Informal Payments for Health Care and their Implications on Patient Welfare

Abstract

Corruption in the healthcare sector is a widespread problem in many countries. Empirical research has shown that petty corruption is especially endemic in healthcare, perhaps due to the importance of health to human beings. In this thesis I will study the transmission of informal payments for health care between patients and physicians and its effect on patient welfare, taking social norms about corruption into account. A Monte Carlo estimation is used to estimate patient welfare and health outcomes of an iterated two-stage game where a new physician-patient pair meets in every stage of the game. I will simulate three cases. A benchline case where informal payments are non-existing and two cases where informal payments exist, one where the social norm is not to pay an informal payment for health care and one where the social norm is to pay an informal payment for health care. In the model, patients can be severely ill or mildly ill and be able to borrow for informal payments or not. The results show that even if traditional measures of welfare go down as corruption goes up, health outcomes improve when informal payments for health care are introduced and increase when patients are mildly ill, physicians are forward looking and have only one shot at offering patients a contract (i.e. no bargaining takes place).