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Public versus private health care in a national health service

Brekke, Kurt Richard; Sørgard, Lars
Working paper
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URI
http://hdl.handle.net/11250/162762
Date
2003-08
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  • Discussion papers (SAM) [578]
Abstract
This paper studies the interplay between public and private

health care in a National Health Service. We consider a two-stage

game, where at stage one a Health Authority sets the public sector

wage and a subsidy to (or tax on) private provision. At stage

two the physicians decide how much to work in the public and the

private sector. We characterise different equilibria depending on

whether physicians coordinate labour supply or not, the physicians’

job preferences, and the cost efficiency of private relative to

public provision. We find that private provision tends to crowd

out the NHS if physicians are sufficiently indifferent about where

to work or the private sector is sufficiently cost efficient. Competition

between physicians triggers a shift from public provision

towards private provision, and an increase in the total amount of

health care provided. The endogenous nature of labour supply

may have counter-intuitive effects. For example, a cost reduction

in the private sector is followed by a higher wage in the public sector.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2003:14

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