Part 1
Tackling the information challenge
Kenneth Arrow’s seminal paper established the existence of information asymmetry in the healthcare sector. Arrow placed the doctor-patient relationship firmly within the ambit of the well known principal-agent problem and argued that government regulation was necessary to protect patients. Arrow’s work remains influential to this day and has provided much of the empirical justification for government regulation of healthcare.
Lately, however, a distinction has been drawn between emergency services and elective procedures. Even if information is freely available, a person suffering from a catastrophic emergency has limited opportunities to research the best available facility or the urgent demands of the illness may prevent access to better institution. Therefore, there is a strong case for government regulation to assure the patient of a minimum standard of care.
