Health-Risking Informal Service: Price, Prevalence and Law Enforcement

The health-risking informal service is transacted when the expected extra satisfaction rate exceeds the ratio of the expected extra cost to the formal service price. Its prevalence decreases with the costs of risk bearing for the providers and clients. Lawenforcement effort lowers (raises) the informal service equilibrium price when the ratio of the providers’ and the clients’ degrees of absolute risk aversion is greater (smaller) than the ratio of the law-enforcement elasticities of their cost bearing. Spending on law enforcement is efficient when the public cost of the expected chaininfection stemming from the informal service exceeds a threshold level. (JEL I19, K32)