Two essays on health economics in China

Abstract

This thesis consists of two studies on health economics in China. The first chapter examines hospitalizations caused by air pollution and quantify the economic loss, from the perspective of health care demand. The second chapter documents hospitals’ monopsony power in the labor market and estimates to what extent hospitals suppress wages to control expenditure, from the perspective of health care supply.

The first chapter examines an important yet little studied group of victims of manufacturing-generated air pollution (those who get sick enough to be hospitalized), using a data set that covers most of the inpatients in a major Chinese city during 2015-16. Utilizing within-city variations in air quality and adopting an instrumental variable approach, we find that worse air quality causes more hospital admissions diagnosed with various diseases out of a whole spectrum of disease categories. We find increases in inpatient days and inpatient expenditure due to air pollution. This study is the first to quantify the substantial disutility and opportunity cost from hospitalizations.

The second chapter examines hospitals’ monopsony power in the labor market in the health care system of China where physicians’ options are limited. I develop a framework to estimate wage markdowns (the ratio of the wage to marginal revenue of labor) using two methods, from labor supply elasticities and production function estimates, respectively. Results consistently show an average wage markdown of 0.7. Moreover, the wage markdowns are wider in hospitals of higher grades. The wage markdowns increase when hospitals upgrade and decrease when hospitals downgrade. A pilot scheme of multi-sited practice providing physicians with extra options leads to narrower wage markdowns.