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Provider Choice of Quality and Surplus

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  • Karen Eggleston
  • Nolan Miller
  • Richard Zeckhauser

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.

Suggested Citation

  • Karen Eggleston & Nolan Miller & Richard Zeckhauser, 2003. "Provider Choice of Quality and Surplus," Discussion Papers Series, Department of Economics, Tufts University 0308, Department of Economics, Tufts University.
    • Handle: RePEc:tuf:tuftec:0308
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    Cited by:

    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.
    2. Jacobson, Mireille G. & Chang, Tom Y. & Earle, Craig C. & Newhouse, Joseph P., 2017. "Physician agency and patient survival," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 27-47.
    3. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2012. "Risk adjustment and prevention," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 45(4), pages 1586-1607, November.

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