Redistribution at the hospital

Abstract

This paper studies redistribution by means of a public supply of medical treatment. We show that the government can redistribute income towards low-ability individuals in a world of asymmetric information by offering bundles of medical treatment and redistributive payment. If self-selection is a problem, then the separating scheme offers high-ability individuals complete treatment against a high payment, and low-ability individuals partial treatment against a low payment. In particular, the level of treatment offered low-ability individuals is distorted downwards.health; medical treatment; insurance; redistribution; self-selection