TY  - JOUR
AU  - Gertler,Paul J.
AU  - Locay,Luis
AU  - Sanderson,Warren C.
TI  - Are User Fees Regressive?  The Welfare Implications of Health Care Financing Proposals in Peru
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 2299
PY  - 1987
Y2  - July 1987
UR  - http://www.nber.org/papers/w2299
L1  - http://www.nber.org/papers/w2299.pdf
N1  - Author contact info:
Paul J. Gertler
Haas School of Business
545 Student Services Building
University of California, Berkeley
Berkeley, CA 94720-1900
Tel: 510/642-1418
Fax: 510/642-4700
E-Mail: gertler@haas.berkeley.edu
AB  - In this paper, we derive a discrete choice model of the demand for medical care from a theoretical model that implies a natural interrelation between price and income. We show that, in the context of a discrete choice model, if health is a normal good, then the price elasticity of the demand for health care must decline as income rises. This implies that the models in previous discrete choice studies which restrict the price effect to be independent of income are misspecified. The model is estimated using data from a 1984 Peruvian survey, and a parsimonious flexible functional form. Unlike previous studies, we find that price plays a significant role in the demand for health care, and that demand becomes more elastic as income falls, implying that user fees would reduce the access to care for the poor proportionally more than for the rich. Our simulations show that user fees can generate substantial revenues, but are accompanied by substantial reductions in aggregate consumer welfare, with the burden of the loss on the poor. These results demonstrate that undiscriminating user fees would be regressive both in terms of access and welfare.
ER  -