# **3. Conceptual framework, methodology and estimation strategy**

This section discusses the conceptual framework and estimation strategy as well as the data to be used. We expect that the decrease in the price of health services through elimination of user fees would imply a reduction in the extent to which individual users are rationed out of the use of such services. While the impact on the balance between private and public is less easy to predict as it depends in part on unobservable quality characteristics, less rationing should be associated with a reduction in morbidity, at least to the extent that quality can be maintained. Descriptive statistics from the two household surveys are used to provide some evidence on this and suggest that there was at least some change that would be worth exploring in more detail econometrically.

# **3.1 Conceptual model and hypotheses**

Assume that individuals maximize a well-behaved utility function _U(c)_ over consumption subject to a budget constraint _Y(_ **_p_** _,_ **_I_** _,_ **_H_** _)_ where **_p_** is a vector of prices and **_I_** and **_H_** are vectors of individual and household characteristics, respectively and where **_I_** includes an indicator, S, of whether or not the person is sick. Let _pP_ and _qP_ represent the price and quality of health services in the public sector and _pV_ and _qV_ price and quality in the private sector. Then the demand for health services of a sick person (i.e. S = 1) can be written as _D(pP, qP pV, qV; H)._ We assume that the demand function follows standard assumptions, i.e. ∂∂ _pDP_ < 0 and ∂∂ _qDP_ > 0 .

Abolition of user fees in the public sector is equivalent to a decrease in prices for these services from _p_<sup>_0_</sup> _P_ to _p_<sup>_1_</sup> _P_<sup>with</sup><sup>_p0_</sup> _P_<sup>></sup><sup>_p1_</sup> _P. 6_ Under the above assumptions on the demand function, and without changes in the quality of health services, such a policy change will lead to an increase in demand, i.e. some households who previously did not use public health facilities due to price reasons may now do so. This leads us to expect that (i) the abolition of user fees led to an increase in demand for curative services by those who were sick; (ii) this increase originated in households who were unable to access curative health services for cost reasons under the regime of user fees and should therefore be of particular benefit to the poor.

As is variously implied in the literature, loss of the ability to collect user fees by the respective institutions may, however, have a negative impact on the quality of service provision. To see this, assume that _qP,_ the quality of service provision in the public sector, is a function of the sum of user fees obtained, i.e. _qP, = M(_ Σ _pP)._ With _M’(. )_ ≥ _0,_ it is clear that _q_<sup>_1_</sup> _P_<sup>≤</sup><sup>_q0_</sup> _P_<sup>, i.e. the reform may have led to a decrease in quality.</sup> Data on actual use of health facilities are not the most appropriate to show this as it may take time for such a change to materialize and for (poor) users who were attracted by freely available health facilities to modify their behavior. Low quality in service provision will, however, have an immediate impact on 8