Estimating the Share and Elasticity of Substitution for Public and Private Health Expenditures in Iran

The rate of substitution for private and public health expenditures is one of the factors that can explain the different effects of public and private health expenditures on health and life expectancy. Therefore, the purpose of this study was to estimate the return to scale, share, and elasticity of the substitution for public and private health expenditures in Iran.

In this descriptive-analytical study, linear and nonlinear least squares methods were applied to study the share and elasticity in substitution of private and public health expenditures at national level in Iran during 2000-17. The study data included the annual time series data extracted from the World Bank website. The Stata 14 software was used to estimate the economic model.

In the nonlinear and linear models of Elasticity of Substitution Constant (CES) health function in Iran, elasticity of substitution for public and private health expenditures were 0.30 and 0.17, respectively. The return to scale in nonlinear and linear models was 0.07 and 0.15, respectively. The share of public health expenditures on life expectancy in the nonlinear and linear model was 54 and 53 % and the share of private health expenditures in these models was 46 and 47 %, respectively.

Public and private health expenditures are poor substitutes of each other in Iran and increase of these health expenditures leads to an increase in life expectancy. A decreasing return exists to scale in public and private health expenditures on life expectancy in Iran. The share of public health expenditures is higher than the share of private health expenditures on life expectancy in Iran.