Working Papers

The Inappropriate Use of Medicine with Policy Implication (Job Market Paper)

Excessive use of medicine may raise pharmaceutical costs due to microbe becoming drug resistant. Not all patients recognize this. Forward-looking patients recognize the negative externality; myopic patients ignore it. I study how decisions of forward-looking and myopic patients interact in a multi-period model. I assume that future pharmaceutical cost increases in the current average consumption quantity. A perfectly competitive market with marginal cost pricing is inefficient due to myopic patients' over-consumption . A monopolist sets prices above marginal costs, so all patients consume less. I show that a monopolist's higher prices reduce consumption, and mitigate the excessive use of medicine. Monopoly may result in a higher social welfare than perfect competition.

Informal Gift Exchange in the Public Health Sector

I study informal gift exchange in the public health sector in China. In the public system, a physician receives a fixed salary and additional payments from patients. A guilt effect from violating professional norms limits the size of informal payments. In the private system, the guilt effect vanishes because of the legalization of informal payment. Without receiving the fixed salary, the physician in the private system abandons patients with low payments. The distribution of patients’ wealth levels and the physician’s outside option affect the relative welfare in both systems. If too many patients are left behind, the regulator will support the public system.