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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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  6. Bloom, Nicholas & Van Reenen, John, 2010. "Human Resource Management and Productivity," CEPR Discussion Papers 7849, C.E.P.R. Discussion Papers.
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  13. 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.
  14. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
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  16. Hall, Emma & Propper, Carol & Van Reenen, John, 2008. "Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labour Markets on Hospital Performance," CEPR Discussion Papers 6643, C.E.P.R. Discussion Papers.
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  20. Mark Duggan, 2002. "Hospital Market Structure and the Behavior of Not-For-Profit Hospitals," RAND Journal of Economics, The RAND Corporation, vol. 33(3), pages 433-446, Autumn.
  21. Nick Bloom & Stephen Dorgan & John Dowdy & Tom Rippin & John Van Reenen, 2005. "Management Practices Across Firms and Nations," CEP Special Papers 17, Centre for Economic Performance, LSE.
  22. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers 01-06, Center for Economic Studies, U.S. Census Bureau.
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