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Multitasking, Quality and Pay for Performance

Author

Listed:
  • Kaarbøe, Oddvar M.

    (University of Bergen, Department of Economics)

  • Siciliani, Luigi

    (Department of Economics and Related Studies, and Centre for Health Economics, University of York)

Abstract

We present a model of optimal contracting between a purchaser and a provider of health services when quality has two dimensions. We assume that one dimension of quality is veri?able (dimension 1) and one dimension is not verifiable (dimension 2). We show that the power of the incentive scheme for the verifiable dimension depends critically on the extent to which quality 1 increases or decreases the provider's marginal disutility and the patients' marginal benefit from quality 2 (i.e. substitutability or complementarity). Our main result is that under some circumstances a high-powered incentive scheme can be optimal even when the two quality dimensions are substitutes.

Suggested Citation

  • Kaarbøe, Oddvar M. & Siciliani, Luigi, 2011. "Multitasking, Quality and Pay for Performance," Working Papers in Economics 07/08, University of Bergen, Department of Economics.
    • Handle: RePEc:hhs:bergec:2008_007
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    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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