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Provider choice of quality and surplus

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  • Nolan Miller
  • Karen Eggleston
  • Richard Zeckhauser
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. We are primarily concerned with how changes in outside claims—particularly proportional outside claims—on the provider’s financial surplus affect his choice of quality. We use the term “rate of surplus retention” to refer to the fraction of surplus remaining after deducting all such claims. Using the Arrow-Pratt coefficient of relative risk aversion as a measure of curvature of the provider’s utility-from-money function, we show that increasing the surplus retention rate increases (decreases) quality if the provider’s coefficient of relative risk aversion is greater than (less than) 1. Copyright Springer Science + Business Media, LLC 2006

Suggested Citation

  • Nolan Miller & Karen Eggleston & Richard Zeckhauser, 2006. "Provider choice of quality and surplus," International Journal of Health Economics and Management, Springer, vol. 6(2), pages 103-117, June.
    • Handle: RePEc:kap:ijhcfe:v:6:y:2006:i:2:p:103-117
    DOI: 10.1007/s10754-006-7107-7
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    Cited by:

    1. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2007. "Prevention and Dynamic Risk Adjustment," Boston University - Department of Economics - Working Papers Series WP2007-023, Boston University - Department of Economics.
    2. Jacobson, Mireille G. & Chang, Tom Y. & Earle, Craig C. & Newhouse, Joseph P., 2017. "Physician agency and patient survival," Journal of Economic Behavior & Organization, Elsevier, vol. 134(C), pages 27-47.
    3. Karen Eggleston & Randall P. Ellis & Mingshan Lu, 2012. "Risk adjustment and prevention," Canadian Journal of Economics, Canadian Economics Association, vol. 45(4), pages 1586-1607, November.

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