Arrow’s Contributions to Health Economics

Abstract

Kenneth Arrow’s paper ‘Uncertainty and the Welfare Economics of Medical Care’ (1963) is the premier theoretical treatment of health economics. Although written a quarter century ago, it is unsurpassed in clarity of analysis, breadth of coverage, and incisive exposure of the core problems. Arrow’s keen perception is revealed in the title of the paper: uncertainty with respect to health status and with respect to the consequence of care is the key to understanding the economics of health from both positive and normative perspectives. As Arrow says, ‘recovery from disease is as unpredictable as its incidence’.