PREFACE
What Do Health Economists Do?
This encyclopedia gives the reader ample opportunity to read
about what it is that health economists do and the ways in
which they set about doing it. One may suppose that health
economics consist of no more than the application of the
discipline of economics (that is, economic theory and eco-
nomic ways of doing empirical work) to the two topics of
health and healthcare. However, although that would usefully
uncouple ‘economics’ from an exclusive association with ‘the
(monetized) economy,’ markets, and prices, it would miss out
a great deal of what it is that health economists actually do,
irrespective of whether they are being descriptive, theoretical,
or applied. One distinctive characteristic of health economics
is the way in which there has been a process of absorption into
it (and, undoubtedly, from it too); in particular, the ab-
sorption of ideas and ways of working from biostatistics,
clinical subjects, cognitive psychology, decision theory, dem-
ography, epidemiology, ethics, political science, public ad-
ministration, and other disciplines already associated with
‘health services research’ (HSR) and, although more narrowly,
‘health technology assessment’ (HTA). But to identify health
economics with HSR or HTA would also miss much else that
health economists do.
... And How Do They Do It?
As for the ways in which they do it, in practice, the over-
whelming majority of health economists use the familiar
theoretical tools of neoclassical economics, although by no
means all (possibly not even a majority) are committed to the
welfarist (specifically the Paretian) approach usually adopted
by mainstream economists when addressing normative issues,
which actually turns out to have been a territory in which
some of the most innovative ideas of health economics have
been generated. Health economists are also more guarded
than most other economists in their use of the postulates
of soi-disant ‘rationality’ and in their beliefs about what un-
regulated markets can achieve. To study healthcare markets is
emphatically not, of course, necessarily to advocate their use.
A Schematic of Health Economics
To think of health economics merely in these various restricted
ways would be indeed to miss a great deal. The broader span
of subject matter may be seen from the plumbing diagram, in
which I have attempted to illustrate the entire range of topics
in health economics. A version of the current schematic first
appeared in Williams (1997, p. 46). The content of the
encyclopedia follows, broadly, this same structure. The arrows
in the diagram indicate a natural logical and empirical order,
beginning with Box A (Health and its value) (Figure 1).
G F
Economic Markets in health
evaluation care
B A
Determinants of Health and its
health and ill- value
health
C E D
Demand for Health insurance Supply of health
health and health services
care
H
Efficiency and
equity
Figure 1 A schematic of health economics.
Box A, in the center-right of the schematic, contains fun-
damental concepts and measures of population health and
health outcomes, along with the normative methods of wel-
farism and extra-welfarism; measures of utility and health
outcomes, including their uses and limitations; and methods
of health outcome valuation, such as willingness to pay and
experimental methods for revealing such values, and their uses
and limitations. It includes macro health economic topics like
the global burden of disease, international trade, public and
private healthcare expenditures, Gross Domestic Product
(GDP) and healthcare expenditure, technological change, and
economic growth. Some of the material here is common to
epidemiology and bioethics.
Box A Health and its value
Concepts and measures of population health and health outcomes.
Ethical approaches (e.g., welfarism and extrawelfarism).
Measures of utility and the principal health outcome measures, their uses,
and limitations.
Health outcome valuation methods, willingness to pay, their uses, and
limitations.
Macro health economics: global burdens of disease, international trade,
healthcare expenditures, GDP, technological change, and economic growth.
Box B (Determinants of health and ill health) builds on
these basics in various ‘big-picture’ topics, such as the popu-
lation health perspective for analysis and the determinants of
lifetime health, such as genetics, early parenting, and school-
ing; it embraces occupational health and safety, addiction
(especially tobacco, alcohol, and drugs), inequality as a de-
terminant of ill health, poverty and the global burden of
disease in low- and middle-income countries, epidemics,
prevention, and public health technologies. Here too, much is
xvii
xviii Preface
Box B Determinants of health and ill health
The population health perspective.
Early determinants of lifetime health (e.g., genetics, parenting, and
schooling).
Occupational health and safety.
Addiction: tobacco, alcohol, and drugs.
Inequality as a determinant of ill health.
Poverty and global health (in LMICs).
Epidemics.
Prevention.
Public health technologies.
shared, both empirically and conceptually, with other
disciplines.
