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Informal payments in developing countries' public health sector

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  • Liu, Ting
  • Sun, Jiayin

Abstract

In China and some other developing countries' public health sectors, many patients give their doctors a payment outside the official channel before a major treatment. This secret payment has been documented as informal payment in the literature. We argue that the fundamental cause for informal payments is that patients have more information about doctors' skill than the government does. The price, set by the government, for services offered by doctors cannot fully differentiate patients' various needs. As a consequence, informal payment rises as a tool for patients to compete for the skillful doctor. We study the welfare implications of different policies that can potentially be used to regulate such payments. Patient heterogeneity plays a central role in welfare implications of different policies: when patients' willingness-to-pay differs a lot, informal payments should be allowed and when it differs little, informal payments should be banned. Also we show that selling the right to choose physicians publicly always improves social welfare.

Suggested Citation

  • Liu, Ting & Sun, Jiayin, 2007. "Informal payments in developing countries' public health sector," MPRA Paper 5279, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:5279
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    References listed on IDEAS

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    Cited by:

    1. Cherecheş, Răzvan M. & Ungureanu, Marius I. & Sandu, Petru & Rus, Ioana A., 2013. "Defining informal payments in healthcare: A systematic review," Health Policy, Elsevier, vol. 110(2), pages 105-114.

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    More about this item

    Keywords

    informal payments; public health sector; welfare; efficiency;
    All these keywords.

    JEL classification:

    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • H44 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Goods: Mixed Markets

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