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Quality incentives under a capitation regime: the role of patient expectations

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  • Giuliano Masiero

    ()

  • Hugh Gravelle

Abstract

We model the interaction between patient uncertainty about qualityand switching costs in a market for primary care in which general practitioners(GPs) are paid from general taxation. GPs compete via theirquality which is initially imperfectly observed by patients. Patientsmay be sophisticated and know they may wish to switch GPs afterobserving their true quality; or they may be myopic and not realisetheir initial observations of quality are mistaken; or they make biasedestimates of quality. We examine the incentive e ects of capitationpayments under these three assumptions about patient expectations. We show that imperfect information and switching costs reduce qualityand dilute the incentive e ects of increases in the capitation feeirrespective of patient sophistication.

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File URL: http://wp.demm.unimi.it/tl_files/wp/2000/DEMM-2000_007wp.pdf
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Bibliographic Info

Paper provided by Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano in its series Departmental Working Papers with number 2000-07.

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Date of creation: 01 Jan 2000
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Handle: RePEc:mil:wpdepa:2000-07

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Keywords: Switching costs. Imperfect information. Quality. Capitation.;

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  1. Schmalensee, Richard., 1980. "Product differentiation advantages of pioneering brands," Working papers 1140-80., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  2. Gravelle, Hugh & Masiero, Giuliano, 2000. "Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice," Journal of Health Economics, Elsevier, vol. 19(6), pages 1067-1088, November.
  3. Riordan, Michael H, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, MIT Press, vol. 101(2), pages 265-79, May.
  4. Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
  5. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
  6. Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
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