M-RCBG Faculty Working Paper Series No. 2019-03
Strategic Sorting: The Role of Ordeals in Health Care
Ordeals are burdens placed on individuals that yield no direct benefits to others. They represent a dead-weight loss. Ordeals--the most common being waiting time-- play a prominent role in health care. Their goal is to direct scarce resources to recipients receiving greater value from them, hence presumed to be more willing to bear an ordeals burden. Ordeals are intended to prevent wasteful expenditures given that health care is heavily subsidized, yet avoid other forms of rationing, such as quotas or pricing. This analysis diagnoses the economic underpinnings of ordeals. Subsidies to nursing home versus home care illustrate.