Abnormal economics in the health sector.

The implosion of centrally-planned economies has led to a widespread and uncritical belief that a free market is the best mechanism for structuring the economic and social sectors. Many international agencies have pushed this belief on the developing nations. This paper offers a critical analysis of the effectiveness of using free market principles to structure the health sector. We try to answer two questions: in what spheres can the market operate freely? In what spheres is government action required? According to economic theory, the market is only appropriate for producing and distributing private goods. This study analyzed health care and subdivides it into three categories (public, merit, and private goods) to clarify where the market has a legitimate role. Next, we analyze two of the five markets in the health sector--financing and delivery--and assess the respective roles of the market and government Competitive markets have certain prerequisites. We identify the major market failures by evaluating where these conditions are not satisfied. Next, we draw on international experience to ascertain the seriousness of those failures and the capacity of government action to correct them. Lessons are drawn for developing nations about the appropriateness of market strategies to finance and deliver health care.