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Hospital Competition with Soft Budgets

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  • Kurt R. Brekke
  • Luigi Siciliani
  • Odd Rune Straume

Abstract

type="main"> We study the incentives for quality provision and cost efficiency for hospitals with soft budgets, where the payer can cover deficits or confiscate surpluses. While a higher bailout probability reduces cost efficiency, the effect on quality is ambiguous. Profit confiscation reduces both quality and cost efficiency. 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. When we allow for heterogeneity in costs and qualities, we also show that a softer budget can raise quality for high-cost patients.

Suggested Citation

  • Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2015. "Hospital Competition with Soft Budgets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 1019-1048, July.
  • Handle: RePEc:bla:scandj:v:117:y:2015:i:3:p:1019-1048
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    Cited by:

    1. Brekke, Kurt R. & Canta, Chiara & Siciliani, Luigi & Straume, Odd Rune, 2021. "Hospital competition in a national health service: Evidence from a patient choice reform," Journal of Health Economics, Elsevier, vol. 79(C).
    2. Berta, Paolo & Guerriero, Carla & Levaggi, Rosella, 2021. "Hospitals’ strategic behaviours and patient mobility: Evidence from Italy," Socio-Economic Planning Sciences, Elsevier, vol. 77(C).
    3. János Kornai, 2014. "The soft budget constraint," Acta Oeconomica, Akadémiai Kiadó, Hungary, vol. 64(supplemen), pages 25-79, November.
    4. Thomas Czypionka & Markus Kraus & Susanne Mayer & Gerald Röhrling, 2014. "Efficiency, ownership, and financing of hospitals: The case of Austria," Health Care Management Science, Springer, vol. 17(4), pages 331-347, December.
    5. Hehenkamp, Burkhard & Kaarbøe, Oddvar M., 2020. "Location choice and quality competition in mixed hospital markets," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 641-660.
    6. Levaggi, Laura & Levaggi, Rosella, 2020. "Is there scope for mixed markets in the provision of hospital care?," Social Science & Medicine, Elsevier, vol. 247(C).
    7. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2023. "Dynamic, incentive-compatible contracting for health services," Working Papers 2023.16, Fondazione Eni Enrico Mattei.
    8. Berger, Michael & Sommersguter-Reichmann, Margit & Czypionka, Thomas, 2020. "Determinants of soft budget constraints: How public debt affects hospital performance in Austria," Social Science & Medicine, Elsevier, vol. 249(C).
    9. Guccio, Calogero & Lisi, Domenico & Pignataro, Giacomo, 2014. "Readmission and Hospital Quality under Prospective Payment System," MPRA Paper 56490, University Library of Munich, Germany.
    10. Gaughan, James & Gutacker, Nils & Grašič, Katja & Kreif, Noemi & Siciliani, Luigi & Street, Andrew, 2019. "Paying for efficiency: Incentivising same-day discharges in the English NHS," Journal of Health Economics, Elsevier, vol. 68(C).
    11. Cavalieri, M. & Guccio, C. & Lisi, D. & Pignataro, G., 2015. "Does the Extent of Per-Case Payment System Affect Hospital Efficiency? Evidence from the Italian NHS," Health, Econometrics and Data Group (HEDG) Working Papers 15/29, HEDG, c/o Department of Economics, University of York.
    12. Li, Zhong-Ping & Wang, Jian-Jun, 2021. "Effects of healthcare quality and reimbursement rate in a hospital association," Socio-Economic Planning Sciences, Elsevier, vol. 76(C).
    13. Kornai, János, 2014. "Bevezetés A puha költségvetési korlát című kötethez [Introduction to the author s volume entitled Soft Budget Constraint]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(7), pages 845-897.
    14. Castro, M.F.; & Ferrara, P.; & Guccio, C.; & Lisi, D.;, 2018. "Medical Malpractice Liability and Physicians’ Behavior:Experimental Evidence," Health, Econometrics and Data Group (HEDG) Working Papers 18/11, HEDG, c/o Department of Economics, University of York.
    15. Donald J. Wright, 2016. "Soft Budget Constraints in Public Hospitals," Health Economics, John Wiley & Sons, Ltd., vol. 25(5), pages 578-590, May.
    16. Castro, Massimo Finocchiaro & Ferrara, Paolo Lorenzo & Guccio, Calogero & Lisi, Domenico, 2019. "Medical malpractice liability and physicians’ behavior: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 166(C), pages 646-666.
    17. Finocchiaro Castro, Massimo & Ferrara, Paolo Lorenzo & Guccio, Calogero & Lisi, Domenico, 2021. "Optimal mixed payment system and medical liability. A laboratory study," MPRA Paper 110276, University Library of Munich, Germany.
    18. Berger, Michael & Sommersguter-Reichmann, Margit & Czypionka, Thomas, 2020. "Determinants of soft budget constraints: how public debt affects hospital performance in Austria," LSE Research Online Documents on Economics 116865, London School of Economics and Political Science, LSE Library.
    19. Paolo Berta & Carla Guerriero & Rosella Levaggi, 2018. "The dark side of fiscal federalism:evidence from hospital care in Italy," Working papers 72, Società Italiana di Economia Pubblica.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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