Soft Budget Constraints in Public Hospitals.
A soft budget constraint arises when a government is unable to commit to not 'bailout' a public hospital if the public hospital exhausts its budget before the end of the budget period. It is shown that if the political costs of a 'bailout' are relatively small, then the public hospital exhausts the welfare-maximising budget before the end of the budget period and a 'bailout' occurs. In anticipation, the government offers a budget to the public hospital that may be greater than or less than the welfare-maximising budget. In either case, the public hospital treats 'too many' elective patients before the 'bailout' and 'too few' after. The introduction of a private hospital reduces the size of any 'bailout' and increases welfare.
School of Economics, Faculty of Arts and Social Sciences, University of Sydney, Sydney, NSW, Australia.
Donald J
DJ
Wright
D002017:Budgets; D003365:Costs and Cost Analysis; D005380:Financing, Government / Q000191:economics*; D016304:Hospitals, Private / Q000191:economics; D006779:Hospitals, Public / Q000191:economics*
public hospital; soft budget constraint; welfare