- noun the failure of a market to provide goods or services adequately, as when it is dominated by a monopoly. Market failure can be corrected by government action.
- (written as Market Failure)
Markets in health care are notable not because they fail to satisfy any one of the standard assumptions required for competitive markets to achieve Pareto optimality but because they pretty well fail every single one of them: there is enormous asymmetry of information between producers (medical professionals of all kinds) and consumers (patients actual and potential); the agency relationship works imperfectly and can be distorted by systems of physician pay; there is little evidence that patients behave in accordance with the axioms of rational choice theory ; markets, especially those for risk, are incomplete; the medical care industry is riven with monopolistic organizations, from those in the pharmaceutical industry through those in the medical professions themselves, to the local monopolies held by hospitals and community-based primary care practices. In addition, much of health care has the character of a public good and generates externalities both physical (as with communicable disease) and psychic (as when you derive comfort from knowing that your neighbours are insured). Health care is also a field in which equity has always been regarded as of at least equal importance to efficiency (even if that is not how economists have allocated their effort).
This accounts for (though in logic it scarcely justifies) the extensive public intervention in health care and for the development of more or less economically informed methods of professional and other regulation, allocating resources to regions and institutions and conducting health technology appraisals. It also accounts for the substantial de mand for health economists in both the private and the public sector beyond secondary and tertiary education. The reason for the qualification in the above is that it is well known that replacements for the market are themselves not 'perfect'. Indeed, perceived imperfections of the interventions of the state are on their own perceived by many as providing an equally unjustified prima facie case for leaving things to the market.