IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/27440.html

Endogenous Quality Investments in the U.S. Hospital Market

Author

Listed:
  • Craig Garthwaite
  • Christopher Ody
  • Amanda Starc

Abstract

High and increasing hospital prices have led to calls for price regulation. If prices are high because of consolidation, regulating prices could enhance welfare. However, high prices could also reflect increased willingness to pay by privately insured consumers for clinical and non-clinical quality. If so, regulating prices could reduce quality. We present a model of strategic quality choice where hospitals make quality investments to increase private revenue. We confirm the model's predictions across numerous quality measures including patient satisfaction, hospital processes, risk adjusted mortality, the revealed preferences of current Medicare patients, technology adoption, physician quality, and ED wait times.

Suggested Citation

  • Craig Garthwaite & Christopher Ody & Amanda Starc, 2020. "Endogenous Quality Investments in the U.S. Hospital Market," NBER Working Papers 27440, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:27440
    Note: EH IO
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w27440.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. David M. Cutler & Robert S. Huckman & Jonathan T. Kolstad, 2010. "Input Constraints and the Efficiency of Entry: Lessons from Cardiac Surgery," American Economic Journal: Economic Policy, American Economic Association, vol. 2(1), pages 51-76, February.
    2. Waldfogel, Joel, 2003. "Preference Externalities: An Empirical Study of Who Benefits Whom in Differentiated-Product Markets," RAND Journal of Economics, The RAND Corporation, vol. 34(3), pages 557-568, Autumn.
    3. Amitabh Chandra & Amy Finkelstein & Adam Sacarny & Chad Syverson, 2016. "Health Care Exceptionalism? Performance and Allocation in the US Health Care Sector," American Economic Review, American Economic Association, vol. 106(8), pages 2110-2144, August.
    4. Crawford, Gregory S., 2012. "Endogenous product choice: A progress report," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 315-320.
    5. Gautam Gowrisankaran & Aviv Nevo & Robert Town, 2015. "Mergers When Prices Are Negotiated: Evidence from the Hospital Industry," American Economic Review, American Economic Association, vol. 105(1), pages 172-203, January.
    6. Leemore Dafny, 2009. "Estimation and Identification of Merger Effects: An Application to Hospital Mergers," Journal of Law and Economics, University of Chicago Press, vol. 52(3), pages 523-550, August.
    7. Jeffrey Clemens & Joshua D. Gottlieb & Jeffrey Hicks, 2021. "How Would Medicare for All Affect Health System Capacity? Evidence from Medicare for Some," Tax Policy and the Economy, University of Chicago Press, vol. 35(1), pages 225-262.
    8. Gregory S. Crawford & Oleksandr Shcherbakov & Matthew Shum, 2019. "Quality Overprovision in Cable Television Markets," American Economic Review, American Economic Association, vol. 109(3), pages 956-995, March.
    9. David C. Grabowski & Jonathan Gruber & Joseph J. Angelelli, 2008. "Nursing Home Quality as a Common Good," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 754-764, November.
    10. Kate Ho & Robin S. Lee, 2019. "Equilibrium Provider Networks: Bargaining and Exclusion in Health Care Markets," American Economic Review, American Economic Association, vol. 109(2), pages 473-522, February.
    11. John Geweke & Gautam Gowrisankaran & Robert J. Town, 2003. "Bayesian Inference for Hospital Quality in a Selection Model," Econometrica, Econometric Society, vol. 71(4), pages 1215-1238, July.
    12. Crawford, Gregory S., "undated". "Endogenous Product Choice: A Progress Report," Economic Research Papers 270745, University of Warwick - Department of Economics.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Johannes S. Kunz & Carol Propper & Kevin E. Staub & Rainer Winkelmann, 2024. "Assessing the quality of public services: For‐profits, chains, and concentration in the hospital market," Health Economics, John Wiley & Sons, Ltd., vol. 33(9), pages 2162-2181, September.
    2. Kunz, Johannes & Propper, Carol, 2022. "Is Hospital Quality Predictive of Pandemic Deaths? Evidence from US Counties," CEPR Discussion Papers 17365, C.E.P.R. Discussion Papers.
