854 Journal of Health Politics, Policy and Law THE AMERICAN ECONOMIC REVIEW omparison between the actual market and the competitive model. Th methodology of this comparison has been a recurrent subject of con oversy in economics for over a century. Recently, M. Friedman [15] has vigorously argued that the competitive or any other model should be tested solely by its ability to predict. In the context of competition he comes close to arguing that prices and quantities are the only rele- vant data. This point of view is valuable in stressing that a certain amount of lack of realism in the assumptions of a model is no argu ment against its value. But the price-quantity implications of the com- petitive model for pricing are not easy to derive without major--and, in many cases, impossible--econometric efforts Hammer In this paper, the institutional organization and the observable mores (institutions of the medical profession are included among the data to be used in economic data) assessing the competitiveness of the medical-care market I shall also examine the presence or absence of the preconditions for the equiva lence of competitive equilibria and optimal states. The major competi- tive preconditions, in the sense used here are three: the existence of competitive equil all goods and services relevant to costs and utilities, and nonincreasing returns. The first two as we have seen, insure that competitive equilibrium is necessarily op- timal; the third insures that every optimal state is the competitive equilibrium corresponding to some distribution of income. The first and third conditions are interrelated indeed nonincreasing returns plus some additional conditions not restrictive in a modern economy mply the existence of a competitive equilibrium, i. e, imply that there will be some set of prices which will clear all markets. The concept of marketability is somewhat broader than the tradi tional divergence between private and social costs and benefits. The latter concept refers to cases in which the organization of the market does not require an individual to pay for costs that he imposes on others as the result of his actions or does not permit him to receive compensation for benefits he confers. In the medical field, the obvious example is the spread of communicable diseases. An individual who fails to be immunized not only risks his own health, a disutility which presumably he has weighed against the utility of avoiding the proce- dure but also that of others. In an ideal price system, there would be a price which he would have to pay to anyone whose health is endan gered a price sufficiently high so that the others would feel compen ated; or, alternatively, there would be a price which would be paid to him by others to induce him to undergo the immunization procedure. There are further minor conditions, for which see Koopmans [1, pp 50-5 For a more prec se statement of the existence conditions, see Koopmans [18, pp. 56-60] or Debreu【12,Ch.5l