Florence Naegelen

Discriminatory public procurement policy and cost reduction incentives

Abstract Discriminating in favor of domestic suppliers in the award of government procurement contracts is a widespread practice. In this paper, we extend the previous analysis of McAfee and McMillan (1989) [Government procurement and international trade. Journal of International Economics 26, 291–308] and Branco (1994) [Favoring domestic firms in procurement contracts. Journal of International Economics 37, 65–80] by considering in the same model the bidding competition stimulation effect and the favoritism effect. We prove that the optimal policy can be implemented by a modified Vickrey auction or by a complex modified first price auction. We also consider that firms can reduce their cost by a nonobservable effort. We show that taking moral hazard into account does not modify the awarding rule, but that the government must use the payment rule to require a greater level of effort from the favored firm.

Adverse Selection, Moral Hazard, and Outlier Payment Policy

In this article, we analyze the rationale for introducing outlier payments into a prospective payment system for hospitals under adverse selection and moral hazard. The payer has only two instruments: a fixed price for patients whose treatment cost is below a threshold and a cost-sharing rule for outlier patients. We show that a fixed-price policy is optimal when the hospital is sufficiently benevolent. When the hospital is weakly benevolent, a mixed policy solving a trade-off between rent extraction, efficiency, and dumping deterrence must be preferred. We show how the optimal combination of fixed price and partially cost-based payment depends on the degree of benevolence of the hospital, the social cost of public funds, and the distribution of patients severity.

Price adjustment in the hospital sector: how should the NHS discriminate between providers. A comment on Miraldo, Siciliani and Street.

Miraldo et al. (2011) have analyzed the price adjustment policy of a payer implementing a Prospective Payment System in the hospital sector in the presence of exogenous cost differences when no lump-sum transfers are allowed. They focus on deriving conditions for the price adjustment being positive. In this paper, using a result of Miraldo et al., we emphasize whether the price adjustment is larger or smaller than the marginal cost. We show how the discrimination operates against either the low-cost or the high-cost hospitals according to the value of the elasticity of the additional marginal cost with respect to the quantity of services.

Asymmetric Information and Pooling Contracts in the Hospital Sector

Most of regulators in health care systems use pooling contracts such that payment do not depend on the level of severity. This policy is motivated by concerns about the moral hazard problem. In this paper, we show that it can be optimal when patient severity is private information because of the non-responsiveness phenomenon. We show in which cases the hospital may be non responsive to the regulator objective under adverse selection. We exhibit necessary conditions under which pooling contracts are optimal and we characterize these mechanisms when the hospital is self-interested and perfectly altruistic. In the first case, the fixed payment is equal to the cost of treating the patient with the highest severity whereas it is equal to the mean value of the treatment cost in the second one.

Using Auctions for Contracting with Hospitals When Quality Matters

This paper analyzes the problem of contracting with hospitals with hidden information when the number of patients wanting treatment depends on the quality of health care services offered. The optimal policy is characterized in the case of a single hospital. It is demonstrated that the regulator can reduce the information rent by decreasing the quality. When the regulator is assumed to be able to organize an auction for awarding the right to provide the service, we characterize the optimal auction and the first score tendering procedure implementing it. The regulator can reimburse a unit price per treated patient and let the hospital choose the level of quality. It is proved that the expected quality of health care services is greater and the expected payment is lower than in the monopoly case.

Vertical Differentiation, Quality Competition and Second-Best Hospital Price Regulation

We analyze quality competition between hospitals under vertical health care services differentiation and price regulation. We show that a regulator can set a price to achieve the first-best level of quality for any market structure. However, under free entry, the number of entering hospitals at a Nash equilibrium will be greater than the socially optimal number of hospitals when the regulator uses the only credible price policy. Consequently, though Cournot competition achieves the goal of rent extraction, it leads to excessive fixed costs. When the regulator cannot use another instrument to deter entry, he cannot achieve the first-best level of welfare. He must therefore design a second-best pricing policy to compromise between allocative efficiency and optimal market structure. We show that this policy results in a lower level of health care services quality, a greater number of hospitals and a lower price than those obtained in the first best.

Swiss DRGs: Patient Heterogeneity and Hospital Payments

SummaryIn this paper, we analyze the prospective method of paying hospitals when the within-DRG variance is high. To avoid patients dumping, an outlier payment system is implemented. In the APDRG Swiss System, it consists in a mixture of fully prospective payments for low costs patients and partially cost-based system for high cost patients. We show how the optimal policy depends on the degree to which hospitals take patients’ interest into account. A fixed-price policy is optimal when the hospital is sufficiently benevolent. When the hospital is weakly benevolent, a mixed policy solving a trade-off between rent extraction, efficiency and dumping deterrence must be preferred. Following Mougeot and Naegelen (2008), we show how the optimal combination of fixed price and partially cost-based payment depends on the degree of benevolence of the hospital, the social cost of public funds and the distribution of patients severity.

Enchères asymétriques: contribution à la détermination numérique des stratégies d'équilibre bayésien

In this paper, we drop the symmetry assumption in a model of first price procurement auction. We consider the case of two groups of bidders whose costs are drawn from two different uniform distributions. Conditions of existence of a common minimum bid are exhibited and bayesian equilibrium strategies of firms in both groups are computed. We show that these strategies can be written as the symmetric equilibrium strategies more or less a mark-up resulting from the asymmetry.