    3. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    4. Kunz, Johannes S. & Propper, Carol, 2023. "JUE Insight: Is hospital quality predictive of pandemic deaths? Evidence from US counties," Journal of Urban Economics, Elsevier, vol. 133(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Garthwaite, Craig & Ody, Christopher & Starc, Amanda, 2022. "Endogenous quality investments in the U.S. hospital market," Journal of Health Economics, Elsevier, vol. 84(C).
    2. Martin Gaynor & Kate Ho & Robert J. Town, 2015. "The Industrial Organization of Health-Care Markets," Journal of Economic Literature, American Economic Association, vol. 53(2), pages 235-284, June.
    3. Victor Aguirregabiria & Margaret Slade, 2017. "Empirical models of firms and industries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(5), pages 1445-1488, December.
    4. Stuart V. Craig & Matthew Grennan & Ashley Swanson, 2021. "Mergers and marginal costs: New evidence on hospital buyer power," RAND Journal of Economics, RAND Corporation, vol. 52(1), pages 151-178, March.
    5. Gaynor, Martin & Town, Robert J., 2011. "Competition in Health Care Markets," Handbook of Health Economics, in: Mark V. Pauly & Thomas G. Mcguire & Pedro P. Barros (ed.), Handbook of Health Economics, volume 2, chapter 0, pages 499-637, Elsevier.
    6. Alden Cheng & Martin B. Hackmann, 2025. "Patient Peer Effects: Evidence from Nursing Home Room Assignments," NBER Working Papers 34538, National Bureau of Economic Research, Inc.
    7. Alden Cheng & Martin Hackmann & Martin Benjamin Hackmann, 2025. "Patient Peer Effects: Evidence from Nursing Home Room Assignments," CESifo Working Paper Series 12335, CESifo.
    8. Nathan E. Wilson, 2021. "The Impact of Competition on Investment: Evidence From California Hospitals," Journal of Industrial Economics, Wiley Blackwell, vol. 69(1), pages 1-32, March.
    9. repec:ces:ceswps:_10042 is not listed on IDEAS
    10. Mitsukuni Nishida, 2015. "Estimating a Model of Strategic Network Choice: The Convenience-Store Industry in Okinawa," Marketing Science, INFORMS, vol. 34(1), pages 20-38, January.
    11. Christopher Conlon & Julie Holland Mortimer, 2021. "Empirical properties of diversion ratios," RAND Journal of Economics, RAND Corporation, vol. 52(4), pages 693-726, December.
    12. Decarolis, Francesco & Guglielmo, Andrea, 2017. "Insurers’ response to selection risk: Evidence from Medicare enrollment reforms," Journal of Health Economics, Elsevier, vol. 56(C), pages 383-396.
    13. Milcent, Carine, 2023. "The sorting effect in healthcare access: Those left behind," Economics & Human Biology, Elsevier, vol. 51(C).
    14. Haizhen Lin, 2015. "Quality Choice And Market Structure: A Dynamic Analysis Of Nursing Home Oligopolies," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(4), pages 1261-1290, November.
    15. Suppliet, Moritz, 2020. "Umbrella branding in pharmaceutical markets," Journal of Health Economics, Elsevier, vol. 73(C).
    16. David J. Balan & Keith Brand, 2023. "Simulating Hospital Merger Simulations," Journal of Industrial Economics, Wiley Blackwell, vol. 71(1), pages 47-123, March.
    17. Gloria Sheu & Charles Taragin, 2021. "Simulating mergers in a vertical supply chain with bargaining," RAND Journal of Economics, RAND Corporation, vol. 52(3), pages 596-632, September.
    18. Rabbani, Maysam, 2023. "Mergers with future rivals can boost prices, bar entry, and intensify market concentration," International Journal of Industrial Organization, Elsevier, vol. 88(C).
    19. Soheil Ghili & Matthew Schmitt, 2018. "Risk Aversion and Double Marginalization," Cowles Foundation Discussion Papers 2144, Cowles Foundation for Research in Economics, Yale University.
    20. Atul Gupta & Sabrina T Howell & Constantine Yannelis & Abhinav Gupta, 2021. "Does Private Equity Investment in Healthcare Benefit Patients? Evidence from Nursing Homes," Working Papers 2021-20, Becker Friedman Institute for Research In Economics.
    21. Jason Abaluck & Mauricio Caceres Bravo & Peter Hull: & Amanda Starc, 2021. "Mortality Effects and Choice Across Private Health Insurance Plans," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 136(3), pages 1557-1610.

    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:nbr:nberwo:27440. See general information about how to correct material in RePEc.

    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 bibliographic 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.