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Optimal public rationing and price response

  • Ching-to Albert MA


    (Department of Economics, Boston University.)

  • Simona Grassi


    (Faculty of Business and Economics, Department of Economics and Econometrics and Institut d’Economie et de Management de la Santé, University of Lausanne)

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.

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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 WP2010-024.

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Length: 10 pages
Date of creation: Jan 2010
Date of revision:
Handle: RePEc:bos:wpaper:wp2010-024
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  1. Pedro Pita Barros & Pau Olivella, . "Waiting Lists And Patient Selection," UFAE and IAE Working Papers 444.99, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
  2. Simona Grassi & Ching-to Albert Ma, 2009. "Public Sector Rationing and Private Sector Selection," Boston University - Department of Economics - Working Papers Series wp2009-a, Boston University - Department of Economics.
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  12. de Fraja, Giovanni & Delbono, Flavio, 1990. " Game Theoretic Models of Mixed Oligopoly," Journal of Economic Surveys, Wiley Blackwell, vol. 4(1), pages 1-17.
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