Are waiting lists inevitable?

Waiting lists are a common phenomenon in markets in which non-price allocation of goods and services occurs. To the extent that waiting lists for in-patient health services are perceived to ration imperfectly, many propose policies which focus on reducing demand or increasing supply. Strategies aimed at increasing supply often create perverse incentives in that they reward hospitals with long waiting lists through the provision of additional resources. This paper describes how supply has been addressed in Victoria by changing the financial incentives relating to waiting lists. The success of this payment policy in reducing waiting lists to public hospitals is reported.