Running a Municipal Hospital after Consolidation of Municipalities

Abstract

This paper explores the most socially desirable arrangement to run municipal hospitals after two municipalities merge, using net social benefit as the criterion. It extends a Hotelling’s model of medical services and compare the social surplus for three cases; （a）two municipal hospitals run by two municipalities （before consolidation）,（b）two municipal hospitals, or（c）an integrated municipal hospital, respectively, after the consolidation.
We conclude that（1）if we focus on the social surplus, the most socially desirable arrangement for running municipal hospitals after consolidation depends on the magnitude of residents’ utility, which means ‘satisfaction’ obtained from curing illnesses; and（2）if a consolidated municipality runs two municipal hospitals, the public burden for medical services is the smallest of the three cases assessed.