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Manipulation and auditing of public sector contracts

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  • Kuhn, Michael
  • Siciliani, Luigi

Abstract

We model purchaser–provider contracts when providers can inflate reimbursable activity through manipulation. Providers are audited and fined upon detected fraud. We characterise the optimal price and audit policy both in the presence and absence of commitment to an audit intensity. Under ‘non-commitment’ the audit intensity increases in reported activity, allowing the provider to soften it by reducing activity together with the underlying service quality and manipulation. The purchaser then faces a trade-off between offsetting this tendency by raising price and committing to a low audit intensity by reducing price. We identify circumstances under which the two forces balance out.

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  • Kuhn, Michael & Siciliani, Luigi, 2013. "Manipulation and auditing of public sector contracts," European Journal of Political Economy, Elsevier, vol. 32(C), pages 251-267.
    • Handle: RePEc:eee:poleco:v:32:y:2013:i:c:p:251-267
    DOI: 10.1016/j.ejpoleco.2013.08.002
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    2. Pedro Barros & Gisele Braun, 2017. "Upcoding in a National Health Service: the evidence from Portugal," Health Economics, John Wiley & Sons, Ltd., vol. 26(5), pages 600-618, May.
    3. Domenico Lisi & Luigi Siciliani & Odd Rune Straume, 2020. "Hospital competition under pay‐for‐performance: Quality, mortality, and readmissions," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 29(2), pages 289-314, April.
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    7. Simon B. Spika & Peter Zweifel, 2019. "Buying efficiency: optimal hospital payment in the presence of double upcoding," Health Economics Review, Springer, vol. 9(1), pages 1-14, December.
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    More about this item

    Keywords

    Auditing; Commitment; Fraud; Moral hazard; Public-sector contracting;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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