Patients' Free Choice of Physicians Is Not Always Good

22 Pages Posted: 21 May 2019

See all articles by Xinyu Li

Xinyu Li

University of Groningen

Christian Waibel

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: April 23, 2019

Abstract

We present a model on learning in health care markets. Clinics have a junior physician with low abilities and a senior physician with high abilities. Junior physicians turn senior if they serve sufficiently many patients in the previous period. Clinics choose to allocate patients either randomly to one of the two physicians or let patients choose between the two. We show that in a monopolistic market, social welfare is higher (lower) under the free-choice system than the random-allocation system when the quality difference between junior and senior physician is sufficiently large (small). In a competitive market, patients choose between clinics. If the ability difference between junior and senior physician is sufficiently small or sufficiently large, the clinics choose the allocation system that maximizes social welfare. If the quality difference is intermediate, the random-allocation system maximizes social welfare whereas clinics prefer to implement the free-choice system. This inefficiency arises due to two externalities under the free-choice system. First, the marginal patient making a junior physician turn senior does not internalize this ability benefit. Second, the marginal patient to fill up the capacity of a senior patient does not internalize the dis-utilities caused for those patients that have to wait. The market imperfections may call for a government intervention.

Keywords: Health care markets, learning, quality, social welfare, regulation

JEL Classification: I11, I21, I30

Suggested Citation

Li, Xinyu and Waibel, Christian, Patients' Free Choice of Physicians Is Not Always Good (April 23, 2019). Available at SSRN: https://ssrn.com/abstract=3376742 or http://dx.doi.org/10.2139/ssrn.3376742

Xinyu Li (Contact Author)

University of Groningen ( email )

P.O. Box 800
9700 AH Groningen, Groningen 9700 AV
Netherlands

Christian Waibel

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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