Finding a lasting cure for U.S. health care

In "Making Competition in Health Care Work" (July-August 1994), Elizabeth Olmsted Teisberg, Michael E. Porter, and Gregory B. Brown ask a question that has been absent from the national debate on health care reform: How can the United States achieve sustained cost reductions while at the same time maintaining quality of care? The authors argue that innovation driven by rigorous competition is the key to successful reform. A lasting cure for health care in the United States should include four basic elements: corrected incentives to spur productive competition, universal insurance to secure economic efficiency, relevant information to ensure meaningful choice, and innovation to guarantee dynamic improvement. In this issue's Perspectives section, eleven experts examine the current state of the health care system and offer their views on the shape that reform should take. Some excerpts: "On the road to innovation, let us not forget to develop the tools that allow physicians, payers, and patients to make better decisions." I. Steven Udvarhelyi; "Health care is not a product or service that can be standardized, packaged, marketed, or adequately judged by consumers according to quality and price." Arnold S. Relman; "Just as antitrust laws are the wise restraints that make competition free in other sectors of the economy, so the right kind of managed competition can work well in health care." Edward M. Kennedy "Biomedical research should be considered primarily an investment in the national economic well-being with additional humanitarian benefits." Elizabeth Marincola.     

Bank reputation, bank commitment, and the effects of competition in credit markets

This article discusses the effects of credit market competitionon a bank's incentive to keep its commitment to lend to a borrowerwhen the borrower's credit quality deteriorates. It is shownthat, unlike in the borrower's commitment problem to keep borrowingfrom the same bank in 'good' times, the increased competitionmay strengthen a bank's incentive to keep its commitment. Banksoffer loans with commitment to the highest quality borrowersbut, when faced with competition from bond markets, they alsogive these loans to lower quality borrowers. An increase inthe number of banks has a non-monotonic effect; new banks reinforcea bank's incentive only if there are a small number of banks.