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Provider choice of quality and surplus

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Author Info
Nolan Miller ()
Karen Eggleston ()
Richard Zeckhauser ()

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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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Publisher 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

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

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
  3. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 653-691, August. [Downloadable!] (restricted)
    Other versions:
  4. Ellis, Randall P. & McGuire, Thomas G., 1990. "Optimal payment systems for health services," Journal of Health Economics, Elsevier, vol. 9(4), pages 375-396, December. [Downloadable!] (restricted)
  5. Duizendstraal, Anton & Nentjes, Andries, 1994. " Organizational Slack in Subsidized Nonprofit Institutions," Public Choice, Springer, vol. 81(3-4), pages 297-321, December.
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  8. Kandel, Shmuel & Stambaugh, Robert F., 1991. "Asset returns and intertemporal preferences," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 39-71, February. [Downloadable!] (restricted)
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  9. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September. [Downloadable!] (restricted)
  10. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January. [Downloadable!] (restricted)
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  16. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!]
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