Consumer Welfare for Publicly Supplemented Private Goods: Age and Income Effects on Demand for Health Care

In spite major advances in the theoretical, positive and normative, literature analysing the welfare implications of public provision of private goods, empirical investigation is often limited to contingent valuation studies, mainly for environmental goods. In this paper we argue that when a market for a (subsidised or free of charge) publicly provided good exists, a consumer demand approach can be used to construct a money metric of welfare corresponding to the consumption of public provision. We illustrate this approach in investigating age and income effects on household demand for health care in Cyprus, where free public provision is not universal and those entitled to it often resort to private supplementation. Our findings suggest that the money metric of welfare, which consumers attach to free or subsidised access to publicly provided health care, varies substantially with age and to a lesser extent with household income.