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The impact of competition on management quality: evidence from public hospitals

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

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.

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File URL: http://eprints.lse.ac.uk/28731/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 28731.

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Length: 42 pages
Date of creation: 2010
Date of revision:
Handle: RePEc:ehl:lserod:28731
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/

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  1. Carol Propper & John Van Reenen, 2010. "Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labor Markets on Hospital Performance," Journal of Political Economy, University of Chicago Press, vol. 118(2), pages 222-273, 04.
  2. 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.
  3. Persson, Torsten & Tabellini, Guido, 1999. "The size and scope of government:: Comparative politics with rational politicians," European Economic Review, Elsevier, vol. 43(4-6), pages 699-735, April.
  4. Nick Bloom & John Van Reenen, 2006. "Measuring and Explaining Management Practices Across Firms and Countries," CEP Discussion Papers dp0716, Centre for Economic Performance, LSE.
  5. Nickell, Stephen J, 1996. "Competition and Corporate Performance," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 724-46, August.
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  7. David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2009. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," Harvard Business School Working Papers 10-011, Harvard Business School.
  8. Nick Bloom & John Van Reenen, 2010. "Human resource management and productivity," LSE Research Online Documents on Economics 28730, London School of Economics and Political Science, LSE Library.
  9. 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.
  10. 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.
  11. 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.
  12. Schmidt, Klaus M., 1996. "Managerial Incentives and Product Market Competition," CEPR Discussion Papers 1382, C.E.P.R. Discussion Papers.
  13. Mark Duggan, 2000. "Hospital Ownership and Public Medical Spending," NBER Working Papers 7789, National Bureau of Economic Research, Inc.
  14. Chad Syverson, 2001. "Market Structure and Productivity: A Concrete Example," Working Papers 01-06, Center for Economic Studies, U.S. Census Bureau.
  15. Martin Gaynor & Deborah Haas-Wilson, 1998. "Change, Consolidation, and Competition in Health Care Markets," NBER Working Papers 6701, National Bureau of Economic Research, Inc.
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  17. 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.
  18. Carol Propper & Matt Sutton & Carolyn Whitnall & Frank Windmeijer, 2008. "Incentives and Targets in Hospital Care: Evidence from a Natural Experiment," The Centre for Market and Public Organisation 08/205, Department of Economics, University of Bristol, UK.
  19. 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.
  20. A. Lizzeri & Persico N., 1999. "Provision of Public Goods Under Alternative Electral Incentives," Princeton Economic Theory Papers 99f4, Economics Department, Princeton University.
  21. 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.
  22. Kira R. Fabrizio & Nancy L. Rose & Catherine D. Wolfram, 2007. "Do Markets Reduce Costs? Assessing the Impact of Regulatory Restructuring on US Electric Generation Efficiency," American Economic Review, American Economic Association, vol. 97(4), pages 1250-1277, September.
  23. Gian Maria Milesi-Ferretti & Roberto Perotti & Massimo Rostagno, 2002. "Electoral Systems And Public Spending," The Quarterly Journal of Economics, MIT Press, vol. 117(2), pages 609-657, May.
  24. 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.
  25. Lucia Foster & John Haltiwanger & Chad Syverson, 2005. "Reallocation, Firm Turnover, and Efficiency: Selection on Productivity or Profitability?," Working Papers 05-11, Center for Economic Studies, U.S. Census Bureau.
  26. Nagler, Jonathan & Leighley, Jan, 1992. " Presidential Campaign Expenditures: Evidence on Allocations and Effects," Public Choice, Springer, vol. 73(3), pages 319-33, April.
  27. 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.
  28. Andrew E. Clark & Carine Milcent, 2008. "Keynesian hospitals? Public employment and political pressure," PSE Working Papers halshs-00586792, HAL.
  29. 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.
  30. Assar Lindbeck & J├Ârgen 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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