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Multitasking, Quality and Pay for Performance

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  • Kaarboe, Oddvar Martin
  • Siciliani, Luigi

Abstract

We present a model of optimal contracting between a purchaser and a provider of health services when quality has two dimensions. We assume that one dimension of quality is verifiable (dimension 1) and one dimension is not verifiable (dimension 2). We show that the power of the incentive scheme for the verifiable dimension depends critically on the extent to which quality 1 increases or decreases the provider's marginal disutility and the patients' marginal benefit from quality 2 (i.e. substitutability or complementarity). Our main result is that under some circumstances a high-powered incentive scheme can be optimal even when the two quality dimensions are substitutes.

Suggested Citation

  • Kaarboe, Oddvar Martin & Siciliani, Luigi, 2008. "Multitasking, Quality and Pay for Performance," CEPR Discussion Papers 6911, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:6911
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    More about this item

    Keywords

    altruism; Pay for performance; Quality;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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