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Public Sector Rationing and Private Sector Selection

  • Simona Grassi

    ()

    (European University Institute, Max Weber Programme)

  • Ching-to Albert Ma

    ()

    (Department of Economics, Boston University)

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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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number wp2009-a.

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Length: 37
Date of creation: Jan 2009
Date of revision:
Handle: RePEc:bos:wpaper:wp2009-a
Contact details of provider: Postal: 270 Bay State Road, Boston, MA 02215
Phone: 617-353-4389
Fax: 617-353-4449
Web page: http://www.bu.edu/econ/

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  1. 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.
  2. Norman,P., 2000. "Efficient mechanisms for public goods with use exclusions," Working papers 15, Wisconsin Madison - Social Systems.
  3. Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2007. "Competition and Waiting Times in Hospital Markets," NIPE Working Papers 9/2007, NIPE - Universidade do Minho.
  4. Ching-to Albert MA & Simona Grassi, 2010. "Optimal public rationing and price response," Boston University - Department of Economics - Working Papers Series WP2010-024, Boston University - Department of Economics.
  5. 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 979-84, September.
  6. 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.
  7. Michael Hoel & Erik Magnus Sæther, 2001. "Public Health Care with Waiting Time: The Role of Supplementary Private Health Care," CESifo Working Paper Series 562, CESifo Group Munich.
  8. Barros, Pedro Luis Pita, 2000. "Waiting Lists and Patient Selection," CEPR Discussion Papers 2519, C.E.P.R. Discussion Papers.
  9. 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.
  10. Bernheim, B Douglas & Whinston, Michael D, 1986. "Common Agency," Econometrica, Econometric Society, vol. 54(4), pages 923-42, July.
  11. Lindsay, Cotton M & Feigenbaum, Bernard, 1984. "Rationing by Waiting Lists," American Economic Review, American Economic Association, vol. 74(3), pages 404-17, June.
  12. 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.
  13. Hoel, Michael, 2007. "What should (public) health insurance cover?," Journal of Health Economics, Elsevier, vol. 26(2), pages 251-262, March.
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