Shadow Prices for a Physician's Services
Applied Economics, Volume 26, 1994 - Issue 7
Posted: 7 Nov 2018
Date Written: 1994
This paper presents a method for determining shadow prices for a physician's services on the basis of actual prices charges. The Ramsey rule is used as the shadow-pricing formula. This is combined with the physician's profit-maximizing condition to produce an expression for the social prices in terms of the price elasticities of demand for the third parties paying for the services. On the basis of implicit estimates of the elasticities for a hospital plastic surgeon in the USA, it was found that roughly half (between 42 and 59 cents of every dollar charged) was not relevant for social-valuation purposes.
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