Moonlighting: Public Service and Private Practice1

We study dual job incentives with a focus on public-service physicians referring patients to their private practices. We call this moonlighting. Not all physicians moonlight; we introduce a group of dedicated doctors who in the base models behave nonstrategically in the public system. Allowing moonlighting can always enhance aggregate welfare. The equilibrium care quality in the public system may increase or decrease; in the former situation, the policy allowing moonlighting implements a Pareto improvement. Unregulated moonlighting may be detrimental to social welfare when it leads to adverse behavioral reactions such as moonlighters shirking more in the public system, and dedicated doctors abandoning their sincere behavior. Price regulation in the private market tradeoffs the efficiency gain from moonlighting against the loss due to adverse behavior in the public system and improve aggregate welfare.