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Misallocation and price distortions: A revenue decomposition of medical service providers in China

Zhongqi Deng, Nan Jiang, Shunfeng Song and Ruizhi Pang

China Economic Review, 2021, vol. 65, issue C

Abstract: The provision of healthcare services and the distribution of medial resources across the China health system hierarchy is characterized by an inverted pyramid with alarming congestions in the so-called AAA tertiary hospitals. This study tries to investigate this baseline misallocation issue prior to the introduction of the new healthcare reforms in 2009. Building upon established framework, we developed an alternative measure for dispersion of factor price distortions. Using a large national microdata, the results obtained are consistent with previous studies in that for a less developed geographical market, often characterized by poorer factor mobility and weaker market competition, dispersion of the factor price distortions is high, reflecting high degree of misallocation. We also developed a decomposition of revenue dispersion to make inferences about the major channels through which the inverted pyramid arises. The analysis reveals the extent to which, the disproportionately large share of revenues generated by high-tier tertiary hospitals in China, can be attributed to their high productivity and the public trusts in them as providers of quality care.

Keywords: China healthcare; Misallocation; Factor price distortion; Revenue decomposition (search for similar items in EconPapers)
JEL-codes: I10 D61 H51 P36 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.chieco.2020.101574

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China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

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