Estimates have been obtained of the cost of care of the dependent elderly in private and public hospital and in the community, based upon information collected on samples of elderly in Christchurch, New Zealand. In order to properly compare the costs between modes of care, the estimates obtained were variable costs, related to patient dependency, and represented the cost of all resources provided, including informal care. Using weighted least squares estimation, models were developed relating the consumption of direct nursing care in hospital to patient disabilities. These models explained a substantial proportion of the variability of the consumption of this resource. Nursing care was identified as the major determinant of the variation between patients in the cost of hospital care. Estimates of cost for individual patients in public and private hospital were obtained as functions of the direct nursing car~ consumed, and were found to vary substantially between patients in each type of hospital. The costs of public and private hospital care were compared, using the nursing care models to correct for the lower average dependency of the private hospital patients. The result was that private hospital care was cheaper although private hospital patients received more direct nursing care than did public hospital patients of the same level of dependency. The cost of community care varied between individual elderly and was related to the level of dependency. Informal care was the largest single component of this cost. Models relating informal and formal care to patient disabilities showed that informal care responded more strongly to dependency than did formal care. Community care was found to be cheaper than hospital care for all patients sampled, the greatest cost difference being for the very dependent elderly. 2 These results emphasize the importance of including informal care when estimating the cost of community care and show the need for variable (disability-reI ) costs, rather than average costs, when planning dependent elderly.