The economics of health system design

Peter C. Smith and Winnie Yip

Oxford Review of Economic Policy, 2016, vol. 32, issue 1, 21-40

Abstract: There has been much rhetoric in global health about the need to consider the health sector as a ‘system’, defined by the World Health Organization as all the activities whose primary purpose is to improve health. The need to adopt a system-wide perspective arises from the complexity of the processes for delivering effective health services, and the important interdependencies between elements of the health system. However, there have hitherto been very few contributions from an economic perspective that explicitly address these issues. This paper argues that an economic paradigm of constrained optimization adapted to the systemic nature of the health sector could provide an analytical and practical approach to policy-makers in assessing their health systems and deriving solutions. The paper therefore discusses the objectives of the health system, the factors that constrain optimization, and the decision variables, in the form of policy levers. Economic approaches that could contribute to the associated research agenda include institutional economics, micro-simulation, and option pricing theory. The important feature of such methods is that they offer the possibility of developing tractable methods for addressing the complexity and interconnectedness of the health system.

Date: 2016
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