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Markets for public and private health care : redistribution arguments for a mixed system

Schroyen, Fred; Marchand, Maurice
Working paper
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URI
http://hdl.handle.net/11250/163294
Date
2001-04
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  • Discussion papers (SAM) [586]
Abstract
Should health care provision be public, private, or both? We look at this question in a setting where

people differ in their earnings capacity and express an inelastic demand for health care. We assume

that illness reduces a person’s health status when not receiving immediate treatment. Treatment can be

obtained in a competitive private sector or in the National Health Service (NHS) where it is provided free

of charge but after some (endogenous) waiting time. The equilibrium in the health care sector consists

of a fee for private consultations and a contract offered to NHS physicians such that no physician has an

incentive to switch place of work, and in addition a waiting time in the NHS such that no patient wants

to switch health care provider. This equilibrium is governed by three public policies: the income tax

system, the subsidy of private health care, and the terms of the contract offered to NHS physicians. Our

findings are threefold. First, a mixed system with a small public health care sector gives a lower social

welfare level than a pure private system. Second, a mixed system with a sufficiently large NHS may

improve upon a pure private system if the distribution of earnings capacities in society is sufficiently

wide. And finally, whatever the size of the NHS, the doctors working there should be given a contract

that specifies a heavier work load than the one their private colleagues choose. This is the way the

government can exert its monopsony power on the market for physicians to improve social welfare.
Publisher
Norwegian School of Economics and Business Administration. Department of Economics
Series
Discussion paper
2000:20

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