Improving Affordability and Accessibility for Socially‐Beneficial Services via Government Incentives

ABSTRACT Many socially‐beneficial services, like dental care, suffer from a dual challenge: Low affordability for citizens and long waiting times due to insufficient provider capacity. We model a government's problem of designing subsidy policies to address this issue. We analyze three financial interventions: Consumer vouchers, which are on the citizen side; and two provider‐side subsidies aimed at increasing capacity: Fee‐for‐service subsidies and downtime rebates. Using a continuous‐time Markov chain model, we capture the dynamic interactions between citizens and the service provider in response to these policies. Our findings yield several structural insights into subsidy design. We prove that subsidizing idle service capacity (a form of risk mitigation) always outperforms fee‐for‐service subsidies (a form of reward enhancement) in terms of cost‐effectiveness. However, the choice between citizen‐side and provider‐side policies depends critically on the primary system bottleneck. To further improve the government's cost efficiency, we propose a mixed‐subsidy policy. Although optimizing this policy is intractable, we develop an algorithm to find near‐optimal solutions. Numerical experiments demonstrate that a mixed policy combining consumer vouchers with idle‐time rebates can offer substantial cost savings compared to the best single‐subsidy approach, highlighting the potential efficiency gains of a more integrated subsidy structure.