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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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