Provider Choice of Quality and Surplus

Karen Eggleston, Nolan Miller and Richard Zeckhauser

No 308, Discussion Papers Series, Department of Economics, Tufts University from Department of Economics, Tufts University

Abstract: We study the quality choices of institutional health-care providers, such as hospitals, assuming that the utility function of the key organizational decision-maker includes both quality of care and financial surplus. An increase in the decision-maker’s rate of surplus retention leads to a decrease (increase) in quality if his coefficient of relative risk aversion is less than (greater than) 1, as is likely when the decision-maker faces prosperous (difficult) financial conditions. Such behavior is consistent with "target income behavior," where the target income is surplus sufficient to break even. An increase in productive efficiency always leads the provider to increase quality.

Date: 2003
New Economics Papers: this item is included in nep-hea
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Journal Article: Provider choice of quality and surplus (2006)
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