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Hospital Competition with Soft Budgets

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Listed:
  • Kurt R. Brekke
  • Luigi Siciliani
  • Odd Rune Straume

Abstract

type="main"> We study the incentives for quality provision and cost efficiency for hospitals with soft budgets, where the payer can cover deficits or confiscate surpluses. While a higher bailout probability reduces cost efficiency, the effect on quality is ambiguous. Profit confiscation reduces both quality and cost efficiency. First-best is achieved by a strict no-bailout and no-profit-confiscation policy when the regulated price is optimally set. However, for suboptimal prices, a more lenient bailout policy can be welfare-improving. When we allow for heterogeneity in costs and qualities, we also show that a softer budget can raise quality for high-cost patients.

Suggested Citation

  • Kurt R. Brekke & Luigi Siciliani & Odd Rune Straume, 2015. "Hospital Competition with Soft Budgets," Scandinavian Journal of Economics, Wiley Blackwell, vol. 117(3), pages 1019-1048, July.
    • Handle: RePEc:bla:scandj:v:117:y:2015:i:3:p:1019-1048
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    File URL: http://hdl.handle.net/10.1111/sjoe.12111
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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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