ABSTRACT
This chapter demonstrates the need for a continued significant role of the state in the health sector. Using a framework based on recent developments in organizational economics, it argues a strong case for greater private participation in providing health services. Normal rational individuals who may share social values about the need to ration health care resources often lose their commitment to such values when confronted by resource constraints in the face of serious illness or death. Likewise, policies that increase the availability of good information on health services, that enhance the institutional capacity by health care providers to deal with such information, and that improve patients' understanding about health problems, can reduce information asymmetry. The principles of institutional economics lead to a much more refined and useful model for understanding the different kinds of institutional arrangements that are required for efficient and effective "rowing.
