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Submitted by Shanta on

Rob: Thanks for the comment. The problem of asymmetric information, which you highlight, is several market failures in health, especially in poor countries. The others are: (i) public goods and externalities, such as immunization and the draining of swamps to reduce malaria; and (ii) insurance market failures (Akerlof, Rothschild-Stiglitz, etc.) If governments can address these two, they can have huge impacts on the welfare of poor people. Unfortunately, they don't. The public goods portion of public health spending is appallingly low (usually about 10-20 percent). Most of the spending goes for hospitals in urban areas. Why? Because everybody--rich and poor--need catastrophic care. Lacking insurance markets, people lobby for having publicly-funded hospitals nearby. Not surprisingly, the non-poor, who have greater political power, are able to make sure that these hospitals are located where they live. So governments' failure to tackle the insurance market failure leads to under-spending on genuine public goods and poor people being left out of catastrophic insurance. These are the first-order problems in delivering health services to poor people. Regards, Shanta