The Journal of Economic Perspectives: a journal of the American Economic Association
Chandra A, Jena AB, Skinner JS
All developed countries have been struggling with a trend toward health care absorbing an ever-larger fraction of government and private budgets. One potential solution is to rely more heavily on studies of the costs and effectiveness of new technologies in an effort to ensure that new spending is justified by a commensurate gain in consumer benefits. For most nonhealth commodities, markets function sufficiently well to perform this function unassisted. But in a market such as health care, effectiveness studies can (in theory) shed light on what patients would have demanded in the absence of moral hazard and adverse selection.