Should Developing Countries Ban Dual Practice by physicians? An Analysis Under Mixed Hospital Competition*

Dual practice, where physicians work both in public and private hospitals, is a widely observed phenomenon, particularly in developing countries. This paper studies a multi-stage game where hospitals compete for physicians as well as patients and, the effort provided by physicians endogenously depends on the competitive setting in which hospitals operate. Specifically, we examine the impact of allowing dual practice on hospital payoffs, physician effort and patients and societal welfare. We find that dual practice introduced in a setting that resembles the characteristics of the health care system of a developing country can be in general socially desirable, since it softens the competition for physician’s exclusive effort (reducing hospital costs) while also increasing the level of their medical effort.