ECON-340April 15, 14Date from Indonesia, shows prices for different services, and different drugs. In public (clinics) vs. private (pharmacies)- prices for services from private doctors or drugs from pharmacies are much more expensive. This means drugs are heavily subsidized by the government.Despite prices being higher in private facilities, when Indonesians can afford it they go to private facilities, and this is generally true across all developing countries, this shows huge price elasticity. The reason behind this is the poor quality of the public facilities. There are similar studies in India and Bangladesh.There is a very high rate of personal suppose to be working who do not show up, vacancy rates, 41% of physicians, 11% of nurses etc. This is just one example of the health quality problems in the public health services. A lot of times a doctor in a public facility will have a separate private practice. Sometimes the doctor will go to a different place for his private practice, but sometimes the doctor will stay in the public practice and see people in the morning and in the afternoon will stay in the public facility and run their private practice, this represents a real moral hazard problem.The economics behind it, doctors at public facilities are paid not on a per person basis but rather on a salary. This gives them an incentive to see fewer patients. In the private practice they get paid per person they see, so they encourage patients to come back to their private hours. This results in heavy price subsidies of public facilities, and poorly paid public doctors.In Indonesia there is a card you can get, and if you have it you are entitled to go into public health clinics and receive higher subsidies care or free care, this is targeted to the poor.There are classes of hospitals, A B and C based on how many doctors there are and size of the hospital.Most subsidies at hospitals are much higher than in clinics, this is because the true avg. cost per patient is much higher in hospitals. This produces an equity issue of who benefits from the subsidies, and it is usually not the poor who are helped, but rather the elites since top hospitals are only in a few urban areas.Subsides for the poorest deciles is about 1/7th as much as the richest for deciles. All people tend to go to the public health center, but not as many go to hospitals, and hospitals are an urban phenomenon.Cost Recovery: A big issue over the last 20 years has been cost recovery in the health sector. Traditionally there is very little cost recovery due to high subsidies, second the budgets of the health ministries in many developing countries tended to be very small. IN the old days nothing was decentralized until the mid/late 1990’s. First, what is the price elasticity of demand for visits to health facilities. If healthcare was price inelastic, than facilities could raise revenues by increasing prices from their very low levels, because payments would go up proportionately more than quantity demand would go down. A lot of people started doing studies of what the price elasticity of healthcare was, the answer was the price elasticity’s of demand are very inelastic. IN the US the famous health insurance experiment in the 80’s, the price elasticity of health care in the US was minus 0.2.There is some difference for poor and non-poor, for poor it was more elastic, but still price inelastic overall.Health care facilities ought to be raising their user fees from these heavily subsidized areas, this would increase revenue, and at the same time part of the reform would be to take these increased revenue and reinvest it into the health sector and get better doctors better facilities etc. This was the two-pronged strategy. In reality, user fees did go up but the governments did not allow them to reinvest the extra revenue, so quality did not go up. In a number of countries, particularly in urban areas, you had a lot of political opposition; usually by élites who’s subsidies were being cut.Economic efficiencies: There is a distinction between infectious diseases, you can get a lot of strong positive externalities, for non-infections cryonic disease this is not true. For example, the de-worming in Kenya, the main finding was that there were strong positive externalities, as children who lived close to schools who were treaded with these de-worming treatment schools had lower rates of worms a year later. Parents will not account for the benefits that the other children get, either because they are unaware of it or that they do not account for it. This is a case where the social benefits are higher than the private benefits, so from a socially optimal point of view there is cause for a subsidy.Using condoms for sex in an area with high HIV prevalence will greatly reduce the transmission of HIV, this means the person who doesn’t get it won’t infect others as well. This generates great externalities, especially for sex workers to wear them. There are not these kinds of externalities for heart attack, or cancer, so in this case the private benefits of treatment or prevention are the same as the public, so there are no grounds for a subsidy. No reason to subsidies colonoscopies.Antibiotics: They also provide positive externalities, so you might think it warrants public subsidies, but they also have the potential for very negative public effects. The organism may develop anti-resistant mutations to the antibiotic, this can make the antibiotics ineffective for anyone infected by the new organism, and this is a major problem with malaria. If you go to a rural clinic, odds are you will receive anti-malaria drugs without being tested for malaria, there is dramatic overuse of these drugs in places like Kenya, and this leads to massive negative effects.The price elasticity of demand for certain health inputs are you move from a price of zero to a small price may be very price elastic, but as you move higher it may lead to price inelastic. In the worming example there were some schools that had no subsidy while others had a large subsidy on the de worming drugs. If the school had cost sharing, ie. the parents incurred some cost, then it was much less likely that kids would take the pills, and it was a fairly big impact. So they argued that having free de-worming pills was socially optimal.Cohen and Dupas (Stanford)- This was a randomized control trial. Chemically treated mosquito nets are treated with something to kill the