Optimal location of public health centres which provide free and paid services

A model and a heuristic are presented for finding the most effective locati on of public health centres providing non-vital services in competition wit h existing private health centres. While private centres provide only servi ces to customers who can pay for them, public centres provide both paid ser vices to affluent customers, and subsidised services to customers belonging to low-income groups (a hierarchical structure). While low-income customer s are assigned to fixed public centres, high-income customers can choose wh ich centre to patronise. To find the solution of this problem, the equilibr ium between maximum coverage of low-income population (within a pre-specifi ed distance), and an adequate capture of high-income population must be fou nd. Thus, in the public service, the revenues obtained from paid services a re used to partly cover the costs of the subsidised services, and the numbe r of centres that can be located depends on how many high-income clients ca n be captured. Capture of a high-income client happens when a public centre is located closer to the client than any of the existing private centres. Computational experience with optimal, as well as special heuristic, method s for solving this problem is described.