Multitasking, Quality and Pay for Performance

Oddvar Martin Kaarboe and Luigi Siciliani ()

No 6911, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We present a model of optimal contracting between a purchaser and a provider of health services when quality has two dimensions. We assume that one dimension of quality is verifiable (dimension 1) and one dimension is not verifiable (dimension 2). We show that the power of the incentive scheme for the verifiable dimension depends critically on the extent to which quality 1 increases or decreases the provider's marginal disutility and the patients' marginal benefit from quality 2 (i.e. substitutability or complementarity). Our main result is that under some circumstances a high-powered incentive scheme can be optimal even when the two quality dimensions are substitutes.

Keywords: altruism; pay for performance; quality (search for similar items in EconPapers)
JEL-codes: D82 I11 I18 L51 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cta, nep-ifn and nep-lab
Date: Written 2008-07

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