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Ex Post Welfare under Alternative Health Care Systems

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  • John Leach

Abstract

This paper studies the implications of a societal aversion to inequality for the optimal design of a public health care system. Inequality aversion is introduced by postulating a strictly concave ex post social welfare function. Illnesses are characterized by three factors: the agent's health with treatment, the agent's health without treatment, and the cost of treatment. It is shown that the optimal public health care system allocates health care differently than would private health insurance; speci?cally, people who are relatively unhealthy with and without treatment receive more health care, and people who are relatively healthy with and without treatment receive less health care. The aggregate quantity of health care under the optimal public health care system might be either greater or less than under private health care insurance. If the public health care system is optimally designed, allowing agents to purchase supplementary private health care insurance cannot raise social welfare and is likely to decrease it.

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  • John Leach, 2007. "Ex Post Welfare under Alternative Health Care Systems," Department of Economics Working Papers 2007-05, McMaster University.
  • Handle: RePEc:mcm:deptwp:2007-05
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    References listed on IDEAS

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    Cited by:

    1. Marc Fleurbaey, 2010. "Assessing Risky Social Situations," Journal of Political Economy, University of Chicago Press, vol. 118(4), pages 649-680, August.
    2. Alessandro Petretto, 2013. "On the Fuzzy Boundaries between Public and Private in Health-Care Organization and Funding Systems," Rivista di Politica Economica, SIPI Spa, issue 1, pages 327-370, January-M.
    3. John Leach, 2009. "Income Disparity, Inequity Aversion and the Design of the Healthcare System," Scandinavian Journal of Economics, Wiley Blackwell, vol. 111(2), pages 277-297, June.

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