Discussion Paper Details

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Title: Multitasking, Quality and Pay for Performance

Author(s): Oddvar Martin Kaarboe and Luigi Siciliani

Publication Date: July 2008

Keyword(s): altruism, pay for performance and quality

Programme Area(s): Industrial Organization

Abstract: We present a model of optimal contracting between a purchaser and a provider of health services when quality has two dimensions. We assume that one dimension of quality is verifiable (dimension 1) and one dimension is not verifiable (dimension 2). We show that the power of the incentive scheme for the verifiable dimension depends critically on the extent to which quality 1 increases or decreases the provider's marginal disutility and the patients' marginal benefit from quality 2 (i.e. substitutability or complementarity). Our main result is that under some circumstances a high-powered incentive scheme can be optimal even when the two quality dimensions are substitutes.

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Bibliographic Reference

Kaarboe, O and Siciliani, L. 2008. 'Multitasking, Quality and Pay for Performance'. London, Centre for Economic Policy Research.