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Labour Supply, Work Effort and Contract Choice: Theory and Evidence on Physicians

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Author Info

  • Fortin, Bernard

    ()
    (Université Laval)

  • Jacquemet, Nicolas

    ()
    (University of Paris 1 Panthéon-Sorbonne)

  • Shearer, Bruce S.

    ()
    (Université Laval)

Abstract

We develop and estimate a generalized labour supply model that incorporates work effort into the standard consumption-leisure trade-off. We allow workers a choice between two contracts: a piece rate contract, wherein he is paid per unit of service provided, and a mixed contract, wherein he receives an hourly wage and a reduced piece rate. This setting gives rise to a non-convex budget set and an efficient budget constraint (the upper envelope of contract-specific budget sets). We apply our model to data collected on specialist physicians working in the Province of Quebec (Canada). Our data set contains information on each physician's labour supply and their work effort (clinical services provided per hour worked). It also covers a period of policy reform under which physicians could choose between two compensation systems: the traditional fee-for-service, under which physicians receive a fee for each service provided, and mixed remuneration, under which physicians receive a per diem as well as a reduced fee-for-service. We estimate the model using a discrete choice approach. We use our estimates to simulate elasticities and the effects of ex ante reforms on physician contracts. Our results show that physician services and effort are much more sensitive to contractual changes than is their time spent at work. Our results also suggest that a mandatory reform, forcing all physicians to adopt the mixed remuneration system, would have had substantially larger effects on physician behaviour than those observed under the voluntary reform.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 5188.

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Length: 41 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:iza:izadps:dp5188

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Keywords: labour supply; effort; contracts; practice patterns of physicians; discrete choice econometric models; mixed logit;

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References

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  1. Adam Copeland & Cyril Monnet, 2003. "The welfare effects of incentive schemes," Finance and Economics Discussion Series 2003-08, Board of Governors of the Federal Reserve System (U.S.).
  2. Thomas MaCurdy & David Green & Harry Paarsch, 1990. "Assessing Empirical Approaches for Analyzing Taxes and Labor Supply," Journal of Human Resources, University of Wisconsin Press, vol. 25(3), pages 415-490.
  3. Devlin, Rose Anne & Sarma, Sisira, 2008. "Do physician remuneration schemes matter? The case of Canadian family physicians," Journal of Health Economics, Elsevier, vol. 27(5), pages 1168-1181, September.
  4. Jeremy Lise & Shannon Seitz & Jeffrey Smith, 2003. "Equilibrium Policy Experiments and the Evaluation of Social Programs," University of Western Ontario, CIBC Centre for Human Capital and Productivity Working Papers 20032, University of Western Ontario, CIBC Centre for Human Capital and Productivity.
  5. Paarsch, Harry J & Shearer, Bruce, 2000. "Piece Rates, Fixed Wages, and Incentive Effects: Statistical Evidence from Payroll Records," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 59-92, February.
  6. Richard Blundell & Alan Duncan & Costas Meghir, 1995. "Estimating labour supply responses using tax reforms," IFS Working Papers W95/07, Institute for Fiscal Studies.
  7. Harry J. Paarsch & Bruce S. Shearer, 2007. "The Response to Incentives and Contractual Efficiency: Evidence from a Field Experiment," Cahiers de recherche 0701, CIRPEE.
  8. A. Zabalza & C. Pissarides & M. Barton, 1980. "Social security and the choice between full-time work, part-time work and retirement," NBER Chapters, in: Econometric Studies in Public Finance, pages 245-276 National Bureau of Economic Research, Inc.
  9. Showalter, Mark H. & Thurston, Norman K., 1997. "Taxes and labor supply of high-income physicians," Journal of Public Economics, Elsevier, vol. 66(1), pages 73-97, October.
  10. Dickinson, David L, 1999. "An Experimental Examination of Labor Supply and Work Intensities," Journal of Labor Economics, University of Chicago Press, vol. 17(4), pages 638-70, October.
  11. Petra E. TODD & Kenneth I. WOLPIN, 2008. "Ex Ante Evaluation of Social Programs," Annales d'Economie et de Statistique, ENSAE, issue 91-92, pages 263-291.
  12. Richard Blundell & Thomas MaCurdy, 1998. "Labour supply: a review of alternative approaches," IFS Working Papers W98/18, Institute for Fiscal Studies.
  13. Etienne Dumont & Bernard Fortin & Nicolas Jacquemet & Bruce Shearer, 2007. "Physicians' Multitasking and Incentives: Empirical Evidence from a Natural Experiment," Cahiers de recherche 0745, CIRPEE.
  14. Badi H. Baltagi & Espen Bratberg & Tor Helge Holmås, 2005. "A panel data study of physicians' labor supply: the case of Norway," Health Economics, John Wiley & Sons, Ltd., vol. 14(10), pages 1035-1045.
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  16. Bolduc, Denis & Fortin, Bernard & Fournier, Marc-Andre, 1996. "The Effect of Incentive Policies on the Practice Location of Doctors: A Multinomial Probit Analysis," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 703-32, October.
  17. Bernard Fortin & Nicolas Jacquemet & Bruce Shearer, 2008. "Policy Analysis in the Health-Services Market: Accounting for Quality and Quantity," Cahiers de recherche 0807, CIRPEE.
  18. Ferrall, Christopher & Shearer, Bruce, 1999. "Incentives and Transactions Costs within the Firm: Estimating an Agency Model Using Payroll Records," Review of Economic Studies, Wiley Blackwell, vol. 66(2), pages 309-38, April.
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Cited by:
  1. Boris Kralj & Jasmin Kantarevic, 2013. "Quality and quantity in primary care mixed-payment models: evidence from family health organizations in Ontario," Canadian Journal of Economics, Canadian Economics Association, vol. 46(1), pages 208-238, February.
  2. Joanne Castonguay, 2011. "Analyse comparative des mécanismes de gestion des paniers de services," CIRANO Project Reports 2011rp-16, CIRANO.
  3. Marie Allard & Izabela Jelovac & Pierre-Thomas Léger, 2014. "Payment mechanism and GP self-selection: capitation versus fee for service," International Journal of Health Care Finance and Economics, Springer, vol. 14(2), pages 143-160, June.

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