Labour Supply, Work Effort and Contract Choice: Theory and Evidence on Physicians

Posted: 25 Sep 2010

See all articles by Bernard Fortin

Bernard Fortin

Université Laval - Département d'Économique; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Nicolas Jacquemet

Paris School of Economics (PSE); Université Paris I Panthéon-Sorbonne

Bruce Shearer

Université Laval - Département d'Économique; IZA Institute of Labor Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 24, 2010

Abstract

We develop and estimate a generalized labour supply model that incorporates work effort into the standard consumption-leisure trade-off. We allow workers a choice between two contracts: a piece rate contract, wherein he is paid per unit of service provided, and a mixed contract, wherein he receives an hourly wage and a reduced piece rate. This setting gives rise to a nonconvex budget set and an efficient budget constraint (the upper envelope of contract-specific budget sets). We apply our model to data collected on specialist physicians working in the Province of Quebec (Canada). Our data set contains information on each physician’s labour supply and their work effort (clinical services provided per hour worked). It also covers a period of policy reform under which physicians could choose between two compensation systems: the traditional fee-for-service, under which physicians receive a fee for each service provided, and mixed remuneration, under which physicians receive a per diem as well as a reduced fee for service. We estimate the model using a discrete choice approach. We use our estimates to simulate elasticities and the effects of ex ante reforms on physician contracts. Our results show that physician services and effort are much more sensitive to contractual changes than is their time spent at work. Our results also suggest that a mandatory reform, forcing all physicians to adopt the mixed remuneration system, would have had substantially larger effects on physician behaviour than those observed under the voluntary reform.

Keywords: Labour Supply, Effort, Contracts, Practice Patterns of Physicians, Discrete Choice Econometric Models, Mixed Logit

JEL Classification: C25, J22, J33, I10, J44

Suggested Citation

Fortin, Bernard and Jacquemet, Nicolas and Shearer, Bruce, Labour Supply, Work Effort and Contract Choice: Theory and Evidence on Physicians (September 24, 2010). CIRANO - Scientific Publications No. 2010s-40, Available at SSRN: https://ssrn.com/abstract=1682101 or http://dx.doi.org/10.2139/ssrn.1682101

Bernard Fortin (Contact Author)

Université Laval - Département d'Économique ( email )

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National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Nicolas Jacquemet

Paris School of Economics (PSE) ( email )

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France

Université Paris I Panthéon-Sorbonne ( email )

17, rue de la Sorbonne
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France

HOME PAGE: http://www.nicolasjacquemet.com/

Bruce Shearer

Université Laval - Département d'Économique ( email )

2325 Rue de l'Université
Ste-Foy, Quebec G1K 7P4 G1K 7P4
Canada
418-656-2131 (Phone)
418-656-7798 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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