Optimal public rationing and price response

Ching-to Ma and Simona Grassi ()
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Simona Grassi: Faculty of Business and Economics, Department of Economics and Econometrics and Institut d’Economie et de Management de la Santé, University of Lausanne

No WP2010-024, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: We study optimal public health care rationing and private sector price responses. Consumers differ in their wealth and illness severity (defined as treatment cost). Due to a limited budget, some consumers must be rationed. Rationed consumers may purchase from a monopolistic private market. We consider two information regimes. In the first, the public supplier rations consumers according to their wealth information (means testing). In equilibrium, the public supplier must ration both rich and poor consumers. Rationing some poor consumers implements price reduction in the private market. In the second information regime, the public supplier rations consumers according to consumers’ wealth and cost information. In equilibrium, consumers are allocated the good if and only if their costs are below a threshold (cost effectiveness). Rationing based on cost results in higher equilibrium consumer surplus than rationing based on wealth.

Keywords: Rationing; Price response; Means-testing; Cost effectiveness (search for similar items in EconPapers)
JEL-codes: D61 H42 H44 I11 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2010-01
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Optimal public rationing and price response (2011)
Working Paper: Optimal Public Rationing and Price Response
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