Although the role of the services sector in the economy has grown increasingly large, and partnerships are a prevalent form of organization in this sector, relatively little is known about the behavior and performance of these firms. In this paper an attempt is made to fill that gap by developing and testing a model of the effect of alternative compensation arrangements on productive efficiency in medical group practices. The technique employed is two-stage production frontier estimation. This technique provides direct estimates of productive efficiency and allows for differences across agents in ability or responsiveness to financial incentives. In the frontier literature productive efficiency is assumed to be exogenously given. In this paper it is determined endogenously, thus a simple econometric technique correcting for this endogeneity in estimating the production frontier is employed. In addition, the measures of efficiency themselves can be made dependent variables for explicit econometric analysis of the determinants of efficiency. Overall, the empirical results are consistent with theoretical work on internal theory of the firm, which predicts that productivity compensation schemes will work well for firms with non-joint production and observable output. These two criteria are met by medical group practices. The treatment of measured efficiency as an endogenous variable is unique and allows some interesting insights into the determinants of productive efficiency. We find that relating compensation to productivity does increase the quantity and efficiency of production, as theory has hypothesized. The number of members in a group decreases both the quantity produced and the efficiency with which that output is produced. Experience does lead to greater productivity and efficiency. Medical groups in general are measured as being no less efficient than an average manufacturing firm, but Health Maintenance Organizations are less efficient than average.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. 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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Publisher Info
Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number
2170.
Length: Date of creation: Jan 1991 Date of revision: Handle: RePEc:nbr:nberwo:2170
Note: HE Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Email: Web page: http://www.nber.org More information through EDIRC
For technical questions regarding this item, or to correct its listing, contact: ().
Related research
Keywords:
Other versions of this item:
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.:
Richmond, J, 1974.
"Estimating the Efficiency of Production,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 515-21, June.
[Downloadable!] (restricted)
Cited by: (explanations, 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.)