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Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice

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  • Gravelle, Hugh
  • Masiero, Giuliano

Abstract

We model a system akin to the British National Health Service in which general practictioners (GPs) are paid from general taxation. GPs are horizontally and vertically differentiated and compete via their imperfect observed quality. We focus on the way in which patient uncertainty and switching costs interact and the implications for GP's choice of quality. We show that for any given capitation fee quality is lower and the incentive effects of the fee on quality are smaller. There are diminishing welfare gains from improving consumers information but increasing welfare gains from reducing switching costs. GPs do not act efficiently to improve consumer information via advertising or to reduce the costs of switching.
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Suggested Citation

  • Gravelle, Hugh & Masiero, Giuliano, 2000. "Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice," Journal of Health Economics, Elsevier, vol. 19(6), pages 1067-1088, November.
    • Handle: RePEc:eee:jhecon:v:19:y:2000:i:6:p:1067-1088
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    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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