Hospital Competition with Soft Budgets

Kurt Brekke (), Luigi Siciliani and Odd Rune Straume

Scandinavian Journal of Economics, 2015, vol. 117, issue 3, 1019-1048

Abstract: type="main">

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.

Date: 2015
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Related works:
Working Paper: Hospital Competition with Soft Budgets (2013)
Working Paper: Hospital competition with soft budgets (2013)
Working Paper: Hospital competition with soft budgets (2012)
Working Paper: Hospital competition with soft budgets (2012)
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