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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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  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. 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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  3. 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)
  4. Duizendstraal, Anton & Nentjes, Andries, 1994. " Organizational Slack in Subsidized Nonprofit Institutions," Public Choice, Springer, vol. 81(3-4), pages 297-321, December.
  5. 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)
  6. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. 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)
  8. Thomas G. McGuire & Mark V. Pauly, 1991. "Physician Response to Fee Changes with Multiple Payers," Papers 0015, Boston University - Industry Studies Programme.
  9. 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)
  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. 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)
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