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Price adjustment in the hospital sector

  • Miraldo, Marisa
  • Siciliani, Luigi
  • Street, Andrew

Abstract We analyse the properties of optimal price adjustment to hospitals when no lump-sum transfers are allowed and when prices differ to reflect observable exogenous differences in costs. We find that: (a) when the marginal benefit from treatment is decreasing and the cost function is the power function, price adjustment for hospitals with higher costs is positive but partial; if the marginal benefit is constant, the price is identical across providers; (b) if the cost function is exponential or it is separable in monetary and non-monetary costs (and linear in monetary costs), price adjustment is positive even when the marginal benefit is constant; (c) higher inequality aversion of the purchaser increases concentration in prices and lowers concentration in quantities; (d) if some dimensions of costs are private information, a higher correlation between the observable and unobservable cost component increases the optimal price for providers whose observable costs are above the average.

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Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 30 (2011)
Issue (Month): 1 (January)
Pages: 112-125

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Handle: RePEc:eee:jhecon:v:30:y:2011:i:1:p:112-125
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505560

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  1. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  2. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May.
  3. Ching-to Albert Ma, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Papers 0047, Boston University - Industry Studies Programme.
  4. David Hawdon & Lester C. Hunt & Paul Levine & Neil Rickman, 2007. "Optimal sliding scale regulation: an application to regional electricity distribution in England and Wales," Oxford Economic Papers, Oxford University Press, vol. 59(3), pages 458-485, July.
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  7. Beitia, Arantza, 2003. "Hospital quality choice and market structure in a regulated duopoly," Journal of Health Economics, Elsevier, vol. 22(6), pages 1011-1036, November.
  8. Chalkley, Martin & Malcomson, James M., 1998. "Contracting for health services when patient demand does not reflect quality," Journal of Health Economics, Elsevier, vol. 17(1), pages 1-19, January.
  9. David P. Baron & Roger B. Myerson, 1979. "Regulating a Monopolist with Unknown Costs," Discussion Papers 412, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  10. Mougeot, Michel & Naegelen, Florence, 2005. "Hospital price regulation and expenditure cap policy," Journal of Health Economics, Elsevier, vol. 24(1), pages 55-72, January.
  11. Marisa Miraldo & Luigi Siciliani & Andrew Street, 2008. "Price Adjustment in the Hospital Sector," Working Papers 041cherp, Centre for Health Economics, University of York.
  12. De Fraja, Gianni, 2000. "Contracts for health care and asymmetric information," Journal of Health Economics, Elsevier, vol. 19(5), pages 663-677, September.
  13. Chalkley, Martin & Malcomson, James M, 1998. "Contracting for Health Services with Unmonitored Quality," Economic Journal, Royal Economic Society, vol. 108(449), pages 1093-1110, July.
  14. repec:cup:cbooks:9780521337465 is not listed on IDEAS
  15. repec:cup:cbooks:9780521331586 is not listed on IDEAS
  16. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
  17. Chalkley, M. & Malcomson, J.M., 2001. "Cost Sharing in Health Service Provision: An Empirical Assessment of Cost Savings," Economics Series Working Papers 9969, University of Oxford, Department of Economics.
  18. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, vol. 17(5), pages 537-555, October.
  19. Wagstaff, Adam & van Doorslaer, Eddy, 2000. "Chapter 34 Equity in health care finance and delivery," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 34, pages 1803-1862 Elsevier.
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