FEEM working papers "Note di lavoro" series
2005 .085

Quality and Investment Decisions in Hospital Care when Physicians are Devoted Workers


Authors: Michele Moretto, Rosella Levaggi, Vincenzo Rebba
Series: Economy and Society
Editor: Gianmarco I.P. Ottaviano
Type: Journal
Keywords: Hospital technology,Devoted worker,Quality,Irreversible investment,Real options
JEL n.: I11,D81
JEL: Economics of Innovation and New Technology
Pages: Vol. 18, Issue 5, pp. 487-512
Date: 2009

Abstract

This paper analyses the decision to invest in quality by a hospital in an environment where doctors are devoted workers, i.e. they care for specific aspects of the output they produce. We assume that quality is the result of both an investment in new technology and the effort of the medical staff. Hospital services are paid on the basis of their marginal cost of production while the number of patients treated depends on a purchasing rule which discriminates for the level and timing of the investment. We show that the presence of devoted doctors affects the trade-off between investment and the purchasing rule so that for the hospital it is not always optimal to anticipate the investment decision.

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