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Provider Choice of Quality and Surplus

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Author Info
Karen Eggleston
Nolan Miller
Richard Zeckhauser

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Abstract

We study the quality choices of institutional health-care providers, such as hospitals, assuming that the utility function of the key organizational decision-maker includes both quality of care and financial surplus. An increase in the decision-maker’s rate of surplus retention leads to a decrease (increase) in quality if his coefficient of relative risk aversion is less than (greater than) 1, as is likely when the decision-maker faces prosperous (difficult) financial conditions. Such behavior is consistent with "target income behavior," where the target income is surplus sufficient to break even. An increase in productive efficiency always leads the provider to increase quality.

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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0308.

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Date of creation: 2003
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Handle: RePEc:tuf:tuftec:0308

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Postal: Medford, MA 02155, USA
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Web page: http://ase.tufts.edu/econ

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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.:
  1. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
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  2. Ellis, Randall P. & McGuire, Thomas G., 1990. "Optimal payment systems for health services," Journal of Health Economics, Elsevier, vol. 9(4), pages 375-396, December. [Downloadable!] (restricted)
  3. Duizendstraal, Anton & Nentjes, Andries, 1994. " Organizational Slack in Subsidized Nonprofit Institutions," Public Choice, Springer, vol. 81(3-4), pages 297-321, December.
  4. Mark G. Duggan, 2000. "Hospital Ownership And Public Medical Spending," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1343-1373, November. [Downloadable!] (restricted)
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  5. Kandel, Shmuel & Stambaugh, Robert F., 1991. "Asset returns and intertemporal preferences," Journal of Monetary Economics, Elsevier, vol. 27(1), pages 39-71, February. [Downloadable!] (restricted)
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  6. Simon, Herbert A, 1979. "Rational Decision Making in Business Organizations," American Economic Review, American Economic Association, vol. 69(4), pages 493-513, September. [Downloadable!] (restricted)
  7. Pratt, John W & Zeckhauser, Richard J, 1987. "Proper Risk Aversion," Econometrica, Econometric Society, vol. 55(1), pages 143-54, January. [Downloadable!] (restricted)
  8. Barsky, Robert B, et al, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 537-79, May.
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  10. Pauly, Mark V, 1987. "Nonprofit Firms in Medical Markets," American Economic Review, American Economic Association, vol. 77(2), pages 257-62, May. [Downloadable!] (restricted)
  11. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier. [Downloadable!] (restricted)
  12. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier. [Downloadable!] (restricted)
  13. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, vol. 19(6), pages 829-854, November. [Downloadable!] (restricted)
  14. Gollier, Christian & Pratt, John W, 1996. "Risk Vulnerability and the Tempering Effect of Background Risk," Econometrica, Econometric Society, vol. 64(5), pages 1109-23, September. [Downloadable!] (restricted)
  15. Brian J. Hall & Jeffrey B. Liebman, 1998. "Are CEOs Really Paid Like Bureaucrats?," The Quarterly Journal of Economics, MIT Press, vol. 113(3), pages 653-691, August. [Downloadable!] (restricted)
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  16. Tomas Philipson & Darius Lakdawalla, 2001. "Medical Care Output and Productivity in the Nonprofit Sector," NBER Chapters, in: Medical Care Output and Productivity, pages 119-140 National Bureau of Economic Research, Inc. [Downloadable!]
  17. Thomas G. McGuire & Mark V. Pauly, 1991. "Physician Response to Fee Changes with Multiple Payers," Papers 0015, Boston University - Industry Studies Programme.
  18. McGuire, Thomas G. & Pauly, Mark V., 1991. "Physician response to fee changes with multiple payers," Journal of Health Economics, Elsevier, vol. 10(4), pages 385-410. [Downloadable!] (restricted)
  19. Darius Lakdawalla & Tomas Philipson, 1998. "Nonprofit Production and Competition," NBER Working Papers 6377, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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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.)

  1. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics. [Downloadable!]
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