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

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  • Bernard Fortin
  • Nicolas Jacquemet
  • Bruce Shearer

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 CIRPEE in its series Cahiers de recherche with number 1034.

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Date of creation: 2010
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Handle: RePEc:lvl:lacicr:1034

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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. 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.
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  5. Paarsch, Harry J. & Shearer, Bruce S., 2009. "The response to incentives and contractual efficiency: Evidence from a field experiment," European Economic Review, Elsevier, vol. 53(5), pages 481-494, July.
  6. Dumont, Etienne & Fortin, Bernard & Jacquemet, Nicolas & Shearer, Bruce, 2008. "Physicians' multitasking and incentives: Empirical evidence from a natural experiment," Journal of Health Economics, Elsevier, vol. 27(6), pages 1436-1450, December.
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  9. 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, Wiley Blackwell, vol. 66(2), pages 309-38, April.
  10. Bernard Fortin & Nicolas Jacquemet & Bruce Shearer, 2008. "Policy Analysis in the Health-Services Market: Accounting for Quality and Quantity," Cahiers de recherche, CIRPEE 0807, CIRPEE.
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  17. 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, University of Chicago Press, vol. 14(4), pages 703-32, October.
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  20. repec:fth:stanho:e-90-11 is not listed on IDEAS
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Citations

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Cited by:
  1. Joanne Castonguay, 2011. "Analyse comparative des mécanismes de gestion des paniers de services," CIRANO Project Reports 2011rp-16, CIRANO.
  2. 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, Springer, vol. 14(2), pages 143-160, June.
  3. 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.

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