CAN MARKETS GIVE US THE HEALTH SYSTEM WE WANT

The purpose of this article is to reconsider the foundations of health economics as applied to the study of competition. It shows that concl usions concerning the purported desirability of competitive markets ar e based on a number of assumptions-many of which have heretofore been ignored-that typically are not fulfilled in the health care area. Once this is recognized, market mechanisms no longer necessarily provide t he best way to improve social welfare. The article is divided into two parts: competition and demand. Each of these sections presents and th en critiques key assumptions of the conventional economic model, and t hen provides a number of health applications. It concludes that by not considering the validity of these assumptions in health care applicat ions, researchers and policy analysts will blind themselves to policy options that may be most effective in improving social welfare.