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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
Contact details of provider: Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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  1. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, Elsevier.
  2. Nicola Persico & Alessandro Lizzeri, 2001. "The Provision of Public Goods under Alternative Electoral Incentives," American Economic Review, American Economic Association, vol. 91(1), pages 225-239, March.
  3. Andrew E. Clark & Carine Milcent, 2008. "Keynesian hospitals? Public employment and political pressure," PSE Working Papers halshs-00586792, HAL.
  4. Nick Bloom & John Van Reenen, 2006. "Measuring and explaining management practices across firms and countries," LSE Research Online Documents on Economics 733, London School of Economics and Political Science, LSE Library.
  5. 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.
  6. Chad Syverson, 2004. "Market Structure and Productivity: A Concrete Example," Journal of Political Economy, University of Chicago Press, vol. 112(6), pages 1181-1222, December.
  7. Persson, Torsten & Tabellini, Guido, 1999. "The Size and Scope of Government: Comparative Politics With Rational Politicians," CEPR Discussion Papers 2051, C.E.P.R. Discussion Papers.
  8. 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.
  9. Nickell, S.J., 1993. "Competition and Crporate Performance," Economics Series Working Papers 99155, University of Oxford, Department of Economics.
  10. Timothy Besley & Torsten Persson & Daniel.M Sturm, 2005. "Political competition and economic performance: theory and evidence from the United States," LSE Research Online Documents on Economics 3770, London School of Economics and Political Science, LSE Library.
  11. 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.
  12. Martin Gaynor & Deborah Haas-Wilson, 1998. "Change, Consolidation, and Competition in Health Care Markets," HEW 9809001, EconWPA.
  13. List, John & Sturm, Daniel M, 2004. "How Elections Matter: Theory and Evidence from Environmental Policy," CEPR Discussion Papers 4489, C.E.P.R. Discussion Papers.
  14. Bloom, Nicholas & Van Reenen, John, 2011. "Human Resource Management and Productivity," Handbook of Labor Economics, Elsevier.
  15. Kira Markiewicz & Nancy L. Rose & Catherine Wolfram, 2004. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on U.S. Electric Generation Efficiency," NBER Working Papers 11001, National Bureau of Economic Research, Inc.
  16. Klaus M. Schmidt, 1997. "Managerial Incentives and Product Market Competition," Review of Economic Studies, Oxford University Press, vol. 64(2), pages 191-213.
  17. Propper, Carol & Sutton, Matt & Whitnall, Carolyn & Windmeijer, Frank, 2010. "Incentives and targets in hospital care: Evidence from a natural experiment," Journal of Public Economics, Elsevier, vol. 94(3-4), pages 318-335, April.
  18. A. Lizzeri & Persico N., 1999. "Provision of Public Goods Under Alternative Electral Incentives," Princeton Economic Theory Papers 99f4, Economics Department, Princeton University.
  19. 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.
  20. Schmidt, Klaus M., 1997. "Managerial Incentives and Product Market Competition," Munich Reprints in Economics 19772, University of Munich, Department of Economics.
  21. Lucia Foster & John Haltiwanger & Chad Syverson, 2008. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," American Economic Review, American Economic Association, vol. 98(1), pages 394-425, March.
  22. David Stromberg, 2008. "How the Electoral College Influences Campaigns and Policy: The Probability of Being Florida," American Economic Review, American Economic Association, vol. 98(3), pages 769-807, June.
  23. Daniel P. Kessler & Mark B. McClellan, 2000. "Is Hospital Competition Socially Wasteful?," The Quarterly Journal of Economics, Oxford University Press, vol. 115(2), pages 577-615.
  24. Gian Maria Milesi-Ferretti & Roberto Perotti & Massimo Rostagno, 2002. "Electoral Systems and Public Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 117(2), pages 609-657.
  25. 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.
  26. David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2010. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 51-76, February.
  27. Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 39-72.
  28. Mark G. Duggan, 2000. "Hospital Ownership and Public Medical Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 115(4), pages 1343-1373.
  29. 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.
  30. Assar Lindbeck & Jörgen Weibull, 1987. "Balanced-budget redistribution as the outcome of political competition," Public Choice, Springer, vol. 52(3), pages 273-297, January.
  31. Nagler, Jonathan & Leighley, Jan, 1992. "Presidential Campaign Expenditures: Evidence on Allocations and Effects," Public Choice, Springer, vol. 73(3), pages 319-33, April.
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