We investigate computational and mechanism design aspects of scarce resource allocation, where the primary rationing mechanism is through waiting times. Specifically we consider allocating medical treatments to a population of patients. Each patient needs exactly one treatment, and can choose from @math hospitals. Hospitals have different costs, which are fully paid by a third party ---the "payer". The payer has a fixed budget @math , and each hospital will have its own waiting time. At equilibrium, each patient will choose his most preferred hospital given his intrinsic preferences and the waiting times. The payer thus computes the waiting times so that at equilibrium the budget constraint is satisfied and the social welfare is maximized. We first show that the optimization problem is NP-hard, yet if the budget can be relaxed to @math for an arbitrarily small @math , then the optimum under budget @math can be approximated efficiently. Next, we study the endogenous emergence of waiting time from the dynamics between hospitals and patients, and show that there is no need for the payer to explicitly enforce the optimal waiting times. Under certain conditions, all he need is to enforce the amount of money he wants to pay to each hospital. The dynamics will always converge to the desired waiting times in finite time. We then go beyond equilibrium solutions and investigate the optimization problem over a much larger class of mechanisms containing the equilibrium ones as special cases. With two hospitals, we show that under a natural assumption on the patients' preference profiles, optimal welfare is in fact attained by the randomized assignment mechanism, which allocates patients to hospitals at random subject to the budget constraint, but avoids waiting times. Finally, we discuss potential policy implications of our results, as well as follow-up directions and open problems.
We examine the role of quality and waiting time in health insurance when there is ex post moral hazard. Quality and waiting time provide additional instruments to control demand and potentially can improve the trade-off between optimal risk bearing and optimal consumption of health care. We show that optimal quality is lower than it would be in the absence of ex post moral hazard. But it is never optimal to have a positive waiting time if the marginal cost of waiting is higher for patients with greater benefits from health care.