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Public and Private Hospitals, Congestion, and Redistribution

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  • CHIARA CANTA
  • MARIE-LOUISE LEROUX

Abstract

This paper studies how congestion in the public health sector can be used as a redistributive tool. In our model, agents differ in income and they can obtain a health service either from a congested public hospital or from a non congested private one at a higher price. With pure in-kind redistribution, agents fail to internalize their impact on congestion, and the demand for the public hospital is higher than optimal. We show that under full information, the optimal redistribution and sorting across hospitals can be obtained using a lump-sum tax and a subsidy on the private hospital. If income is not observable but the social planner can assign agents across hospitals, the optimal congestion is higher than in the first best in order to relax incentive constraints. Finally, if agents can freely choose across hospitals, the optimal subsidy on the private hospital price may be negative or positive depending on the relative importance of redistribution and efficiency concerns.
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Suggested Citation

  • Chiara Canta & Marie-Louise Leroux, 2016. "Public and Private Hospitals, Congestion, and Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 18(1), pages 42-66, February.
    • Handle: RePEc:bla:jpbect:v:18:y:2016:i:1:p:42-66
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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

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