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Modelling the Demand for and Supply of Elective Surgery: A Duopoly Model

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  • Ana Xavier

Abstract

In this paper I model the demand for and supply of elective surgery using a modified Hotelling framework in which waiting time, money and distance costs are determinants of the demand for hospital care. Hospitals compete with each other by varying supply and hence their waiting times. I consider both the situation where GPs do not hold a budget (and thus Health Authorities pay for health care), and the situation where they are given budgets to buy care for their patients. Waiting time increases when production of care becomes more expensive, when the benefit obtained from treatment increases, when the unit cost of distance decreases, and when the importance given to the delay by the hospitals decreases. Moreover, the higher the money price (and if greater than the marginal cost of producing hospital care) the lower the waiting time. If the money price paid by GP fundholders is higher than that paid by HAs, fundholding patients pay a lower time price.

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Paper provided by Department of Economics, University of York in its series Discussion Papers with number 99/38.

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Handle: RePEc:yor:yorken:99/38

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  1. Noether, Monica, 1988. "Competition among hospitals," Journal of Health Economics, Elsevier, vol. 7(3), pages 259-284, September.
  2. Joskow, Paul L., 1983. "Reimbursement policy, cost containment and non-price competition," Journal of Health Economics, Elsevier, vol. 2(2), pages 167-174, August.
  3. Dranove, David & Shanley, Mark, 1990. "A note on the relational aspects of hospital market definitions," Journal of Health Economics, Elsevier, vol. 8(4), pages 473-478, February.
  4. Cheung, Steven N S, 1974. "A Theory of Price Control," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 53-71, April.
  5. Rice, Mitchell F., 1987. "Inner-city hospital closures/relocations: Race, income status, and legal issues," Social Science & Medicine, Elsevier, vol. 24(11), pages 889-896, January.
  6. Pauly, Mark V, 1987. "Nonprofit Firms in Medical Markets," American Economic Review, American Economic Association, vol. 77(2), pages 257-62, May.
  7. Barzel, Yoram, 1974. "A Theory of Rationing by Waiting," Journal of Law and Economics, University of Chicago Press, vol. 17(1), pages 73-95, April.
  8. Nichols, D & Smolensky, E & Tideman, T N, 1971. "Discrimination by Waiting Time in Merit Goods," American Economic Review, American Economic Association, vol. 61(3), pages 312-23, June.
  9. LaVonne A. Booton & Julia I. Lane, 1985. "Hospital Market Structure and the Return to Nursing Education," Journal of Human Resources, University of Wisconsin Press, vol. 20(2), pages 184-196.
  10. Pauly, Mark V & Redisch, Michael, 1973. "The Not-For-Profit Hospital as a Physicians' Cooperative," American Economic Review, American Economic Association, vol. 63(1), pages 87-99, March.
  11. Porter, Richard C, 1977. "On the Optimal Size of Underpriced Facilities," American Economic Review, American Economic Association, vol. 67(4), pages 753-60, September.
  12. Staten, Michael & Dunkelberg, William & Umbeck, John, 1987. "Market share and the illusion of power : Can blue cross force hospitals to discount?," Journal of Health Economics, Elsevier, vol. 6(1), pages 43-58, March.
  13. Jan Paul Acton, 1976. "Demand for Health Care among the Urban Poor, with Special Emphasis on the Role of Time," NBER Chapters, in: The Role of Health Insurance in the Health Services Sector, pages 163-214 National Bureau of Economic Research, Inc.
  14. Stephen Martin & Peter Smith, 1995. "Modelling waiting times for elective surgery," Working Papers 024cheop, Centre for Health Economics, University of York.
  15. Lindsay, Cotton M & Feigenbaum, Bernard, 1984. "Rationing by Waiting Lists," American Economic Review, American Economic Association, vol. 74(3), pages 404-17, June.
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