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The effects of hospitals’ governance on optimal contracts: bargaining vs. contracting

Galizzi, Matteo M. and Miraldo, Marisa (2011) The effects of hospitals’ governance on optimal contracts: bargaining vs. contracting. Journal of Health Economics, 30 (2). pp. 408-424. ISSN 0167-6296

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Identification Number: 10.1016/j.jhealeco.2010.12.001

Abstract

We propose a two-stage model to study the impact of different hospitals’ governance frameworks on the optimal contracts designed by third-party payers when patients’ disease severity is the private information of the hospital. In the second stage, doctors and managers interact within either a bargaining or a contracting scenario. In the contracting scenario, managers offer a contract that determines the payment to doctors, and doctors decide how many patients to treat. In the bargaining scenario, doctors and managers strategically negotiate on both the payment to doctors and the number of patients to treat. We derive the equilibrium doctors’ payments and number of treated patients under both scenarios. We then derive the optimal contract offered by the government to the hospital in the first stage. Results show that when the cost of capital is sufficiently low, the informational rent is lower, and the social welfare is higher, in the contracting scenario.

Item Type: Article
Official URL: http://www.journals.elsevier.com/journal-of-health...
Additional Information: © 2011 Elsevier
Divisions: Social Policy
Subjects: H Social Sciences > HV Social pathology. Social and public welfare. Criminology
JEL classification: I - Health, Education, and Welfare > I1 - Health > I11 - Analysis of Health Care Markets
I - Health, Education, and Welfare > I1 - Health > I18 - Government Policy; Regulation; Public Health
Sets: Departments > Social Policy
Research centres and groups > LSE Health and Social Care
Date Deposited: 19 Feb 2015 15:22
Last Modified: 20 Feb 2019 10:00
URI: http://eprints.lse.ac.uk/id/eprint/61005

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