(Lindsay and Feigenbaum)

Background
Queues emerge in:

i) Setting 1: Quantity demanded and quantity supplied fluctuate so optimal capacity and equilibrium price is difficult to determine. ii) Setting 2: If prices are below the market-clearing level, queues of demanders will form to ration the available supply

 This paper examines Setting 2 Case where the price is too low. Even when demand is perfectly predictable and

uniform (opposite of the first setting), lines form and grow until the expected wait = value of goods received

Definition of Waiting
Queuing using waiting lists Does not imply waiting in person No cost in terms of wasted time. One can do whatever he wants with his time except enjoy the services of the good sought. Question: How does the market clear?

Assumptions
1: Delay in receipt of a good can lower its value to

demanders

It is this diminishing value rather than increasing cost of

obtaining such goods that produces the convergence of quantity demanded and the quantity supplied.

2: Individual demand is unpredictable from period to

period

If demand is predictable, the demander can forecast his

desired quantity in each future period and simply order in advance to obtain it. No diminished value for the good because there is no delay in between the time the consumer wishes to consume the good and the time the consumer can actually consume the good.

Section I: Theory
Individual decision to join the waiting lists is described,

then aggregated by market Sensitivity of the rate of joining to:

Expected delay in delivery Rate at which demand diminishes with delay in delivery

Section II: Empirical results

Theory is tested on the data from the waiting list for

admission to British National Health Service (NHS) hospitals. Theory is found to be in contrast to current explanations of waiting lists in the NHS and elsewhere.

Current theory
Current theory: Market does not clear due to backlogs
Total demand Total supply because total demand includes

backlog
But rate at which services are demanded in each period

= rate at which services are supplied, There is no long-run inadequacy of resources to deal with demand.

Implications
Solution to this waiting list problem is through short-

term efforts However, expansion of facilities typically does not eliminate waiting lists, or even substantially reduce them.

Section I
A. Individual Joining: Join a waiting list when PV of the good when delivered > Cost of joining the queue

=C

When does the individual join the queue?

Value function
Value of the good/rights: i)
i)

Depends on price.
Assume that upon arriving at the top of the waiting list, each demander is entitled to purchase a fixed amount of the good at a price (possibly zero) below the market-clearing price.

 ii) Depends on the delay, expressed as g which

incorporates both:
A) Discount rate effect. However, the impact on g is

insignificant as the delays in the empirical tests rarely exceed several months in duration.
B) Diminishing demand effect.

The timing of delivery may affect a goods value due to fashion, circumstance, location, health or whim. Major component of g since the main thrust of the analysis is to predict the influence of differences in decay rates in different queues.

 This gives us:

where t = expected date in delivery g = decay rate = vector of unknown attributes p = delivery price

Cost function
Cost of joining the list, ci = Any costs incurred to qualify for joining other than the purchase price E.g. taking examinations, obtaining approvals and referrals Transactions costs (e.g. expenditures for transportation, legal advice, market information)

Market determinant of t

How does the market clear?

Instead of clearing the market by raising the cost of

obtaining the good, waiting time clears the market by making it less valuable. If a good is distributed to a population with varying v and g
Demanders with high values and low decay factors will

crowd out demanders with lower v and higher g.

Rate of joining
Assume that the purchase price and the cost of joining

as uniform across all persons, so:

Variation in t is attributable to:

Decay rate g Vector of consumer attributes

j(0):
Number of people that will join when t=0 (i.e. no expected delay in delivery) At t=0, the number of people is unaffected by changes in g At t>0, then an increase in g reduces the rate of joining

Elasticity
(1) (2) (3) Where v= elasticity of joining wrt value placed on the good by the marginal joiners Substituting (3) into (2) we get For any given expected wait, the responsiveness of those joining waiting lists to changes in this wait will vary positively with the demand elasticity and the decay rate.

Rate of supply
Waiting lists may exercise an additional influence on

supply Supply at time h depends on:

Vector of unknown determinants w

Waiting time for that good (+ve effect)

Number in Queue
At equilibrium, the number in the queue Q is equal to

the joining rate j(t)*t.

An increase in supply reduces the equilibrium wait (see

Figure 1). A change in expected wait should therefore have the following effect on the number in the queue:

Effect of supply shifts on number in queue

So supply shifts has the following effects on the

number in the queue:

Waiting lists will not be shortened because an increase

in supply results in a longer waiting lists, due to decrease in expected delay.

This holds for as long as

|elasticity of joining wrt to expected wait| >1.

Equilibrium
Equilibrium is at

, where

Note: The joining function allows us to derive an expression for the elasticity of joining wrt expected wait in the queue.

Increases in service rate is occasionally accompanied by increases in joining rate (since expected wait decreases), assuming elasticity >1.

Part II: Empirical Results

National Health Service (NHS) in Great Britain. It relates the rate at which demanders of hospital

services join waiting lists to:

Expected delay, t

Decay rate, g of demand for these services

NHS
Features of the NHS (or how to join an NHS queue):
For non-emergency cases,

Patient -> GP -> Consultant/Hospitalisation (placed in queue) Consultants may only be visited if the patient has a referral.

