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Cambridge Journal of Economics Advance Access originally published online on October 24, 2007
Cambridge Journal of Economics 2008 32(2):235-256; doi:10.1093/cje/bem033
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© The Author 2007. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

An institutional and evolutionary perspective on health economics

Geoffrey M. Hodgson*

* The Business School, University of Hertfordshire

Address for correspondence: The Business School, University of Hertfordshire, De Havilland Campus, Hatfield, Hertfordshire AL10 9AB, UK; email: g.m.hodgson{at}herts.ac.uk

Neoclassical theoretical approaches dominate modern health economics. However, the peculiarities of healthcare provision are so unusual that neoclassical theory is especially unsuited to the area. Even mainstream health economists often abandon Paretian welfare considerations to focus on needs instead. Problems relating to uncertainty and externalities are also widely acknowledged. This article shows that there are additional important pecularities of healthcare that are relatively neglected in the literature. Some of these concern healthcare needs: while health itself is a universal need, needs for healthcare provision are largely involuntary, varied and idiosyncratic. These issues have important consequences for the planning of healthcare systems and the extent of transaction costs in any market-based system. These factors, combined with the inherent dynamism of modern healthcare needs and capabilities, make institutional and evolutionary approaches especially suitable for healthcare economics.

Key Words: Healthcare systems • Human needs • Neoclassical economics • Institutional economics • Evolutionary economics

JEL classifications: B52, B53, D01, D02, D60, D80, I10, I31, P40

Manuscript received July 10, 2006; final version received June 18, 2007.


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