This paper analyzes the factors determining the physicians’ location decisions when physicians have heterogeneous preferences about the regional amenities in a two-regions health care system. While the first best allocation entails geographic equality in access to and quality of health-care services, we show that free location decisions results in an unfair allocation in health care resources. We first characterize the public policies allowing to decentralize the first best. Then, we show that the optimal policy aiming at equalizing medical densities consists in setting regionally differentiated prices and a single lump-sum transfer. This transfer is a tax (resp. a subsidy) when the value of the difference in regional amenities is low (resp. high).
