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Provider Choice of Quality and Surplus

  • Karen Eggleston
  • Nolan Miller
  • Richard Zeckhauser

We study the quality choices of institutional health-care providers, such as hospitals, assuming that the utility function of the key organizational decision-maker includes both quality of care and financial surplus. An increase in the decision-maker’s rate of surplus retention leads to a decrease (increase) in quality if his coefficient of relative risk aversion is less than (greater than) 1, as is likely when the decision-maker faces prosperous (difficult) financial conditions. Such behavior is consistent with "target income behavior," where the target income is surplus sufficient to break even. An increase in productive efficiency always leads the provider to increase quality.

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File URL: http://ase.tufts.edu/econ/papers/200308.pdf
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Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0308.

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Date of creation: 2003
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Handle: RePEc:tuf:tuftec:0308
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  18. Thomas G. McGuire & Mark V. Pauly, 1991. "Physician Response to Fee Changes with Multiple Payers," Papers 0015, Boston University - Industry Studies Programme.
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