Advanced Search
MyIDEAS: Login

Quality competition with profit constraints: Do non-profit firms provide higher quality than for-profit firms?

Contents:

Author Info

  • Brekke, Kurt R.

    ()
    (Dept. of Economics, Norwegian School of Economics and Business Administration)

  • Siciliani, Luigi

    ()
    (University of York)

  • Straume, Odd Rune

    ()
    (University of Minho)

Abstract

In many markets, such as education, health care and public utilities, firms are often profit-constrained either due to regulation or because they have non-profit status. At the same time such firms might have altruistic concerns towards consumers. In this paper we study semi-altruistic firms’ incentives to invest in quality and cost-reducing effort when facing constraints on the distribution of profits. Using a spatial competition framework, we derive the equilibrium outcomes under both quality competition with regulated prices and qualityprice competition. Profit constraints always lead to lower cost-efficiency, whereas the effects on quality and price are ambiguous. If altruism is high (low), profit-constrained firms offer higher (lower) quality and lower (higher) prices than firms that are not profit-constrained. Compared with the first-best outcome, the cost-efficiency of profit-constrained firms is too low, while quality might be over- or underprovided. Profit constraints may improve welfare and be a complement or substitute to a higher regulated price, depending on the degree of altruism.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.nhh.no/Admin/Public/DWSDownload.aspx?File=%2fFiles%2fFiler%2finstitutter%2fsam%2fDiscussion+papers%2f2011%2f02.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Department of Economics, Norwegian School of Economics in its series Discussion Paper Series in Economics with number 2/2011.

as in new window
Length: 40 pages
Date of creation: 07 Feb 2011
Date of revision:
Handle: RePEc:hhs:nhheco:2011_002

Contact details of provider:
Postal: NHH, Department of Economics, Helleveien 30, N-5045 Bergen, Norway
Phone: +47 55 959 277
Fax: 5595 9100
Email:
Web page: http://www.nhh.no/sam/
More information through EDIRC

Related research

Keywords: Profit constraints; Quality competition; Semi-altruistic providers.;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
  2. Lundin, Douglas, 2000. "Moral hazard in physician prescription behavior," Journal of Health Economics, Elsevier, vol. 19(5), pages 639-662, September.
  3. Judith K. Hellerstein, 1998. "The Importance of the Physician in the Generic Versus Trade-Name Prescription Decision," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 108-136, Spring.
  4. Kurt R. Brekke & Robert Nuscheler & Odd Rune Straume, 2006. "Quality and Location Choices under Price Regulation," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 207-227, 03.
  5. Maitreesh Ghatak & Hannes Mueller, 2009. "Thanks for Nothing? Not-for-Profits and Motivated Agents," STICERD - Economic Organisation and Public Policy Discussion Papers Series 014, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  6. Lien, Hsien-Ming & Chou, Shin-Yi & Liu, Jin-Tan, 2008. "Hospital ownership and performance: Evidence from stroke and cardiac treatment in Taiwan," Journal of Health Economics, Elsevier, vol. 27(5), pages 1208-1223, September.
  7. DEL REY, Elena, . "Teaching versus research: a model of state university competition," CORE Discussion Papers RP -1501, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Beitia, Arantza, 2003. "Hospital quality choice and market structure in a regulated duopoly," Journal of Health Economics, Elsevier, vol. 22(6), pages 1011-1036, November.
  9. Paul H. Jensen & Elizabeth Webster & Julia Witt, 2009. "Hospital type and patient outcomes: an empirical examination using AMI readmission and mortality records," Health Economics, John Wiley & Sons, Ltd., vol. 18(12), pages 1440-1460.
  10. Ching-to Albert Ma & James F. Burgess Jr., 1992. "Quality Competition, Welfare, and Regulation," Papers 0024, Boston University - Industry Studies Programme.
  11. Brekke, Kurt Richard & Siciliani, Luigi & Straume, Odd Rune, 2009. "Price and quality in spatial competition," CEPR Discussion Papers 7422, C.E.P.R. Discussion Papers.
  12. Kurt R. Brekke & Robert Nuscheler & Odd Rune Straume, 2005. "Gatekeeping in Health Care," CESifo Working Paper Series 1552, CESifo Group Munich.
  13. 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.
  14. Oddvar Martin Kaarboe & Luigi Siciliani, 2008. "Multitasking, quality and pay for performance," Discussion Papers 08/06, Department of Economics, University of York.
  15. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
  16. Thomas P. Lyon, 1999. "Quality Competition, Insurance, and Consumer Choice in Health Care Markets," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 8(4), pages 546-580, December.
  17. Heyes, Anthony, 2005. "The economics of vocation or 'why is a badly paid nurse a good nurse'?," Journal of Health Economics, Elsevier, vol. 24(3), pages 561-569, May.
  18. Lakdawalla, Darius & Philipson, Tomas, 2006. "The nonprofit sector and industry performance," Journal of Public Economics, Elsevier, vol. 90(8-9), pages 1681-1698, September.
  19. Karlsson, Martin, 2007. "Quality incentives for GPs in a regulated market," Journal of Health Economics, Elsevier, vol. 26(4), pages 699-720, July.
  20. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
  21. Eggleston, Karen, 2005. "Multitasking and mixed systems for provider payment," Journal of Health Economics, Elsevier, vol. 24(1), pages 211-223, January.
  22. 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.
  23. Timothy Besley & Maitreesh Ghatak, 2006. "Sorting with Motivated Agents: Implications for School Competition and Teacher Incentives," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 404-414, 04-05.
  24. Asher Wolinsky, 1994. "Regulation of Duopoly: Managed Competition vs. Regulated Monopolies," Discussion Papers 1116, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  25. Carine Milcent, 2005. "Hospital ownership, reimbursement systems and mortality rates," Health Economics, John Wiley & Sons, Ltd., vol. 14(11), pages 1151-1168.
  26. 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.
  27. Karen Eggleston & Yu-Chu Shen & Joseph Lau & Christopher H. Schmid & Jia Chan, 2008. "Hospital ownership and quality of care: what explains the different results in the literature?," Health Economics, John Wiley & Sons, Ltd., vol. 17(12), pages 1345-1362.
  28. Gabriel Picone & Shin-Yi Chou & Frank Sloan, 2002. "Are For-Profit Hospital Conversions Harmful to Patients and to Medicare?," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 507-523, Autumn.
  29. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services with unmonitored quality," Discussion Paper Series In Economics And Econometrics 9510, Economics Division, School of Social Sciences, University of Southampton.
  30. Patrick Francois & Michael Vlassopoulos, 2008. "Pro-social Motivation and the Delivery of Social Services," CESifo Economic Studies, CESifo, vol. 54(1), pages 22-54, March.
  31. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Brekke, Kurt R. & Siciliani, Luigi & Straume, Odd Rune, 2012. "Quality competition with profit constraints," Journal of Economic Behavior & Organization, Elsevier, vol. 84(2), pages 642-659.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hhs:nhheco:2011_002. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dagny Hanne Kristiansen).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.