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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.

Suggested Citation

  • Grassi, Simona & Ma, Ching-to Albert, 2011. "Optimal public rationing and price response," Journal of Health Economics, Elsevier, vol. 30(6), pages 1197-1206.
  • Handle: RePEc:eee:jhecon:v:30:y:2011:i:6:p:1197-1206 DOI: 10.1016/j.jhealeco.2011.08.011
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    References listed on IDEAS

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    1. Tor Iversen & Ching-to Ma, 2011. "Market conditions and general practitioners’ referrals," International Journal of Health Economics and Management, Springer, pages 245-265.
    2. 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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    Cited by:

    1. 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.
    2. Simona Grassi & Ching-To Albert Ma, 2015. "Information Acquisition, Referral, and Organization," Boston University - Department of Economics - Working Papers Series wp2015-007, Boston University - Department of Economics.
    3. Tor Iversen & Ching-to Ma, 2011. "Market conditions and general practitioners’ referrals," International Journal of Health Economics and Management, Springer, pages 245-265.
    4. repec:eee:jeborg:v:140:y:2017:i:c:p:336-353 is not listed on IDEAS
    5. repec:eee:indorg:v:53:y:2017:i:c:p:326-352 is not listed on IDEAS
    6. Laine, Liisa T. & Ma, Ching-to Albert, 2017. "Quality and competition between public and private firms," Journal of Economic Behavior & Organization, Elsevier, pages 336-353.
    7. Sergei Koulayev & Marc Rysman & Scott Schuh & Joanna Stavins, 2016. "Explaining adoption and use of payment instruments by US consumers," RAND Journal of Economics, RAND Corporation, pages 293-325.
    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. Davlasheridze, Meri & Fisher-Vanden, Karen & Allen Klaiber, H., 2017. "The effects of adaptation measures on hurricane induced property losses: Which FEMA investments have the highest returns?," Journal of Environmental Economics and Management, Elsevier, vol. 81(C), pages 93-114.
    10. Alger Ingela & Ma Ching-to Albert & Renault Regis, 2012. "Experience Benefits and Firm Organization," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-35.
    11. Grassi, Simona & Ma, Ching-to Albert, 2011. "Optimal public rationing and price response," Journal of Health Economics, Elsevier, pages 1197-1206.

    More about this item

    Keywords

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

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • 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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