A condensed version of this paper is published in the Journal of Institutional Economics (2012) 8(2): 247-270.

Abstract: Health systems provide a rich field for testing hypotheses of institutional economics. The incentive structure of current healthcare delivery systems have deep historical and cultural roots, yet must cope with rapid technological change as well as market and government failures. This paper applies the economic approach of comparative and historical institutional analysis (Aoki, 2001; Greif, 2006) to health care systems by conceptualizing physician control over dispensing revenues as a social institution. The theory developed -- emphasizing the interplay between cultural beliefs, interest groups, technological change, insurance expansion and government financing -- offers a plausible explanation of reforms since the 1960s separating prescribing from dispensing in societies such as Japan, South Korea, Taiwan, and China. Technological change and adoption of universal coverage trigger reforms by greatly increasing the social opportunity costs of physician overprescribing and reshaping the political economy of forces impinging on the doctor-patient relationship.