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Soft Budget Constraints in Public Hospitals

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  • Wright, Donald J.

Abstract

A soft budget constraint arises when a government is unable to commit to not `bailout' a public hospital if the public hospital exhausts its budget before the end of the budget period. It is shown that if the political costs of a `bailout' are relatively small, then the public hospital exhausts the welfare maximising budget before the end of the budget period and a `bailout' occurs. In anticipation, the government offers a budget to the public hospital which may be greater than or less than the welfare maximising budget. In either case, the public hospital treats "too many" elective patients before the `bailout' and "too few" after. The introduction of a private hospital reduces the size of any `bailout' and increases welfare.

Suggested Citation

  • Wright, Donald J., 2015. "Soft Budget Constraints in Public Hospitals," Working Papers 2015-03, University of Sydney, School of Economics.
    • Handle: RePEc:syd:wpaper:2015-03
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    References listed on IDEAS

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    1. János Kornai, 2009. "The soft budget constraint syndrome in the hospital sector," Society and Economy, Akadémiai Kiadó, Hungary, vol. 31(1), pages 5-31, June.
    2. Yu-Chu Shen & Karen Eggleston, 2009. "The effect of soft budget constraints on access and quality in hospital care," International Journal of Health Economics and Management, Springer, vol. 9(2), pages 211-232, June.
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    Cited by:

    1. Berger, Michael & Sommersguter-Reichmann, Margit & Czypionka, Thomas, 2020. "Determinants of soft budget constraints: How public debt affects hospital performance in Austria," Social Science & Medicine, Elsevier, vol. 249(C).
    2. Berger, Michael & Sommersguter-Reichmann, Margit & Czypionka, Thomas, 2020. "Determinants of soft budget constraints: how public debt affects hospital performance in Austria," LSE Research Online Documents on Economics 116865, London School of Economics and Political Science, LSE Library.
    3. Weicun Ren & Yizhen Zhao & Huiliang Zhong & Xiaoli Fu & Jian Wu, 2021. "Exploring the Optimal Allocation Decision-Making of Expenditure Budget in Hospitals Under Multi-Objective Constraints: Evidence from Urban Public Hospitals, China," SAGE Open, , vol. 11(4), pages 21582440211, December.

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    Keywords

    soft budget constraint; public hospital; welfare;
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