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

  • Nicholas 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 16032.

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Date of creation: May 2010
Publication status: published as Nicholas Bloom & Carol Propper & Stephan Seiler & John Van Reenen, 2015. "The Impact of Competition on Management Quality: Evidence from Public Hospitals," Review of Economic Studies, Oxford University Press, vol. 82(2), pages 457-489.
Handle: RePEc:nbr:nberwo:16032
Note: ED EFG HE IO LS PE PR
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