Working Papers

Optimal Co-Payment Policy In Health Care: Competition, Ownership Structure And Quality Provision

Rune Stenbacka, Mihkel Tombak

We analytically characterize the effects of ownership and competition in the health care industry on quality provision, market coverage and optimal co-payment policy. A private monopoly selects a lower quality than a public supplier, and the socially optimal co-payment rate with a private monopoly exceeds that with a public monopoly. We establish that the optimal co-payment policy is invariant to the introduction of private competition. Thus, market coverage is invariant to the introduction of competition, whereas all consumers with a higher willingness to pay for quality are better off with competition.

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Paper Keywords

public vs private health care provision, competition in health care, health care quality, quality differentiation, mixed duopoly