Please use this identifier to cite or link to this item: http://hdl.handle.net/1822/18522

TitleHospital competition with soft budgets
Author(s)Brekke, Kurt R.
Siciliani, Luigi
Straume, Odd Rune
KeywordsHospital competition
Cost efficiency
Soft budgets
Quality
Issue date2012
PublisherUniversidade do Minho. Núcleo de Investigação em Políticas Económicas (NIPE)
Abstract(s)We study the incentives for hospitals to provide quality and expend cost-reducing effort when their budgets are soft, i.e., the payer may cover deficits or confiscate surpluses. The basic set up is a Hotelling model with two hospitals that differ in location and face demand uncertainty, where the hospitals run deficits (surpluses) in the high (low) demand state. Softer budgets reduce cost efficiency, while the effect on quality is ambiguous. For given cost efficiency, softer budgets increase quality since parts of the expenditures may be covered by the payer. However, softer budgets reduce cost-reducing effort and the profit margin, which in turn weakens quality incentives. We also find that profit confiscation reduces quality and cost-reducing effort. First best is achieved by a strict no-bailout and no-profit-confiscation policy when the regulated price is optimally set. However, for suboptimal prices a more lenient bailout policy can be welfare improving.
TypeWorking paper
URIhttp://hdl.handle.net/1822/18522
Publisher versionhttp://www3.eeg.uminho.pt/economia/nipe/
Peer-Reviewedno
AccessOpen access
Appears in Collections:NIPE - Documentos de Trabalho

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