This chapter is economist Joseph E. Stiglitz's reply to fellow economist Amy Finkelstein's lecture as well as to the eminent Kenneth J. Arrows notions of hospitalization insurance. Stiglitz begins by addressing the fundamental issue regarding the design of a health care and insurance system laboring under the presumption that their respective markets are not efficient. The chapter then considers Stiglitz's adherence to Arrow's conviction that medical practices vary across U.S. and between countries. In addition, Stiglitz proposes the development of an economic theory due to occurrences of moral hazards. The instances where there are imperfections of information, the known moral hazard, make us unable to foresee their economic implications. Stiglitz finally suggests that to better analyze the inconsistencies with information in these systems, right approximations and simplifications can be used.
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