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Misallocation and price distortions: A revenue decomposition of medical service providers in China

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  • Deng, Zhongqi
  • Jiang, Nan
  • Song, Shunfeng
  • Pang, Ruizhi

Abstract

The provision of healthcare services and the distribution of medial resources across the China health system hierarchy is characterized by an inverted pyramid with alarming congestions in the so-called AAA tertiary hospitals. This study tries to investigate this baseline misallocation issue prior to the introduction of the new healthcare reforms in 2009. Building upon established framework, we developed an alternative measure for dispersion of factor price distortions. Using a large national microdata, the results obtained are consistent with previous studies in that for a less developed geographical market, often characterized by poorer factor mobility and weaker market competition, dispersion of the factor price distortions is high, reflecting high degree of misallocation. We also developed a decomposition of revenue dispersion to make inferences about the major channels through which the inverted pyramid arises. The analysis reveals the extent to which, the disproportionately large share of revenues generated by high-tier tertiary hospitals in China, can be attributed to their high productivity and the public trusts in them as providers of quality care.

Suggested Citation

  • Deng, Zhongqi & Jiang, Nan & Song, Shunfeng & Pang, Ruizhi, 2021. "Misallocation and price distortions: A revenue decomposition of medical service providers in China," China Economic Review, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:chieco:v:65:y:2021:i:c:s1043951x20301711
    DOI: 10.1016/j.chieco.2020.101574
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    Cited by:

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    2. Ling-Yun He & Sha Liu, 2023. "Impact of China Railway Express on Regional Resource Mismatch—Empirical Evidence from China," Sustainability, MDPI, vol. 15(11), pages 1-17, May.

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    More about this item

    Keywords

    China healthcare; Misallocation; Factor price distortion; Revenue decomposition;
    All these keywords.

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • P36 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - Consumer Economics; Health; Education and Training; Welfare, Income, Wealth, and Poverty

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