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

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

Abstract

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.

Suggested Citation

  • Van Reenen, John & Propper, Carol & Bloom, Nicholas & Seiler, Stephan, 2010. "The Impact of Competition on Management Quality: Evidence from Public Hospitals," CEPR Discussion Papers 7880, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7880
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J45 - Labor and Demographic Economics - - Particular Labor Markets - - - Public Sector Labor Markets

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