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The role of user fees in the cost-benefit analysis of privatization with an application to inpatient psychiatric services in the US

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When there is no asset sale and thus no lump sum revenues to accrue to the government, one of the major benefits of privatization is then absent. Because of this, the revenues that were previously obtained from private clients assume more importance. This article incorporates these client revenues fully into a cost-benefit framework and applies the framework to an evaluation of the privatization of psychiatric wards in nonfederal general hospitals in the United States. We find that the privatization of psychiatric services in general hospitals would provide a social gain only if the change took place using for-profit rather than nonprofit hospitals, a finding that depends crucially on including the excess burden effects of public revenues.
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Document Type: Research Article

Affiliations: Department of Economics, Fordham University, Bronx, NY 10458, USA

Publication date: 2008-08-01

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