From this it is a relatively short step into Box C (Demand
for health and healthcare): here we are concerned with the
difference between demand and need; the demand for health
as ‘human capital’; the demand for healthcare (as compared
with health) and its mediation by ‘agents’ like doctors on
behalf of ‘principals’; income and price elasticities; infor-
mation asymmetries (as in the different types of knowledge
and understandings by patients and healthcare professionals,
respectively) and agency relationships (when one, such as a
health professional, acts on behalf of another, such as a pa-
tient); externalities or spillovers (when one person’s health or
behavior directly affects that of another) and publicness (the
quality which means that goods or services provided for one
are also necessarily provided for others, like proximity to a
hospital); and supplier-induced demand (as when a pro-
fessional recommends and supplies care driven by other
interests than the patient’s).
Box C Demand for health and healthcare
Demand and need.
The demand for health as human capital.
The demand for healthcare.
Agency relationships in healthcare.
Income and price elasticities.
Information asymmetries and agency relationships.
Externalities and publicness.
Supplier-induced demand.
Then comes Box D (Supply of healthcare) covering human
resources; the remuneration and behavior of professionals;
investment and training of professionals in healthcare; mon-
opoly and competition in healthcare supply; for-profit and
nonprofit models of healthcare institutions like hospitals and
clinics; health production functions; healthcare cost and pro-
duction functions that explore the links between ‘what goes in’
and ‘what comes out;’ economies of scale and scope; quality of
care and service; and the safety of interventions and modes of
delivery. It includes the estimation of cost functions and the
economics of the pharmaceutical and medical equipment in-
dustries. A distinctive difference in this territory from many
other areas of application is the need to drop the assumption
Box D Supply of health services
Human resources, remuneration, and the behavior of professionals.
Investment and training of professionals in healthcare.
Monopoly and competition in healthcare supply.
Models of healthcare institutions (for-profit and nonprofit).
Health production functions.
Healthcare cost and production functions.
Economies of scale and scope.
Quality and safety.
The pharmaceutical and medical equipment industries.
of profit-maximizing as a common approach to institutional
behavior and to incorporate the idea of ‘professionalism’
when explaining or predicting the responses of healthcare
professionals to changes in their environment.
Supply and demand are mediated (at least in the high-
income world) by insurance: the major topic of Box E and a
large part of health economics as practiced in the US. This
covers the demand for insurance; the supply of insurance
services and the motivations and regulations of insurance as
an industry; moral hazard (the effect of insurance on utiliza-
tion); adverse selection (the effect of insurance on who is in-
sured); equity and health insurance; private and public
systems of insurance; the welfare effects of soi-disant ‘excess’
insurance; effects of insurance on healthcare providers; and
various specific issues in coverage, such as services to be cov-
ered in an insured bundle and individual eligibility to receive
care. Although the health insurance industry occupies a
smaller place in most countries outside the US, the issues
invariably crop up in a different guise and require different
regulatory and other responses.
Box E Health insurance
The demand for insurance.
The supply of insurance services.
Moral hazard.
Adverse selection.
Equity and health insurance.
Private and public systems.
Welfare effects of ‘excess’ insurance.
Effects of insurance on healthcare providers.
Issues in coverage: services covered and individual eligibility.
Coverage in LMICs.
Then, in Box F, comes a major area of applied health
economics: markets in healthcare and the balance between
private and public provision, the roles of regulation and
subsidy, and the mostly highly politicized topics in health
policy. This box includes information and how its absence or
distortion corrupts markets; other forms of market failure due
to externalities; monopolies and a catalog of practical dif-
ficulties both for the market and for more centrally planned
systems; labor markets in healthcare (physicians, nurses,
managers, and allied professions), internal markets (as when
the public sector of healthcare is divided into agencies that
commission care on behalf of populations and those that

Box F Markets in healthcare
Information and markets and market failure.
Labor markets in healthcare: physicians, nurses, managers, and allied
professions.
Internal markets in the healthcare sector.
Rationing and prioritization.
Welfare economics and system evaluation.
Comparative systems.
Waiting times and lists.
Discrimination.
Public goods and externalities.
Regulation and subsidy.
provide it); rationing and the various forms it can take; welfare
economics and system evaluation; waiting times and lists; and
discrimination. It is here that many of the features that make
healthcare ‘different’ from other goods and services become
prominent.
