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Optimal Contracts and Contractual Arrangements Within the Hospital: Bargaining vs. Take-it-or-leave-it Offers

Author

Listed:
  • Matteo M Galizzi

    (Centre for Health Economics, University of York, UK and University of Brescia, Italy)

  • Marisa Miraldo

    (Centre for Health Economics, University of York)

Abstract

We study the impact of different contractual arrangements within the hospital on the optimal contracts designed by third party payers when severity is hospital's private information. We develop a multi-issue bargaining process between doctors and managers within the hospital. Results are then compared with a scenario where doctors and managers decide independently by maximizing their own profit, with managers proposing to doctors a take-it-or leave-it offer. Results show that, when the cost of capital is sufficiently low, the informational rent arising on information asymmetry is higher in a set up where managers and doctors decide together through a strategic bargaining process than when they act as two decision-making units.

Suggested Citation

  • Matteo M Galizzi & Marisa Miraldo, 2008. "Optimal Contracts and Contractual Arrangements Within the Hospital: Bargaining vs. Take-it-or-leave-it Offers," Working Papers 037cherp, Centre for Health Economics, University of York.
    • Handle: RePEc:chy:respap:37cherp
    as

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    File URL: http://www.york.ac.uk/media/che/documents/papers/researchpapers/rp37_optimal_contracts_within_the_hospital.pdf
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    References listed on IDEAS

    as
    1. Chalkley, Martin & Malcomson, James M., 1998. "Contracting for health services when patient demand does not reflect quality," Journal of Health Economics, Elsevier, vol. 17(1), pages 1-19, January.
    2. Muthoo,Abhinay, 1999. "Bargaining Theory with Applications," Cambridge Books, Cambridge University Press, number 9780521576475, January.
    3. Jeffrey E. Harris, 1977. "The Internal Organization of Hospitals: Some Economic Implications," Bell Journal of Economics, The RAND Corporation, vol. 8(2), pages 467-482, Autumn.
    4. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
    5. Ellis, Randall P. & McGuire, Thomas G., 1986. "Provider behavior under prospective reimbursement : Cost sharing and supply," Journal of Health Economics, Elsevier, vol. 5(2), pages 129-151, June.
    Full references (including those not matched with items on IDEAS)

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    Keywords

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    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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