Delay is not the answer: waiting time in health care & income redistribution

In this paper, the use of delay as a tool to improve income redistribution is examined. We assume that people with the highest opportunity cost of waiting address their demand to the private market; if these, as we assume, are the ones at the higher end of the income distribution, they contribute through income tax, and pay for the private care they receive as well. Thus, public and private provision of health care, made mutually consistent within a utility-based approach by the presence of delay, may be used to modify income distribution. Our model modifies the results obtained by the current literature and shows that, when individual utilities are strictly quasi-concave and a cost-minimization framework is replaced by a Bergson-Samuelson welfare function maximisation, delay is no longer welfare improving. The reason is that, even when an optimum delay exists, the correspondent social maximum is a local maximum. The scope for using delay is then confined to environments where the Central Government’s power to tax is not sufficient to raise adequate resources or where, due to tax evasion or high tax distortions, second best tax instruments should be used.