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The Impact of Competition on Management Quality: Evidence from Public Hospitals

  • Nicholas Bloom
  • Carol Propper
  • Stephan Seiler
  • John van Reenan

    ()

In this paper we examine the causal impact of competition on management quality. We analyze the hospital sector where geographic proximity is a key determinant of competition, and English public hospitals where political competition can be used to construct instrumental variables for market structure. Since almost all major English hospitals are government run, closing hospitals in areas where the governing party has a small majority is rare due to fear of electoral punishment. We find that management quality - measured using a new survey tool - is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions (AMI). More importantly, we find that higher competition (as indicated by a greater number of neighboring hospitals) is positively correlated with increased management quality, and this relationship strengthens when we instrument the number of local hospitals with local political competition. Adding another rival hospital increases the index of management quality by one third of a standard deviation and leads to a 10.7% reduction in heart-attack mortality rates.

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File URL: http://www.bristol.ac.uk/cmpo/publications/papers/2010/wp237.pdf
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Paper provided by Department of Economics, University of Bristol, UK in its series The Centre for Market and Public Organisation with number 10/237.

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Length: 39 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:bri:cmpowp:10/237
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