ABSTRACT
The primary concern of the health economist is the optimal use of scarce economic resources to care for the ill and to prevent illness, always aware that there are competing uses for these resources. Economists have known for some time that where such externalities exist, individual decisions will undervalue the good and thus result in underproduction unless supplemented by government or other such agencies or unless a private market develops in the externalities which is very unlikely in the case of health care. Until the late 1950’s economists had little to say about either the market organization of health services or the yield of investment in health. Economists are aware that an increase in the number of physicians in total or in one location can lead to increased costs to government and/or to private consumers. The method of payment used for physicians can, as any economist knows, have dramatic effect on the incentives as well as the type of treatment.
