant that for reasons unexamined here, there is a social interest in subsidized professional education, it is not clear why the rate of subsidization should differ among professions. One might ex The degree of subsidy in different branches of professional education is worthy of a