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Informal payments in developing countries' public health sector

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Author Info
Liu, Ting
Sun, Jiayin
Abstract

In China and some other developing countries' public health sectors, many patients give their doctors a payment outside the official channel before a major treatment. This secret payment has been documented as informal payment in the literature. We argue that the fundamental cause for informal payments is that patients have more information about doctors' skill than the government does. The price, set by the government, for services offered by doctors cannot fully differentiate patients' various needs. As a consequence, informal payment rises as a tool for patients to compete for the skillful doctor. We study the welfare implications of different policies that can potentially be used to regulate such payments. Patient heterogeneity plays a central role in welfare implications of different policies: when patients' willingness-to-pay differs a lot, informal payments should be allowed and when it differs little, informal payments should be banned. Also we show that selling the right to choose physicians publicly always improves social welfare.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 5279.

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Date of creation: 11 Oct 2007
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Handle: RePEc:pra:mprapa:5279

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Related research
Keywords: informal payments public health sector welfare efficiency

Find related papers by JEL classification:
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
O17 - Economic Development, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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  4. Paula González, 2004. "Should physicians' dual practice be limited? An incentive approach," Health Economics, John Wiley & Sons, Ltd., vol. 13(6), pages 505-524. [Downloadable!]
  5. Arye L. Hillman & John G. Riley, 1987. "Politically Contestable Rents and Transfers," UCLA Economics Working Papers 452, UCLA Department of Economics. [Downloadable!]
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  7. Bernheim, B Douglas & Whinston, Michael D, 1986. "Menu Auctions, Resource Allocation, and Economic Influence," The Quarterly Journal of Economics, MIT Press, vol. 101(1), pages 1-31, February. [Downloadable!] (restricted)
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