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Optimal public rationing and price response

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  • Grassi, Simona
  • Ma, Ching-to Albert

Abstract

We study optimal public health care rationing and private sector price responses. Consumers differ in their wealth and illness severity (defined as treatment cost). Due to a limited budget, some consumers must be rationed. Rationed consumers may purchase from a monopolistic private market. We consider two information regimes. In the first, the public supplier rations consumers according to their wealth information (means testing). In equilibrium, the public supplier must ration both rich and poor consumers. Rationing some poor consumers implements price reduction in the private market. In the second information regime, the public supplier rations consumers according to consumers’ wealth and cost information. In equilibrium, consumers are allocated the good if and only if their costs are below a threshold (cost effectiveness). Rationing based on cost results in higher equilibrium consumer surplus than rationing based on wealth.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 30 (2011)
Issue (Month): 6 ()
Pages: 1197-1206

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Handle: RePEc:eee:jhecon:v:30:y:2011:i:6:p:1197-1206

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Web page: http://www.elsevier.com/locate/inca/505560

Related research

Keywords: Rationing; Price response; Means-testing; Cost effectiveness;

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References

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  1. Epple, Dennis & Romano, Richard E, 1996. "Public Provision of Private Goods," Journal of Political Economy, University of Chicago Press, vol. 104(1), pages 57-84, February.
  2. Besley, Timothy & Coate, Stephen, 1991. "Public Provision of Private Goods and the Redistribution of Income," American Economic Review, American Economic Association, vol. 81(4), pages 979-84, September.
  3. Ching-to Albert MA & Simona Grassi, 2010. "Optimal public rationing and price response," Boston University - Department of Economics - Working Papers Series WP2010-024, Boston University - Department of Economics.
  4. Simona Grassi & Ching-to Albert Ma, 2009. "Public Sector Rationing and Private Sector Selection," Boston University - Department of Economics - Working Papers Series wp2009-a, Boston University - Department of Economics.
  5. Gravelle, Hugh & Siciliani, Luigi, 2008. "Ramsey waits: Allocating public health service resources when there is rationing by waiting," Journal of Health Economics, Elsevier, vol. 27(5), pages 1143-1154, September.
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  9. Hoel, Michael & Saether, Erik Magnus, 2003. "Public health care with waiting time: the role of supplementary private health care," Journal of Health Economics, Elsevier, vol. 22(4), pages 599-616, July.
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  11. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October.
  12. Cutler, David M & Gruber, Jonathan, 1996. "Does Public Insurance Crowd Out Private Insurance?," The Quarterly Journal of Economics, MIT Press, vol. 111(2), pages 391-430, May.
  13. Iversen, Tor, 1997. "The effect of a private sector on the waiting time in a national health service," Journal of Health Economics, Elsevier, vol. 16(4), pages 381-396, August.
  14. Gruber, Jonathan & Simon, Kosali, 2008. "Crowd-out 10 years later: Have recent public insurance expansions crowded out private health insurance?," Journal of Health Economics, Elsevier, vol. 27(2), pages 201-217, March.
  15. de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
  16. Garber, Alan M. & Phelps, Charles E., 1997. "Economic foundations of cost-effectiveness analysis," Journal of Health Economics, Elsevier, vol. 16(1), pages 1-31, February.
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Citations

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Cited by:
  1. Simona Grassi & Ching-to Albert Ma, 2009. "Public Sector Rationing and Private Sector Selection," Boston University - Department of Economics - Working Papers Series wp2009-a, Boston University - Department of Economics.
  2. Simona Grassi & Ching-to Albert Ma, . "Optimal Public Rationing and Price Response," Boston University - Department of Economics - Working Papers Series wp2009-008, Boston University - Department of Economics.
  3. CANTA, Chiara, 2011. "Efficiency, access and the mixed delivery of health care services," CORE Discussion Papers 2011046, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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