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At the core of Kenneth Arrow’s classic 1963 essay on medical uncertainty is a claim that has failed to carry the day among economists. This claim—that physician adherence to an anti-competitive ethic of fidelity to patients and suppression of pecuniary influences on clinical judgment pushes medical markets toward social optimality—has won Arrow near-iconic status among medical ethicists (and many physicians). Yet conventional wisdom among health economists, including several participants in this symposium, holds that this claim is either naïve or outdated. Health economists admire Arrow’s article for its path-breaking analysis of market failures resulting from information asymmetry, uncertainty, and moral hazard. But his suggestion that anticompetitive professional norms can compensate for these market failures is at odds with economists’ more typical treatment of professional norms as monopolistic constraints on contractual possibility.

If the goal of health care policy and law is to maximize the social welfare yield from medical spending, consideration of the place of professional ethics norms in health policy requires that we pose three questions. First, how can we distinguish between professional norms that enhance social welfare (even if “anticompetitive” in some sense) and therefore merit our deference (and perhaps even some legal protection) and norms that reduce welfare? Second, when we conclude that a professional norm is socially undesirable, how should we go about choosing among regulatory and legal strategies and deference to markets as means for dissolving the norm? Third, when we conclude that a professional norm is socially desirable, how should we go about preserving it? Should we defer to market outcomes—and perhaps shield select forms of professional collusion from antitrust intervention? Or should we defend this norm actively, through legal and regulatory intervention?

This essay focuses on the first of these three questions, since it is the subject of Arrow’s article. From a public policy perspective, however, the second and third are just as important. It is hardly obvious that a socially undesirable norm should be targeted by judges or regulators rather than left to wither in the marketplace; nor is it clear that a socially desirable norm needs legal or regulatory support to survive.

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26 J. Health Pol. Pol'y & L. 1099-1112 (2001)