Doctors' remuneration schemes and hospital competition in two-sided markets with common network externalities

Bardey, David, Cremer, Helmuth and Lozachmeur, Jean-Marie (2011) Doctors' remuneration schemes and hospital competition in two-sided markets with common network externalities. TSE Working Paper, n. 11-250, Toulouse

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Official URL: http://tse-fr.eu/pub/24907

Abstract

This paper uses a two-sided market model of hospital competition to study the implications of different remunerations schemes on the physicians’ side. The two-sided market approach is characterized by the concept of common network externality (CNE) introduced by Bardey et al. (2010). This type of externality occurs when occurs when both sides value, possibly with different intensities, the same network externality. We explicitly introduce effort exerted by doctors. By increasing the number of medical acts (which involves a costly effort) the doctor can increase the quality of service offered to patients (over and above the level implied by the CNE). We first consider pure salary, capitation or fee-for-service schemes. Then, we study schemes that mix fee-for-service with either salary or capitation payments. We show that salary schemes (either pure or in combination with fee-for-service) are more patient friendly than (pure or mixed) capitations schemes. This comparison is exactly reversed on the providers’ side. Quite surprisingly, patients always loose when a fee-for-service scheme is introduced (pure of mixed). This is true even though the fee-for-service is the only way to induce the providers to exert effort and it holds whatever the patients’ valuation of this effort. In other words, the increase in quality brought about by the fee-for-service is more than compensated by the increase in fees faced by patients.

Item Type: Monograph (Working Paper)
Language: English
Date: February 2011
Place of Publication: Toulouse
JEL codes: D41 - Perfect Competition
L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
L12 - Monopoly; Monopolization Strategies
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 18 Jan 2012 05:45
Last Modified: 19 Mar 2018 15:13
OAI ID: oai:tse-fr.eu:24907
URI: http://publications.ut-capitole.fr/id/eprint/967

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