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

  • Nicholas Bloom
  • Carol Propper
  • Stephan Seiler
  • John Van Reenen

We analyze the causal impact of competition on managerial quality (and hospital performance). To address the endogeneity of market structure we analyze the English public hospital sector where entry and exit are controlled by the central government. Because closing hospitals in areas where the governing party is expecting a tight election race ("marginals") is rare due to the fear of electoral defeat, we can use political marginality as an instrumental variable for the number of hospitals in a geographical area. We find that higher competition is positively correlated with management quality, measured using a new survey tool. Adding a rival hospital increases management quality by 0.4 standard deviations and increases survival rates from emergency heart attacks by 8.8%. We confirm the validity of our IV strategy by conditioning on marginality in the hospital's own catchment area, thus identifying purely off the marginality of rival hospitals. This controls for "hidden policies" that could be used in marginal districts to improve hospital management. We also run placebo tests of marginality on schools, a public service where the central government has no formal influence on market structure.

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Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0983.

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Date of creation: May 2010
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Handle: RePEc:cep:cepdps:dp0983
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  1. Martin Gaynor & Robert J Town, 2012. "Competition in Health Care Markets," The Centre for Market and Public Organisation 12/282, Department of Economics, University of Bristol, UK.
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  12. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, MIT Press, vol. 115(2), pages 577-615, May.
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  17. Nicholas Bloom & Christos Genakos & Raffaella Sadun & John Van Reenen, 2011. "Management Practices Across Firms and Countries," CEP Discussion Papers dp1109, Centre for Economic Performance, LSE.
  18. Sloan, Frank A., 2000. "Not-for-profit ownership and hospital behavior," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 21, pages 1141-1174 Elsevier.
  19. Nicholas Bloom & John Van Reenen, 2007. "Measuring and Explaining Management Practices Across Firms and Countries," The Quarterly Journal of Economics, MIT Press, vol. 122(4), pages 1351-1408, November.
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  27. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  28. Gaynor, Martin, 2007. "Competition and Quality in Health Care Markets," Foundations and Trends(R) in Microeconomics, now publishers, vol. 2(6), pages 441-508, February.
  29. Mark G. Duggan, 2000. "Hospital Ownership And Public Medical Spending," The Quarterly Journal of Economics, MIT Press, vol. 115(4), pages 1343-1373, November.
  30. Andrew E. Clark & Carine Milcent, 2008. "Keynesian hospitals? Public employment and political pressure," PSE Working Papers halshs-00586792, HAL.
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