Hospital competition when patients learn through experience

Luís Sá and Odd Rune Straume

No 12/2022, NIPE Working Papers from NIPE - Universidade do Minho

Abstract: We study competing hospitals' incentives for quality provision in a dynamic setting where healthcare is an experience good. In our model, the utility a patient derives from choosing a particular provider depends on a subjective component specifi c to the match between the patient and the provider, which can only be learned through experience. We find that the experience-good nature of healthcare can either reinforce or dampen the demand responsiveness to quality and the hospitals' incentives for quality provision, depending on two key factors: (i) the shape of the distribution of match-specific utilities, and (ii) the cost relationship between quality provision and treatment volume. Our analysis helps identify and understand the conditions required for the market-based provision of healthcare to deliver improved quality.

Keywords: Hospital competition; experience goods; forward-looking consumers; expectations; quality. (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L51 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-com, nep-hea, nep-ind and nep-upt
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Journal Article: Hospital competition when patients learn through experience (2024)
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