Rationing by waiting lists

(1) Over time, some who are in the queue would have recovered/moved away/died while awaiting treatment. (2) Expected wait itself reduce the attractiveness of

joining in the first place

Implications of Theory
Rate of joining is positively related to 1) The value of the services provided, v Rate of joining is inversely related to: 1) Expected delay, t 2) The decay rate, g 3) The cost of joining, c Elasticity: Membership in the queue is positively related to

the rate of service where |t| > 1 and negatively related to membership in the queue where |t| < 1

Data Base
14 administration regions Data on mean waiting time and the number of

discharges:
Reported annually for each ICDA disease category

Reported by region

Data of for the year 1974 22 conditions observed in 14 regions for a total of 308

observations

Data shortcomings
Data aggregated to regional level masks the intraregional variability in waiting times and the other variables
However, the demanders are not restricted to a single

hospital, but may shop among alternatives in their region for hospitals offering the shortest wait. Therefore the differences in hospital waiting lists within the region is assumed to be small relative to interregional variation

 Separate queues for admission are not explicitly maintained in each hospital for separate conditions
Beds can be assigned for a variety of conditions.

However, since the waiting times for different conditions

vary greatly, it suggests that separate queues are implicitly maintained.

Assigning separate decay rates

The decay rate, g, for individual hospitalizable conditions is

not objectively measured.

Hence, decay rates are assigned by grouping them. Categories are given separate decay rates

 Category I conditions (high decay rate):

Nonemergency cases, typically susceptible to drug therapy for

which alternatives to hospital care were available Cases that respond to treatment and are controlled within a reasonable time in most instances, even if hospitalization is not provided

Category II conditions (low decay rate):

Nonemergency cases such as hernia or cataracts that do not grow

worse with delays in treatment but for which no alternative to hospital based therapy is available

Category III conditions (negative decay rate):

Conditions that rapidly grow more serious over time Negative decay rate as demand increases rather than subsides over

time

Hypothesis
j= j (t,g,v) j/t < 0, j/g < 0, Estimate j/v >0

j = a0 +a1t +a2g.t +a3v +u

where

a1 < 0,

a2 < 0,

a3 > 0

 Dummy variables:
Dummy variable 1 indicates inclusion in the high decay

rate, Category I Dummy variable 0 indicates inclusion in the low decay rate, Category II
Category III conditions removed from sample
These emergencies are moved to the head of the queue and do not

follow the process outlined in the papers theory No influence on the results predicted for the remaining categories

Shortcomings of tests
No data on numbers actually joining each queue in each period
Model suggests that in equilibrium the rate of joining =

rate of output s So data on service rates per period are used instead

 Since rate of supply may also be influenced by delay (not independent of t), OLS estimates of these coefficients may be inconsistent.

To reduce this inconsistency:

Used predictors of t that are uncorrelated with the

disturbance term u Predicted values of t are used in the joining equation to obtain unbiased estimates of its structure Delay is structured in weeks

 Different queues will have difference in the number of potential joiners, j(0).
This affects both the estimated constant term and the

slope of the joining function

Separately estimating regressions for each queue and identifying these constants Deflate the dependent variable of one queue by the ratio of the constant terms This makes the two different queues comparable

Empirical results
Demand Supply Elasticities Decay rate, g

Demand
i) Demand (joining rate)
Proven that j/t < 0 and j/g < 0 Proven that there is a difference in decay rates between

Category I and II conditions

Supply
ii) Supply (cases treated per 1000 population)
The longer the expected wait per condition, the higher is

the rate of output, s/t > 0 Beds available per capita and doctors per capita have a positive effect on supply of services

Elasticities
iii) Elasticities (computed from joining and supply equation coefficients)
Elasticity of joining wrt expected wait is lower for low

decay rate conditions than higher decay rate conditions (both are negative) Elasticity of supply wrt delay is positive.

Decay rate, g
iv) Estimates of demand decay rates
Mean expected delay for Category I was lower than for

Category II conditions According to American and Canadian studies, price elasticity of demand is very inelastic at low prices

The money price of hospital care is zero under the NHS so this conclusion is relevant The decay rate for Category I conditions is greater than for Category II conditions

Conclusion
Waiting list queues function as rationing devices Membership in such queue itself imposes no cost, so the waiting lists may ration only through the influence of delay on the value of the service

delivered
Rates at which demand decays over time were found to be

positive for both categories Category I decay rate > Category II decay rate

Homogenous households
Comparative static predictions about the response of such queues to changing market conditions is possible.
j/t < 0

j/g < 0, and

s/t > 0.

Non-homogenous households
Where markets serve households for whom demand diminishes at different rates, rationing will occur on the basis of decay rates as well as value
People who value the good less might obtain the good

because others (who value it more) are discouraged by the waiting time and do not join the waiting lists