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Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice

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  • Hugh Gravelle
  • Giuliano Masiero

Abstract

We model a system akin to the British National Health Service in which general practictioners (GPs) are paid from general taxation. GPs are horizontally and vertically differentiated and compete via their imperfect observed quality. We focus on the way in which patient uncertainty and switching costs interact and the implications for GP's choice of quality. We show that for any given capitation fee quality is lower and the incentive effects of the fee on quality are smaller. There are diminishing welfare gains from improving consumers information but increasing welfare gains from reducing switching costs. GPs do not act efficiently to improve consumer information via advertising or to reduce the costs of switching.

Suggested Citation

  • Hugh Gravelle & Giuliano Masiero, "undated". "Quality incentives in a regulated market with imperfect information and switching costs: capitation in general practice," Discussion Papers 00/18, Department of Economics, University of York.
    • Handle: RePEc:yor:yorken:00/18
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    References listed on IDEAS

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    1. Paul Klemperer, 1995. "Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 62(4), pages 515-539.
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    More about this item

    Keywords

    Switching costs; Imperfect information; Quality; Product differentiation; Capitation; General Practice;
    All these keywords.

    JEL classification:

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

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