Performance Indicators for Quality with Adverse Selection, Gaming and Inequality Aversion

Michael Kuhn and Luigi Siciliani

No 6261, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: Performance indicators are increasingly used to regulate quality in health care and other areas of the public sector. We develop a model of contracting between a purchaser (principal) and a provider (agent) under the following scenarios: a) higher ability increases quality directly and indirectly (through a lower marginal cost of quality); b) the provider can game the system (or misreport); c) the purchaser is averse to inequality. The main results are: 1) if ability has a direct impact on quality, quality effort is lower and distortions from informational rents are higher; under some conditions more able providers exert lower quality effort; 2) gaming or misreporting reduces the optimal level of quality effort but generally increases the level of quality targets (and measured quality). Pooling may be optimal for high types (or all types) if the benefit function is sufficiently concave and the cost of manipulation is at intermediate levels; 3) If patients receive a low benefit from health care because quality is low then higher inequality aversion increases the optimal level of quality and the associated transfer, and reduces quality dispersion.

Keywords: Adverse selection; Falsification; Inequality aversion; Moral hazard; Performance; Quality (search for similar items in EconPapers)
JEL-codes: D82 I11 I18 L51 (search for similar items in EconPapers)
Date: 2007-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://cepr.org/publications/DP6261 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:6261

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP6261

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().