Box G is about evaluation and healthcare investment,
a field in which the applied literature is huge. It includes
cost-benefit analysis, cost-utility analysis, cost-effectiveness
analysis, and cost-consequences analysis; their application in
rich and poor countries; the use of economics in medical
decision making (such as the creation of clinical guidelines);
discounting and interest rates; sensitivity analysis as a means
of testing how dependent one’s results are on assumptions; the
use of evidence, efficacy, and effectiveness; HTA, study design,
and decision process design in agencies with formulary-type
decisions to make; the treatment of risk and uncertainty;
modeling made necessary by the absence of data generated in
trials; and systematic reviews and meta-analyses of existing
literature. This territory has burgeoned especially, thanks to
the rise of ‘evidence-based’ decision making and the demand
from regulators for decision rules in determining the com-
position of insured bundles and the setting of pharmaceutical
prices.
Box G Economic evaluation
Decision rules in healthcare investment.
Techniques of cost-benefit analysis in health and healthcare.
Techniques of cost-utility analysis and cost-effectiveness analysis in health
and healthcare in rich and poor countries.
Techniques of cost-consequences analysis.
Decision theoretical approaches.
Outcome measures and their interpretation.
Discounting.
Sensitivity analysis.
Evidence, efficacy, and effectiveness.
Economics and health technology assessment.
Study design.
Risk and uncertainty.
Modeling.
Systematic reviews and meta-analyses.
The final Box, H, draws on all the preceding theoretical
and empirical work: concepts of efficiency, equity, and
Preface xix
possible conflicts between them; inequality and the socio-
economic ‘gradient;’ techniques for measuring equity and in-
equity; evaluating efficiency at the system level; evaluating
equity at system level: financing arrangements; evaluating
equity at system level: service access and delivery; institutional
arrangements for efficiency and equity; policies against global
poverty and for health; universality and comprehensiveness as
global objectives of healthcare; and healthcare financing and
delivery systems in low- and middle-income countries
(LMICs). This is the most overtly ‘political’ and policy-
oriented territory.
Box H Efficiency and equity
Concepts of efficiency, equity, and possible conflicts.
Inequality and the socioeconomic ‘gradient.’
Evaluating efficiency: international comparisons.
Techniques for measuring equity and inequity.
Evaluating equity at system level: financing arrangements.
Evaluating equity at system level: service access and delivery.
Institutional arrangements for efficiency and equity.
Global poverty and health.
Universality and comprehensiveness.
Healthcare financing and delivery systems in LMICs.
A Word on Textbooks
The scope of a subject is often revealed by the contents of its
textbooks. There are now many textbooks in health eco-
nomics, having various degrees of sophistication, breadth of
coverage, balance of description, theory and application, and
political sympathies. They are not reviewed here but I have
tried to make the (English language) list in the Further
Reading as complete as possible. Because the assumptions that
textbook writers make about the preexisting experience of
readers and about their professional backgrounds vary, not
every text listed here will suit every potential reader. Moreover,
a few have the breadth of coverage indicated in the schematic
here. Those interested in learning more about the subject to
supplement what is to be gleaned from the pages of this en-
cyclopedia are, therefore, urged to sample what is on offer
before purchase.
Acknowledgments
My debts of gratitude are owed to many people. I must par-
ticularly thank Richard Berryman (Senior Project Manager), at
Elsevier, who oversaw the inception of the project, and
Gemma Taft (Project Manager) and Joanne Williams (Associ-
ate Project Manager), who gave me the most marvelous advice
and support throughout. The editorial heavy lifting was done
by Billy Jack and Karen Grépin (Global Health); Aki Tsuchiya
and John Wildman (Efficiency and Equity); John Cawley and
Kosali Simon (Determinants of Health and Ill health); Richard
Cookson and Mark Suhrcke (Public Health); Erik Nord
(Health and its Value); Richard Smith (Health and the
xx Preface
Macroeconomy); John Mullahy and Anirban Basu (Health
Econometrics); Tom McGuire (Demand for Health and
Healthcare); John Nyman (Health Insurance); Jim Burgess
(Supply of Health Services); Martin Gaynor and Sean
Nicholson (Human Resources); Patricia Danzon (Pharma-
ceutical and Medical Equipment Industries); Pau Olivella and
Pedro Pita Barros (Markets in Healthcare); and John Brazier,
Mark Sculpher, and Anirban Basu (Economic Evaluation).
Finally, my thanks to the Advisory Board: Ron Akehurst, Andy
Briggs, Martin Buxton, May Cheng, Mike Drummond, Tom
Getzen, Jane Hall, Andrew Jones, Bengt Jonsson, Di McIntyre,
David Madden, Jo Mauskopf, Alan Maynard, Anne Mills, the
late Gavin Mooney, Jo Newhouse, Carol Propper, Ravindra
Rannan-Eliya, Jeff Richardson, Lise Rochaix, Louise Russell,
Peter Smith, Adrian Towse, Wynand Van de Ven, Bobbi Wolfe,
and Peter Zweifel. Although the Board was not called on for
frequent help, their strategic advice and willingness to be
available when I needed them was a great comfort.
