The Demand for Medical Care in Urban China

The link between health and productivity on the one hand, and the growing demand for health services and the shortage of funds to finance the health care system on the other hand pose a major challenge for developing countries. This paper uses a data set that consists of detailed characteristics of 6,407 urban households from People’s Republic of China to investigate the determinants of the demand for medical care. A two-part model and a discrete factor model are used in the estimation. Income elasticity is around 0.3, indicating medical care is a necessity. Medical care demand is price inelastic, and price elasticity is larger in absolute value for poorer households. This suggests that while total revenue from provision of health care can be increased by raising the price of care in the inelastic segment of the demand curve, this would increase the inequality in access to medical care.