IDEAS home Printed from
   My bibliography  Save this paper

Quality incentives under a capitation regime: the role of patient expectations


  • Giuliano Masiero


  • Hugh Gravelle


We model the interaction between patient uncertainty about qualityand switching costs in a market for primary care in which general practitioners (GPs) are paid from general taxation. GPs compete via theirquality which is initially imperfectly observed by patients. Patientsmay be sophisticated and know they may wish to switch GPs afterobserving their true quality; or they may be myopic and not realisetheir initial observations of quality are mistaken; or they make biasedestimates of quality. We examine the incentive e ects of capitationpayments under these three assumptions about patient expectations. We show that imperfect information and switching costs reduce quality and dilute the incentive e ects of increases in the capitation feeirrespective of patient sophistication.

Suggested Citation

  • Giuliano Masiero & Hugh Gravelle, 2000. "Quality incentives under a capitation regime: the role of patient expectations," Departmental Working Papers 2000-07, Department of Economics, Management and Quantitative Methods at Universit√† degli Studi di Milano.
  • Handle: RePEc:mil:wpdepa:2000-07

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Oxford University Press, vol. 62(4), pages 515-539.
    2. Schmalensee, Richard, 1982. "Product Differentiation Advantages of Pioneering Brands," American Economic Review, American Economic Association, vol. 72(3), pages 349-365, June.
    3. Gravelle, Hugh & Masiero, Giuliano, 2000. "Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice," Journal of Health Economics, Elsevier, vol. 19(6), pages 1067-1088, November.
    4. Gravelle, Hugh, 1999. "Capitation contracts: access and quality," Journal of Health Economics, Elsevier, vol. 18(3), pages 315-340, June.
    5. Michael H. Riordan, 1986. "Monopolistic Competition with Experience Goods," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 265-279.
    6. Economides, Nicholas, 1993. "Quality variations in the circular model of variety-differentiated products," Regional Science and Urban Economics, Elsevier, vol. 23(2), pages 235-257, April.
    Full references (including those not matched with items on IDEAS)

    More about this item


    Switching costs. Imperfect information. Quality. Capitation.;

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mil:wpdepa:2000-07. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEMM Working Papers). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.