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Optimal Contracts and Contractual Arrangements Within the Hospital: Bargaining vs. Take-it-or-leave-it Offers

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  • Matteo M Galizzi

    (Centre for Health Economics, University of York, UK and University of Brescia, Italy)

  • Marisa Miraldo

    (Centre for Health Economics, University of York)

Abstract

We study the impact of different contractual arrangements within the hospital on the optimal contracts designed by third party payers when severity is hospital's private information. We develop a multi-issue bargaining process between doctors and managers within the hospital. Results are then compared with a scenario where doctors and managers decide independently by maximizing their own profit, with managers proposing to doctors a take-it-or leave-it offer. Results show that, when the cost of capital is sufficiently low, the informational rent arising on information asymmetry is higher in a set up where managers and doctors decide together through a strategic bargaining process than when they act as two decision-making units.

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File URL: http://www.york.ac.uk/media/che/documents/papers/researchpapers/rp37_optimal_contracts_within_the_hospital.pdf
File Function: First version, 2008
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Bibliographic Info

Paper provided by Centre for Health Economics, University of York in its series Working Papers with number 037cherp.

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Length: 35 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:chy:respap:37cherp

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Keywords: Strategic Bargaining; Optimal Contracts; Hospitals; Asymmetric Information;

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  1. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
  2. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475.
  3. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services when patient demand does not reflect quality," Discussion Paper Series In Economics And Econometrics 9514, Economics Division, School of Social Sciences, University of Southampton.
  4. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
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