Hospital Competition with Soft Budgets |
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Authors: | Kurt R Brekke Luigi Siciliani Odd Rune Straume |
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Institution: | 1. Norwegian School of Economics, Bergen, Norway;2. University of York, York, UKAlso affiliated with CEPR.;3. University of Minho, Braga, PortugalAlso affiliated with NIPE and University of Bergen. |
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Abstract: | We study the incentives for quality provision and cost efficiency for hospitals with soft budgets, where the payer can cover deficits or confiscate surpluses. While a higher bailout probability reduces cost efficiency, the effect on quality is ambiguous. Profit confiscation reduces both quality and cost efficiency. First‐best is achieved by a strict no‐bailout and no‐profit‐confiscation policy when the regulated price is optimally set. However, for suboptimal prices, a more lenient bailout policy can be welfare‐improving. When we allow for heterogeneity in costs and qualities, we also show that a softer budget can raise quality for high‐cost patients. |
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Keywords: | Cost efficiency hospital competition quality soft budgets I11 I18 L13 L32 |
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