In 1963 paper1, Kenneth Arrow demonstrated that the free market in principle could not be relied upon to create an efficient health care system. William D. Savedoff of WHO offers this summary of the paper:
The article begins with reference to the desirable properties of perfectly competitive markets, using concepts from Arrow's general welfare theorems. He then explores how the existence of "uncertainty in the incidence of disease and in the efficacy of treatment" leads competitive markets to generate an inefficient allocation of resources and contributes to the emergence of non-market institutions (such as trust and norms) that compensate for these market failures.
1 Arrow KJ. Uncertainty and the welfare economics of medical care. The American Economic Review 1963;53:941-73.
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