Public and Private Roles in Health.

The appropriate role of the state in health is complex both in economic theory and in practice. Theory identifies three reasons for state action: public goods or services with large externalities (involving efficiency); poverty (involving equity); and failings peculiar to insurance markets for health care (where both inefficiency and inequity arise). The insurance domain presents the most costly and difficult problems, and explains why -- in contrast to other sectors -- government tend to finance an increasing share of health care as incomes rise.