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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 quality and dilute the incentive e ects of increases in the capitation feeirrespective of patient sophistication.

Suggested Citation

  • Giuliano Masiero & Hugh Gravelle, 2000. "Quality incentives under a capitation regime: the role of patient expectations," Departmental Working Papers 2000-07, Department of Economics, Management and Quantitative Methods at Università degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2000-07
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    File URL: http://wp.demm.unimi.it/files/wp/2000/DEMM-2000_007wp.pdf
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    References listed on IDEAS

    as
    1. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
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    More about this item

    Keywords

    Switching costs. Imperfect information. Quality. Capitation.;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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