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Financial Incentives and Competitive Pressure: The Case of the Hospital Industry

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  • Philippe Choné
  • Lionel Wilner

Abstract

In the late 2000s, a regulatory reform dramatically strengthened the incentives of French nonprofit (NP) hospitals to attract patients. Exploiting exhaustive data for surgery treatments between 2005 and 2008, and modeling hospitals as supplying utility to patients, we show that increased competitive pressure on NP hospitals caused them to perform more procedures, but did not inflate overall activity at the industry level. Although they have gained market shares over their for-profit (FP) counterparts, NP hospitals have been significantly worse off after the reform. To adjust to stronger financial incentives, they incurred an additional effort (pecuniary and non-pecuniary costs) equivalent to about a quarter of their annual revenue.

Suggested Citation

  • Philippe Choné & Lionel Wilner, 2022. "Financial Incentives and Competitive Pressure: The Case of the Hospital Industry," Journal of the European Economic Association, European Economic Association, vol. 20(2), pages 626-666.
    • Handle: RePEc:oup:jeurec:v:20:y:2022:i:2:p:626-666.
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    More about this item

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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