ABSTRACT
The economic rationale for regulation arises from market failure. As we have seen repeatedly, perfect markets produce efficient outcomes. Therefore, if inefficient outcomes are observed, they must stem from market failure. The aim of regulation is to correct market failure on the understanding that if one market distortion exists, introducing another (regulation), can lead to efficiency improvement – the theory of the second best which was introduced in Chapter 6. Given the extensive failures of health markets as introduced in Chapters 7 and 8, it is unsurprising that health markets are among the most extensively regulated in most economies.
