<!-- Start of picture text --> Policy Research<br>Health<br>WPS 1131<br><!-- End of picture text --> This paper- a product of the Population, Health, and Nutrition Department- is part of a larger effort in the department to apply principles of public economics to the health sector. The study was funded by the lank's Research Support Budget under research project "Determinants of Nutritional and Health Outcomes in Indonesia and Implicationf for Health Policy Reform" (RPO 676-27). Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Jae Shin Yang, room E10-031, extension 81418 (April 1993, 35 pages).

Hammer tries to derive price and rationing rules for public health facilities. He highlights the effect on these rules of different assumptions about the objectives of government (health versus welfare), the limits of available policy instruments, and the market environment in which the public system operates.

One recurrent Anding: Policy reform must be assessed in relation to the changes it induces relative to the status quo before reform. This point may seem obvious, but it represents a distir.t gap in the literature on resource allocation in health.

To assess changes, the behavior of the private sector must be known in the type of care given in a system and on how this care will change in response to the policy. Substituting for a reasonably well-functioning private sector is not as valuable as providing services that the private sector cannot be expected to sustain.

Research is needed to characterize market equilibrium for medical care and its response to policy measures. Hammer could not examine - many issues most important, those related to uncertainty and insurance. But if the research he calls for in this paper is pursued, those issues must figure prominently as major determinants in the demand for care. This need was originally identified by Arrow, and there is still a long way to go.

Hammer's analysis is not done in terms of "preventive" or "curative" care, and he argues for assessing interventions on the basis of changes in the stated objectives of a public system. But there could well be a connection with the preventive-curative dichotomy if there were reason to believe that preventive care will systematically lose out to curative care in a market setting. On the basis of people's generally acknowledged undervaluation of preventive services, this may well be the case.

Other prevention activities also have many "public good" features, with few private altematives, and will look good when improvements over status quo are examined for all interventions. But all activities must be evaluated in their improvement over market provision. It is not necessary to prejudge the case for certain types of intevention.

The Policy Research Working Paper Series disseminates the fmdings of work under way in the Bank. An obiective of the series is to get these findings out quickly, even if presentations are less than fully polished. The fmdings, interpretations, and conclusions in these papers do not necessarily represent official Bank policy.

Produced by the Policy Research Dissemiation Center