Peter J. Hammer

Uncertain Times: Kenneth Arrow and the Changing Economics of Health Care

This volume revisits the Nobel Prize-winning economist Kenneth Arrow’s classic 1963 essay “Uncertainty and the Welfare Economics of Medical Care” in light of the many changes in American health care since its publication. Arrow’s groundbreaking piece, reprinted in full here, argued that while medicine was subject to the same models of competition and profit maximization as other industries, concepts of trust and morals also played key roles in understanding medicine as an economic institution and in balancing the asymmetrical relationship between medical providers and their patients. His conclusions about the medical profession’s failures to “insure against uncertainties” helped initiate the reevaluation of insurance as a public and private good. Coming from diverse backgrounds—economics, law, political science, and the health care industry itself—the contributors use Arrow’s article to address a range of present-day health-policy questions. They examine everything from health insurance and technological innovation to the roles of charity, nonprofit institutions, and self-regulation in addressing medical needs. The collection concludes with a new essay by Arrow, in which he reflects on the health care markets of the new millennium. At a time when medical costs continue to rise, the ranks of the uninsured grow, and uncertainty reigns even among those with health insurance, this volume looks back at a seminal work of scholarship to provide critical guidance for the years ahead. Contributors Linda H. Aiken Kenneth J. Arrow Gloria J. Bazzoli M. Gregg Bloche Lawrence Casalino Michael Chernew Richard A. Cooper Victor R. Fuchs Annetine C. Gelijns Sherry A. Glied Deborah Haas-Wilson Mark A. Hall Peter J. Hammer Clark C. Havighurst Peter D. Jacobson Richard Kronick Michael L. Millenson Jack Needleman Richard R. Nelson Mark V. Pauly Mark A. Peterson Uwe E. Reinhardt James C. Robinson William M. Sage J. B. Silvers Frank A. Sloan Joshua Graff Zivin

Kenneth Arrow and the Changing Economics of Health Care: “Why Arrow? Why Now?”

Why Arrow? Why now? Kenneth Arrow is a Nobel laureate and one of the most important economists of our time. “Uncertainty and the Welfare Economics of Medical Care” (Arrow 1963) is a landmark contribution to health economics that is required reading in health economics, health policy, and health law courses. While most of Arrow’s economic insights transcend time and can fit comfortably with modern economic theory, his institutional analysis of medical markets is layered in amber. This turns out to be a blessing. By offering a point of reference that only time and distance can provide, Arrow’s interpretation of medical markets circa 1960 affords an extraordinarily useful framework for understanding the health care economy and health care policy of today. The year 1963 evokes an era as well as a specific date. It was a time of innocence and Camelot. People had faith in their government, in the functioning of private markets, and in the family doctor. The Dodgers beat the Yankees in the World Series, Cleopatra played in the movie theaters, and television audiences tuned in to My Favorite Martian and The

Contracting Illness: Reassessing International Donor-Initiated Health Service Experiments in Cambodia's Indigenous Periphery

Without much attention to local context, global health policy experiments arebeing conducted on vulnerable indigenous populations. This article details thehistory of a development-bank-funded experiment to contract out public healthservices in Cambodias north-eastern province of Ratanakiri. The casestudy highlights the difficulties that flow from improper planning andimplementation, as well as the distorting effects that narrowly defined contractperformance measures can have on the health of the population as a whole.Progress in global health will not be possible if local context and voicescontinue to be underappreciated.

Arrow's Analysis of Social Institutions: Entering the Marketplace with Giving Hands?

The apparent inconsistency between “giving hands” and behavior normally expected in the marketplace is suggestive of the tensions underlying Arrow’s effort to establish an economic role for social institutions. At times, Arrow’s (1963: 947) analysis appears to be equal parts economics and mysticism: “I propose here the view that, when the market fails to achieve an optimum state, society will, to some extent at least, recognize the gap, and nonmarket social institutions will arise attempting to bridge it.” “I am arguing here that in some circumstances other social institutions will step into the optimality gap, and that the medical-care industry, with its variety of special institutions, some ancient, some modern, exemplifies this tendency.” In The Ox-Herding Pictures, the seeker is able to enter the marketplace with giving hands in the tenth and final frame of the story only after a long and arduous journey.1 The seeker must first

Change and Continuity at the World Bank

This fascinating book examines the World Bank’s capacity for change, illustrating the influence of overlapping political, organizational and epistemic constraints. Through comprehensive historical and economic analysis, Peter J. Hammer illuminates the difficulties faced by recent attempts at reform and demonstrates the ways in which the training and socialization of Bank economists work to define the policy space available for meaningful change.

