Quality competition with motivated providers and sluggish demand
AbstractWe study incentives for quality provision in markets where providers are motivated (semi-altruistic); prices are regulated and firms are funded by a combination of block grants and unit prices; competition is based on quality, and demand adjusts sluggishly. Health or education are sectors in which the mentioned features are the rule. We show that the presence of motivated providers makes dynamic competition tougher, resulting in higher steady-state levels of quality in the closed-loop solutions than in the benchmark open-loop solution, if the price is sufficiently high. However, this result is reversed if the price is sufficiently low (and below unit costs). Sufficiently low prices also imply that a reduction in demand sluggishness will lead to lower steady-state quality. Prices below unit costs will nevertheless be welfare optimal if the providers are sufficiently motivated.
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Bibliographic InfoPaper provided by NIPE - Universidade do Minho in its series NIPE Working Papers with number 14/2011.
Date of creation: 2011
Date of revision:
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Postal: Núcleo de Investigação em Políticas Económicas, Escola de Economia e Gestão, Universidade do Minho, P-4710-057 Braga, Portugal
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Web page: http://www3.eeg.uminho.pt/economia/nipe/versao_inglesa/index_uk.htm
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Other versions of this item:
- Siciliani, Luigi & Rune Straume, Odd & Cellini, Roberto, 2013. "Quality competition with motivated providers and sluggish demand," Journal of Economic Dynamics and Control, Elsevier, vol. 37(10), pages 2041-2061.
- Luigi Siciliani & Odd Rune Straume & Roberto Cellini, . "Quality competition with motivated providers and sluggish demand," Discussion Papers 11/09, Department of Economics, University of York.
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-05-07 (All new papers)
- NEP-COM-2011-05-07 (Industrial Competition)
- NEP-HRM-2011-05-07 (Human Capital & Human Resource Management)
- NEP-REG-2011-05-07 (Regulation)
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.:
- Kaarbøe, Oddvar M. & Siciliani, Luigi, 2011.
"Multitasking, Quality and Pay for Performance,"
Working Papers in Economics
07/08, University of Bergen, Department of Economics.
- Kaarboe, Oddvar Martin & Siciliani, Luigi, 2008. "Multitasking, Quality and Pay for Performance," CEPR Discussion Papers 6911, C.E.P.R. Discussion Papers.
- Oddvar Martin Kaarboe & Luigi Siciliani, 2008. "Multitasking, quality and pay for performance," Discussion Papers 08/06, Department of Economics, University of York.
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