The Impact of Competition on Management Quality: Evidence from Public Hospitals
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.
We would like to thank David Card, Caroline Hoxby, Robert Huckman, Dan Kessler, John McConnell, Ron Johnston, John McConnell, Luigi Pistaferri, Kathy Shaw, Carolyn Whitnall, and participants in seminars at the AEA, King's, LSE, NBER, Stanford, the Health and Econometrics and the RES Conferences, and the Department of Health for discussions. Our research partnership with Pedro Castro, John Dowdy, Stephen Dorgan and Ben Richardson has been invaluable. Financial support is from the HP/EDS Innovation Centre, the ESRC through the Centre for Economic Performance and CMPO and the National Science Foundation. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Nicholas Bloom & Carol Propper & Stephan Seiler & John Van Reenen, 2015. "The Impact of Competition on Management Quality: Evidence from Public Hospitals," Review of Economic Studies, Oxford University Press, vol. 82(2), pages 457-489. citation courtesy of