Health care expenditure decisions in the presence of devolution and equalisation grants

In a model where health care provision, its regional distribution and the equalisation grant are the result of a utilitarian bargaining between a (relatively) rich region and a poor one, a First Best solution can be reached only if the two Regions have the same bargaining power. From a policy point of view, our model may explain the observed cross-national differences in the redistributive power of health care expenditure and it suggests that to equalise resources across Regions an income based equalisation grant may be preferred because it causes less distortions than an expenditure based one.