International Law, Public Health and Addiction

What is the relationship between international law, public health and addiction? This chapter addresses three straightforward questions: (1) what is international law; (2) how does international law relate to addiction; and (3) why is international law relevant to domestic practitioners struggling with the legal, medical and policy dimensions of addiction? The notion of practitioner is intentionally left vague. It includes research scientists studying addiction and physicians treating addiction. It includes lawyers and judges dealing with the legal aspects of addiction. It also includes social workers, community activists and policymakers confronting the problems of addiction and thinking creatively about law reform. The focus on practitioners reflects a deeper interest in the ways that members of global civil society are playing an increasingly important role in shaping the contours of international law. The interface between addiction and international law embraces a range of different substances: drugs, alcohol and tobacco. Drugs and alcohol have long been subjects of international law. The first International Opium Convention was adopted in 1912. The precursor to the World Health Organization (WHO), the health component of the short-lived League of Nations, began addressing alcoholism as a medical problem as early as 1928. In contrast, despite its addictive characteristics and now obvious adverse health effects, tobacco was not an historic target of international control. Indeed, rather than restrictions, international law in the free trade regimes of the General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO) has been used to force open tobacco markets, especially in developing countries. However, times change, as well as do laws. The WHO Framework Convention on Tobacco Control (2003) commits countries to ambitious tobacco control regimes and illustrates a creative use of international law as a tool for policy reform and public health advocacy. Without doubt, however, the dominant focus of international law and addiction has been, and continues to be, drugs and other controlled substances. Not surprisingly, the tensions one finds at the international level roughly mirror the policy tensions and disputes found at the domestic level. On one side is the law enforcement perspective, with its focus on supply-side control, criminalization and the coercive power of the state. On the other side is the public health perspective, with its focus on demand-side control, treatment, education and the softer instruments of state power. At both the domestic and the international level, law enforcement and supply-side restrictions dominate, leaving public health and demand-side control playing subsidiary roles.

Reforming Paradoxes of Socio-Economic Development: Modeling Change and Continuity at the World Bank

In 1995, James Wolfensohn became President of the World Bank. He inherited an institution at a time of crisis and drift. The crises were triggered by the sustained backlash against the so-called “Washington Consensus,�? a strong wave of anti-globalization sentiment and a shocking lack of evidence that Bank policies have had any real impact in generating growth or reducing poverty. His two-term presidency (1995-2005) oversaw the creation of an ambitious agenda for socio-economic development. The truth is, however, that this is not the first time the Bank has undergone radical policy shifts. In the past, the Bank has cycled through phases shifting from physical capital, to human capital, to macroeconomic structural adjustment policies. This article examines the paradoxes inherent in Wolfensohn’s socio-economic agenda and the general question of change and continuity at the World Bank. Part II provides a basic introduction to the Bank and to Wolfensohn era reforms. It is intended to provide the uninitiated reader with sufficient literacy to understand the fundamentals of the debate. Part III develops a framework for modeling World Bank behavior, focusing on political, organizational and epistemic constraints. A key insight from the model is the dominant role that neoclassical economics plays in limiting the Bank’s conception of what types of policies are or are not imaginable. Significant aspects of the socio-economic agenda directly challenge these traditional epistemic constraints. Part IV applies the framework to examine three episodes of reform, each framed to distill a different set of lessons. First, the Bank’s experiment with debt relief and the participatory Poverty Reduction Strategy Papers is examined to assess the Bank’s ability to learn, change and adapt. Second, the Bank’s experiences with social capital theories are examined to assess how the Bank deals with internal reform efforts, where the intellectual core of the idea comes from outside the epistemic domain of economics. Finally, the Bank’s experiences with institutional economics and governance are examined to assess how the Bank deals with reforms where the intellectual core of the idea reflects a challenge from inside the epistemic domain of economics. The analysis demonstrates that change can and has happened at the Bank, but that such changes are typically modest, incremental and intellectually path-dependent. Part V argues that lasting change, if possible, will likely start outside the World Bank, where such efforts are free from the Bank’s organizational and epistemic constraints. For real change to take place, new interdisciplinary approaches to development will have to be established and such policies will have to be implemented by a more professionally diverse staff than currently exists at the World Bank. Such approaches, if they are to be successful, must develop a more open, process-oriented framework for policy making, a framework capable of facilitating meaningful learning and adaptation.

Competition and Quality as Dynamic Processes in the Balkans of American Health Care

The American health care system embodies a complex amalgamation of fractured and conflicting parts. As such, any call to enhance quality or competition necessarily presupposes some ability to introduce greater harmony and coordination. But how does one make a complicated system work well? Dynamic theories of economics stress the significance of section mechanisms, learning, and adaptive modes of behavior in directing markets toward more efficient outcomes under conditions of uncertainty. Unfortunately, the American health care sector suffers from intense factional divisions. Policy makers need a more self-conscious understanding of the interactive and often conflicting effects of regulation if the health care system is to be reshaped in a manner that will generate more desired social outcomes. Evolutionary theories of economics can provide the conceptual framework in which such a restructuring could take place. This article examines how health care quality and competition can be improved through a better understanding of dynamic economic processes and evaluates the Federal Trade Commission and Department of Justice 2004 report Improving Health Care: A Dose of Competition in light of these perspectives.