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Selection Effects in Regulated Markets

This paper analyzes dynamic selection effects that arise in a regulated market where price structures are determined by a regulator or central management. Consumers come in different types where each type requires a different service or treatment. We show that for a large class of price structures some group of customers is refused the service. Equilibria with selection are welfare inferior to equilibria without selection. We also characterize the class of price structures for which selection does not arise. As the number of customers increases or agents become more patient the class of selection-free price structures shrinks and in the limit it is unique. Moreover, all other price structures induce selection. The general model can be applied to a variety of markets, including health care and taxi markets.

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File URL: http://homepage.univie.ac.at/Papers.Econ/RePEc/vie/viennp/vie0810.pdf
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Paper provided by University of Vienna, Department of Economics in its series Vienna Economics Papers with number 0810.

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Date of creation: Jul 2008
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Handle: RePEc:vie:viennp:0810
Contact details of provider: Web page: http://www.univie.ac.at/vwl

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  1. Wright, Donald J., 2007. "Specialist payment schemes and patient selection in private and public hospitals," Journal of Health Economics, Elsevier, vol. 26(5), pages 1014-1026, September.
  2. Fernández L., J. Enrique & De Cea Ch, Joaquín & Briones M., Julio, 2006. "A diagrammatic analysis of the market for cruising taxis," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(6), pages 498-526, November.
  3. Jonathan Gruber & Maria Owings, 1996. "Physician Financial Incentives and Cesarean Section Delivery," RAND Journal of Economics, The RAND Corporation, vol. 27(1), pages 99-123, Spring.
  4. Cairns, Robert D. & Liston-Heyes, Catherine, 1996. "Competition and regulation in the taxi industry," Journal of Public Economics, Elsevier, vol. 59(1), pages 1-15, January.
  5. Beesley, Michael E, 1973. "Regulation of Taxis," Economic Journal, Royal Economic Society, vol. 83(329), pages 150-72, March.
  6. Yang, Hai & Ye, Min & Tang, Wilson H. & Wong, S.C., 2005. "Regulating taxi services in the presence of congestion externality," Transportation Research Part A: Policy and Practice, Elsevier, vol. 39(1), pages 17-40, January.
  7. McGuire, Thomas G. & Pauly, Mark V., 1991. "Physician response to fee changes with multiple payers," Journal of Health Economics, Elsevier, vol. 10(4), pages 385-410.
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