Economics at your fingertips  

Quality provision in hospital markets with demand inertia: The role of patient expectations

Luís Sá and Odd Rune Straume ()

Journal of Health Economics, 2021, vol. 80, issue C

Abstract: Switching costs and persistent preferences generate demand inertia and link current and future choices of hospital. Using a model of hospital competition with demand inertia, we investigate the effect of patient expectations on quality. We consider three types of expectations. Myopic patients choose a hospital based on current variables alone, forward-looking but naïve patients consider the future but assume that quality remains constant, and forward-looking and rational patients foresee the evolution of quality. We rank quality provision and show that it is higher under naïve than myopic expectations, while quality under rational expectations may be highest or lowest. This result also holds for patients’ health gains, suggesting that rationality may hurt patients. Additionally, policies to reduce switching costs lead to lower quality, possibly unless patients are rational and cost substitutability between output and quality is sufficiently strong. Finally, we show how optimal price regulation depends on expectations and switching costs.

Keywords: Hospital competition; Myopic behaviour; Forward-looking behaviour; Rational expectations; Switching costs (search for similar items in EconPapers)
JEL-codes: I11 I18 L13 L51 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Quality provision in hospital markets with demand inertia:The role of patient expectations (2020) Downloads
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:

DOI: 10.1016/j.jhealeco.2021.102529

Access Statistics for this article

Journal of Health Economics is currently edited by J. P. Newhouse, A. J. Culyer, R. Frank, K. Claxton and T. McGuire

More articles in Journal of Health Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

Page updated 2022-09-06
Handle: RePEc:eee:jhecon:v:80:y:2021:i:c:s0167629621001144