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Labour Supply, Work Effort and Contract Choice: Theory and Evidence on Physicians

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  • Fortin, Bernard

    (Université Laval)

  • Jacquemet, Nicolas

    (University of Paris 1 Panthéon-Sorbonne)

  • Shearer, Bruce S.

    (Université Laval)

Abstract

We develop and estimate a generalized labour supply model that incorporates work effort into the standard consumption-leisure trade-off. We allow workers a choice between two contracts: a piece rate contract, wherein he is paid per unit of service provided, and a mixed contract, wherein he receives an hourly wage and a reduced piece rate. This setting gives rise to a non-convex budget set and an efficient budget constraint (the upper envelope of contract-specific budget sets). We apply our model to data collected on specialist physicians working in the Province of Quebec (Canada). Our data set contains information on each physician's labour supply and their work effort (clinical services provided per hour worked). It also covers a period of policy reform under which physicians could choose between two compensation systems: the traditional fee-for-service, under which physicians receive a fee for each service provided, and mixed remuneration, under which physicians receive a per diem as well as a reduced fee-for-service. We estimate the model using a discrete choice approach. We use our estimates to simulate elasticities and the effects of ex ante reforms on physician contracts. Our results show that physician services and effort are much more sensitive to contractual changes than is their time spent at work. Our results also suggest that a mandatory reform, forcing all physicians to adopt the mixed remuneration system, would have had substantially larger effects on physician behaviour than those observed under the voluntary reform.

Suggested Citation

  • Fortin, Bernard & Jacquemet, Nicolas & Shearer, Bruce S., 2010. "Labour Supply, Work Effort and Contract Choice: Theory and Evidence on Physicians," IZA Discussion Papers 5188, Institute of Labor Economics (IZA).
  • Handle: RePEc:iza:izadps:dp5188
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    Cited by:

    1. Boris Kralj & Jasmin Kantarevic, 2013. "Quality and quantity in primary care mixed-payment models: evidence from family health organizations in Ontario," Canadian Journal of Economics, Canadian Economics Association, vol. 46(1), pages 208-238, February.
    2. Bernard Fortin & Nicolas Jacquemet & Bruce Shearer, 2021. "Labour supply, service intensity, and contracts: Theory and evidence on physicians," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 36(6), pages 686-702, September.
    3. David Gray & William Hogg & Michael E. Green & Yan Zhang, 2015. "Did Family Physicians Who Opted into a New Payment Model Receive an Offer They Should Not Refuse? Experimental Evidence from Ontario," Canadian Public Policy, University of Toronto Press, vol. 41(2), pages 151-165, June.
    4. Marie Allard & Izabela Jelovac & Pierre-Thomas Léger, 2014. "Payment mechanism and GP self-selection: capitation versus fee for service," International Journal of Health Economics and Management, Springer, vol. 14(2), pages 143-160, June.
    5. Calub, Renz Adrian, 2014. "Physician quality and payment schemes: A theoretical and empirical analysis," MPRA Paper 66038, University Library of Munich, Germany.
    6. Kalb, Guyonne & Kühnle, Daniel & Scott, Anthony & Cheng, Terence Chai & Jeon, Sung-Hee, 2015. "What Factors Affect Doctors' Hours Decisions: Comparing Structural Discrete Choice and Reduced-Form Approaches," IZA Discussion Papers 9054, Institute of Labor Economics (IZA).
    7. Brosig-Koch, Jeannette & Kairies-Schwarz, Nadja & Kokot, Johanna, 2014. "Sorting into Physician Payment Schemes – A Laboratory Experiment," Ruhr Economic Papers 529, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    8. Baranov, Victoria & Bennett, Daniel & Kohler, Hans-Peter, 2015. "The indirect impact of antiretroviral therapy: Mortality risk, mental health, and HIV-negative labor supply," Journal of Health Economics, Elsevier, vol. 44(C), pages 195-211.
    9. Jeannette Brosig-Koch & Nadja Kairies-Schwarz & Johanna Kokot, 2014. "Sorting into Physician Payment Schemes – A Laboratory Experiment," Ruhr Economic Papers 0529, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
    10. Boris Kralj & Jasmin Kantarevic, 2013. "Quality and quantity in primary care mixed‐payment models: evidence from family health organizations in Ontario," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(1), pages 208-238, February.
    11. Joanne Castonguay, 2011. "Analyse comparative des mécanismes de gestion des paniers de services," CIRANO Project Reports 2011rp-16, CIRANO.
    12. Lippi Bruni, Matteo & Mammi, Irene & Ugolini, Cristina, 2016. "Does the extension of primary care practice opening hours reduce the use of emergency services?," Journal of Health Economics, Elsevier, vol. 50(C), pages 144-155.
    13. Jeannette Brosig‐Koch & Nadja Kairies‐Schwarz & Johanna Kokot, 2017. "Sorting into payment schemes and medical treatment: A laboratory experiment," Health Economics, John Wiley & Sons, Ltd., vol. 26(S3), pages 52-65, December.
    14. Victoria Barham & Olga Milliken, 2015. "Payment Mechanisms and the Composition of Physician Practices: Balancing Cost‐Containment, Access, and Quality of Care," Health Economics, John Wiley & Sons, Ltd., vol. 24(7), pages 895-906, July.
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    More about this item

    Keywords

    labour supply; effort; contracts; practice patterns of physicians; discrete choice econometric models; mixed logit;
    All these keywords.

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • I10 - Health, Education, and Welfare - - Health - - - General
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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