Anthony J Culyer
Universities of Toronto (Canada) and York (England)
Further Reading
Cullis, J. G. and West, P. A. (1979). The economics of health: An introduction.
Oxford: Martin Robertson.
Donaldson, C., Gerard, K., Mitton, C., Jan, S. and Wiseman, V. (2005). Economics
of health care financing: The visible hand. London: Palgrave Macmillan.
Drummond, M. F., Sculpher, M. J., Torrance, G. W., O’Brien, B. J. and Stoddart, G.
L. (2005). Methods for the economic evaluation of health care programmes, 3rd
ed. oxford: Oxford University Press.
Evans, R. G. (1984). Strained mercy: The economics of Canadian health care.
Markham, ON: Butterworths.
Feldstein, P. J. (2005). Health care economics, 6th ed. Florence, KY: Delmar
Learning.
Folland, S., Goodman, A. C. and Stano, M. (2010). The economics of health and
health care, 6th ed. Upper Saddle River: Prentice Hall.
Getzen, T. E. (2006). Health economics: Fundamentals and flow of funds, 3rd ed.
Hoboken, NJ: Wiley.
Getzen, T. E. and Allen, B. H. (2007). Health care economics. Chichester: Wiley.
Gold, M. R., Siegel, J. E., Russell, L. B. and Weinstein, M. C. (eds.) (1996). Cost-
effectiveness in health and medicine. New York and Oxford: Oxford University
Press.
Henderson, J. W. (2004). Health economics and policy with economic applications,
3rd ed. Cincinnati: South-Western Publishers.
Hurley, J. E. (2010). Health economics. Toronto: McGraw-Hill Ryerson.
Jack, W. (1999). Principles of health economics for developing countries.
Washington, DC: World Bank.
Jacobs, P. and Rapoport, J. (2004). The economics of health and medical care, 5th
ed. Sudbury, MA: Jones & Bartlett.
Johnson-Lans, S. (2006). A health economics primer. Boston: Addison Wesley/
Pearson.
McGuire, A., Henderson, J. and Mooney, G. (1992). The economics of health care.
Abingdon: Routledge.
McPake, B., Normand, C. and Smith, S. (2013). Health economics: An international
perspective, 3rd ed. Abingdon: Routledge.
Mooney, G. H. (2003). Economics, medicine, and health care, 3rd ed. Upper Saddle
River, NJ: Pearson Prentice-Hall.
Morris, S., Devlin, N. and Parkin, D. (2007). Economic analysis in health care.
Chichester: Wiley.
Palmer, G. and Ho, M. T. (2008). Health economics: A critical and global analysis.
Basingstoke: Palgrave Macmillan.
Phelps, C. E. (2012). Health economics, 5th (international) ed. Boston: Pearson
Education.
Phillips, C. J. (2005). Health economics: An introduction for health professionals.
Chichester: Wiley (BMJ Books).
Rice, T. H. and Unruh, L. (2009). The economics of health reconsidered, 3rd ed.
Chicago: Health Administration Press.
Santerre, R. and Neun, S. P. (2007). Health economics: Theories, insights and
industry, 4th ed. Cincinnati: South-Western Publishing Company.
Sorkin, A. L. (1992). Health economics – An introduction. New York: Lexington
Books.
Walley, T., Haycox, A. and Boland, A. (2004). Pharmacoeconomics. London:
Elsevier.
Williams, A. (1997). Being reasonable about the economics of health: Selected
essays by Alan Williams (edited by Culyer, A. J. and Maynard, A.). Cheltenham:
Edward Elgar.
Witter, S. and Ensor, T. (eds.) (1997). An introduction to health economics for
eastern Europe and the Former Soviet Union. Chichester: Wiley.
Witter, S., Ensor, T., Jowett, M. and Thompson, R. (2000). Health economics for
developing countries. A practical guide. London: Macmillan Education.
Wonderling, D., Gruen, R. and Black, N. (2005). Introduction to health economics.
Maidenhead: Open University Press.
Zweifel, P., Breyer, F. H. J. and Kifmann, M. (2009). Health economics, 2nd ed.
Oxford: Oxford University Press.