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Provider choice of quality and surplus

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Author Info

  • Nolan Miller

    ()

  • Karen Eggleston

    ()

  • Richard Zeckhauser

    ()

Abstract

We study the quality choices of institutional health-care providers, such as hospitals, assuming that the utility function of the key organizational decision maker includes both quality of care and financial surplus. We are primarily concerned with how changes in outside claims—particularly proportional outside claims—on the provider’s financial surplus affect his choice of quality. We use the term “rate of surplus retention” to refer to the fraction of surplus remaining after deducting all such claims. Using the Arrow-Pratt coefficient of relative risk aversion as a measure of curvature of the provider’s utility-from-money function, we show that increasing the surplus retention rate increases (decreases) quality if the provider’s coefficient of relative risk aversion is greater than (less than) 1. Copyright Springer Science + Business Media, LLC 2006

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File URL: http://hdl.handle.net/10.1007/s10754-006-7107-7
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Bibliographic Info

Article provided by Springer in its journal International Journal of Health Care Finance and Economics.

Volume (Year): 6 (2006)
Issue (Month): 2 (June)
Pages: 103-117

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Handle: RePEc:kap:ijhcfe:v:6:y:2006:i:2:p:103-117

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Web page: http://www.springerlink.com/link.asp?id=106603

Related research

Keywords: Quality; Surplus; Risk aversion; Surplus retention; Provider maximization; Nonprofit; For-profit;

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References

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  1. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc.
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  11. Duizendstraal, Anton & Nentjes, Andries, 1994. " Organizational Slack in Subsidized Nonprofit Institutions," Public Choice, Springer, vol. 81(3-4), pages 297-321, December.
  12. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
  13. Thomas G. McGuire & Mark V. Pauly, 1991. "Physician Response to Fee Changes with Multiple Payers," Papers 0015, Boston University - Industry Studies Programme.
  14. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc.
  15. Joseph P. Newhouse, 2004. "Pricing the Priceless: A Health Care Conundrum," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262640589, January.
  16. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
  17. Tomas Philipson & Darius Lakdawalla, 2001. "Medical Care Output and Productivity in the Nonprofit Sector," NBER Chapters, in: Medical Care Output and Productivity, pages 119-140 National Bureau of Economic Research, Inc.
  18. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-23, September.
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  20. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January.
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Cited by:
  1. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics.

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