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It takes three to tango: Soft budget constraint and cream skimming in the hospital care market

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Author Info
Levaggi, Rosella
Montefiori, Marcello ()

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Abstract

Cream skimming is an illegal behaviour that consists in choosing to treat patients according to their ability to recover. It arises from the use of prospective payment schemes in an asymmetry of information framework. In this context in fact the provider can observe some relevant information (freely or at a cost) before making its effort which will then be used to its own advantage. The paper studies the scope for these types of behaviour in a mixed market for hospital care where the hospitals do not share the same objectives. We show that in this context cream skimming is made possible by the presence of two important elements: the public hospital prefers to treat high severity patients and the regulator is unable to enforce hard budget constraint rules. The paper adds an important dimension to the study of cream skimming as proposed by the traditional literature where asymmetry of information alone is considered the cause of this market failure. In our context, in fact, cream skimming arises mainly from a regulatory failure.

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Paper provided by Department of Public Policy and Public Choice - POLIS in its series P.O.L.I.S. department's Working Papers with number 48.

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Length: 27 pages
Date of creation: Jul 2005
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Handle: RePEc:uca:ucapdv:48

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Find related papers by JEL classification:
I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information

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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.:
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  22. Cassone, Alberto & Marchese, Carla, 2001. "Should the death tax die? And should it leave an inheritance?," P.O.L.I.S. department's Working Papers 22, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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(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. Marchese, Carla, 2006. "Rewarding the consumer for curbing the evasion of commodity taxes?," P.O.L.I.S. department's Working Papers 72, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  2. Bia, Michela, 2007. "The Propensity Score method in public policy evaluation: a survey," P.O.L.I.S. department's Working Papers 79, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  3. Ortona, Guido & Ottone, Stefania & Ponzano, Ferruccio, 2005. "A simulative assessment of the Italian electoral system," P.O.L.I.S. department's Working Papers 53, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  4. Ramello, Giovanni B. & Silva, Francesco, 2006. "Appropriating signs and meaning: The elusive economics of trademark," P.O.L.I.S. department's Working Papers 70, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  5. Ottone, Stefania, 2006. "fairness: a survey," P.O.L.I.S. department's Working Papers 57, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  6. Yasuo Sanjo, 2009. "Quality choice in a health care market: a mixed duopoly approach," The European Journal of Health Economics, Springer, vol. 10(2), pages 207-215, May. [Downloadable!] (restricted)
  7. Marchese, Carla & Privileggi, Fabio, 2007. "Increasing the efficiency of the 'Studi di Settore' might backfire," P.O.L.I.S. department's Working Papers 83, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  8. Ottone, Stefania & Ponzano, Ferruccio & Ricciuti, Roberto, 2007. "Simulating voting rule reforms for the Italian parliament. An economic perspective," P.O.L.I.S. department's Working Papers 88, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  9. Ottone, Stefania, 2004. "Transfers and Altruistic Punishments in Third Party Punishment Game Experiments," P.O.L.I.S. department's Working Papers 41, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  10. Ottone, Stefania, 2007. "Are people samaritans or avengers?," P.O.L.I.S. department's Working Papers 77, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  11. Ottone, Stefania & Ponzano, Ferruccio, 2005. "An Extension to the Model of Inequity Aversion by Fehr and Schmidt," P.O.L.I.S. department's Working Papers 51, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  12. Breton, Albert & Scott, Anthony & Fraschini, Angela, 2007. "Explaining differences in environmental governance patterns between Canada, Italy and the United States," P.O.L.I.S. department's Working Papers 87, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  13. Marchese, Carla & Montefiori, Marcello, 2005. "Mean voting rule and strategical behavior: an experiment," P.O.L.I.S. department's Working Papers 49, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  14. Cugno, Franco & Ottoz, Elisabetta, 2006. "Static inefficiency of compulsory licensing: Quantity vs. price competition," P.O.L.I.S. department's Working Papers 73, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  15. Bissey, Marie-Edith & Ortona, Guido, 2007. "The program for the simulation of electoral systems ALEX4.1: what it does and how to use it," P.O.L.I.S. department's Working Papers 82, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  16. Ortona, Guido & Ottone, Stefania & Ponzano, Ferruccio & Scacciati, Francesco, 2006. "Labour supply in presence of taxation financing public services. An experimental approach," P.O.L.I.S. department's Working Papers 71, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  17. Nicita, Antonio & Ramello, Giovanni B., 2006. "Property, liability and market power: The antitrust side of copyright," P.O.L.I.S. department's Working Papers 75, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  18. Rosella Levaggi, 2005. "Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information," International Journal of Health Care Finance and Economics, Springer, vol. 5(4), pages 327-349, December. [Downloadable!] (restricted)
  19. Bia, Michela & Mattei, Alessandra, 2007. "Application of the Generalized Propensity Score. Evaluation of public contributions to Piedmont enterprises," P.O.L.I.S. department's Working Papers 80, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  20. Ramello, Giovanni, 2006. "What's in a sign? Trademark law and enconomic theory," P.O.L.I.S. department's Working Papers 67, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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  21. Levaggi, Rosella & Montefiori, Marcello, 2005. "It takes three to tango: Soft budget constraint and cream skimming in the hospital care market," P.O.L.I.S. department's Working Papers 48, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
  22. Ottone, Stefania, 2005. "Transfers and Altruistic Punishments in Solomon's Game experiments," P.O.L.I.S. department's Working Papers 50, Department of Public Policy and Public Choice - POLIS. [Downloadable!]
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