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Performance Indicators for Quality with Costly Falsification


  • Michael Kuhn
  • Luigi Siciliani


"Performance indicators are increasingly used to regulate quality in health care and the public sector. We develop a model of contracting between a purchaser and a provider under the following assumptions: (a) providers have private information about their own ability and (b) they can engage in costly manipulation of quality measures. If the contract is separating, manipulation reduces the optimal quality effort but increases the quality targets. If the purchaser's benefit from quality is sufficiently concave, then pooling of high-ability types (or all types) turns out to be optimal. (Partial) pooling provides a rationale for quality ceilings and minimum quality standards." Copyright (c) 2009 Wiley Periodicals, Inc..

Suggested Citation

  • Michael Kuhn & Luigi Siciliani, 2009. "Performance Indicators for Quality with Costly Falsification," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1137-1154, December.
  • Handle: RePEc:bla:jemstr:v:18:y:2009:i:4:p:1137-1154

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    References listed on IDEAS

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    5. Laurent Linnemer, 1998. "Entry Deterrence, Product Quality: Price and Advertising as Signals," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 7(4), pages 615-645, December.
    6. Meurer, Michael & Stahl, Dale II, 1994. "Informative advertising and product match," International Journal of Industrial Organization, Elsevier, vol. 12(1), pages 1-19, March.
    7. Nelson, Philip, 1974. "Advertising as Information," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 729-754, July/Aug..
    8. Pechmann, Cornelia & Ratneshwar, S, 1991. " The Use of Comparative Advertising for Brand Positioning: Association versus Differentiation," Journal of Consumer Research, Oxford University Press, vol. 18(2), pages 145-160, September.
    9. Shiou Shieh, 1996. "Price and Money-Back Guarantees as Signals of Product Quality," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 5(3), pages 361-377, September.
    10. Steven A Matthews & Doron Fertig, 1990. "Advertising Signals of Product Quality," Discussion Papers 881, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    11. Bagwell, Kyle & Ramey, Garey, 1990. "Advertising and pricing to deter or accommodate entry when demand is unknown," International Journal of Industrial Organization, Elsevier, vol. 8(1), pages 93-113.
    12. Sridhar Moorthy & Kannan Srinivasan, 1995. "Signaling Quality with a Money-Back Guarantee: The Role of Transaction Costs," Marketing Science, INFORMS, vol. 14(4), pages 442-466.
    13. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-1037, September.
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    Cited by:

    1. Izabela Jelovac & Samuel Kembou Nzale, 2017. "Regulation and Altruism," Working Papers halshs-01616193, HAL.
    2. Kuhn, Michael & Siciliani, Luigi, 2013. "Manipulation and auditing of public sector contracts," European Journal of Political Economy, Elsevier, vol. 32(C), pages 251-267.
    3. Martin Chalkley & Andrew Mirelman & Luigi Siciliani & Marc Suhrcke, 2016. "Paying for performance for health care in low- and middle-income countries: an economic perspective," Working Papers 140cherp, Centre for Health Economics, University of York.

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