The Impact of Competition on Management Quality: Evidence from Public Hospitals
Stanford University - Department of Economics; London School of Economics - Centre for Economic Performance (CEP); National Bureau of Economic Research (NBER)
University of Bristol - Leverhulme Centre for Market and Public Organisation (CMPO); University of Bristol - Department of Economics; Centre for Economic Policy Research (CEPR)
London School of Economics & Political Science (LSE)
John Van Reenen
London School of Economics - Centre for Economic Performance (CEP); Institute for Fiscal Studies (IFS); Centre for Economic Policy Research (CEPR)
CEPR Discussion Paper No. DP7862
In this paper we examine the causal impact of competition on management quality. We analyze the hospital sector where geographic proximity is a key determinant of competition, and English public hospitals where political competition can be used to construct instrumental variables for market structure. Since almost all major English hospitals are government run, closing hospitals in areas where the governing party has a small majority is rare due to fear of electoral punishment. We find that management quality - measured using a new survey tool - is strongly correlated with financial and clinical outcomes such as survival rates from emergency heart attack admissions (AMI). More importantly, we find that higher competition (as indicated by a greater number of neighboring hospitals) is positively correlated with increased management quality, and this relationship strengthens when we instrument the number of local hospitals with local political competition. Adding another rival hospital increases the index of management quality by one third of a standard deviation and leads to a 10.7% reduction in heart-attack mortality rates.
Number of Pages in PDF File: 42
Keywords: competition, hospitals, management, productivity
JEL Classification: F12, I18, J31, J45working papers series
Date posted: July 19, 2010
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