Public versus strongPrivatestrong Health Care in a National Health Service.pdfVIP

Public versus Private Health Care in a National Health Service Kurt R. Brekke∗ Lars Sørgard† Approx. 8250 words. Abstract This paper study the interplay between private and public health care in a Na- tional 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 physicians decide how much to work in the public and the private sector. We characterise different equilibria depending on the Health Authority’s ob- jectives, the physicians’ job preferences, and the cost efficiency of private relative to public provision of health care. We find that the scope for a mixed health care system is limited when physicians are indifferent between working in the public and private sector. Competition between physicians triggers a shift from public provision towards private provision, and an increase in the total amount of health care pro- vided. 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. JEL Classifi cation: I11, I18, J42, L33 Keywords: Health care; Mixed oligopoly; Physicians ∗HEB and Department of Economics, University of Bergen. Fosswinckelsgate 6, N-5007 Bergen, Norway. E-mail: kurt.brekke@econ.uib.no. †Department of Economics, Norwegian School of Economics and Business Administration, Helleveien 39, N-5045 Bergen, Norway. E-mail: lars.sorgard@nhh.no 1 1 Introduction Mos