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Public Sector Rationing and Private Sector Selection

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  • SIMONA GRASSI
  • CHING‐TO ALBERT MA

Abstract

We study the interaction between a public sector and a private sector in the provision of a private good. Under a limited budget, the public supplier uses a rationing policy. A private ?rm may supply the good to those consumers who are rationed by the public system. Consumers have di¤erent amounts of wealth, and costs of providing the good to them vary. We consider two information regimes: First, the public supplier observes only wealth information; second, the public supplier observes both wealth and cost information. The public supplier chooses a rationing policy based on its information; simultaneously, the private firm, observing only cost but not wealth information, chooses a pricing policy. In the first information regime, there is a continuum of equilibria; in each, rich consumers are rationed, and the private firm sells to these rationed consumers at high prices. In the second regime, there is a unique equilibrium. The public supplier allocates the good to consumers according to a cost-e¤ectiveness rule. In the equilibrium, rationed consumers have high costs relative to the bene?t, and the rationing rule is the same as if the private market were inactive.
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Suggested Citation

  • Simona Grassi & Ching‐To Albert Ma, 2012. "Public Sector Rationing and Private Sector Selection," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 14(1), pages 1-34, February.
  • Handle: RePEc:bla:jpbect:v:14:y:2012:i:1:p:1-34
    DOI: j.1467-9779.2011.01532.x
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    File URL: http://hdl.handle.net/10.1111/j.1467-9779.2011.01532.x
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    1. Grassi, Simona & Ma, Ching-to Albert, 2011. "Optimal public rationing and price response," Journal of Health Economics, Elsevier, vol. 30(6), pages 1197-1206.
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    4. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2008. "Competition and waiting times in hospital markets," Journal of Public Economics, Elsevier, vol. 92(7), pages 1607-1628, July.
    5. 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.
    6. Dennis Epple & Richard Romano, 2008. "Educational Vouchers And Cream Skimming," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1395-1435, November.
    7. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
    8. Hoel, Michael, 2007. "What should (public) health insurance cover?," Journal of Health Economics, Elsevier, vol. 26(2), pages 251-262, March.
    9. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-942, July.
    10. Norman,P., 2000. "Efficient mechanisms for public goods with use exclusions," Working papers 15, Wisconsin Madison - Social Systems.
    11. 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 979-984, September.
    12. Simona Grassi & Ching-to Albert Ma, 2008. "Rationing Poor Consumers to Reduce Prices," Boston University - Department of Economics - Working Papers Series wp2008-015, Boston University - Department of Economics.
    13. Lindsay, Cotton M & Feigenbaum, Bernard, 1984. "Rationing by Waiting Lists," American Economic Review, American Economic Association, vol. 74(3), pages 404-417, June.
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    Cited by:

    1. Rosella Levaggi & Marcello Montefiori, 2013. "Patient selection in a mixed oligopoly market for health care: the role of the soft budget constraint," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 60(1), pages 49-70, March.
    2. repec:bec:imsber:v:9:y:2017:i:4:p:49-64 is not listed on IDEAS
    3. Simona Grassi & Ching-to Albert Ma, 2008. "Rationing Poor Consumers to Reduce Prices," Boston University - Department of Economics - Working Papers Series wp2008-015, Boston University - Department of Economics.
    4. Laine, Liisa T. & Ma, Ching-to Albert, 2017. "Quality and competition between public and private firms," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 336-353.
    5. Simona Grassi & Ching-to Ma, 2010. "Subsidy design: wealth versus benefits," Journal of Economics, Springer, vol. 101(1), pages 49-72, September.
    6. Putnam, Joshua T., 2015. "A simple approach to projecting the electoral college," International Journal of Forecasting, Elsevier, vol. 31(3), pages 910-915.
    7. Grassi, Simona & Ma, Ching-to Albert, 2011. "Optimal public rationing and price response," Journal of Health Economics, Elsevier, vol. 30(6), pages 1197-1206.
    8. 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).
    9. repec:eee:crpeac:v:45:y:2017:i:c:p:12-28 is not listed on IDEAS
    10. Glazer, Jacob & McGuire, Thomas G., 2013. "Making Medicare advantage a middle-class program," Journal of Health Economics, Elsevier, vol. 32(2), pages 463-473.

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