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It takes three to tango: Soft budget constraint and cream skimming in the hospital care market

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  • Levaggi, Rosella
  • Montefiori, Marcello
Abstract
Cream skimming is an illegal behaviour that consists in choosing to treat patients according to their ability to recover. It arises from the use of prospective payment schemes in an asymmetry of information framework. In this context in fact the provider can observe some relevant information (freely or at a cost) before making its effort which will then be used to its own advantage. The paper studies the scope for these types of behaviour in a mixed market for hospital care where the hospitals do not share the same objectives. We show that in this context cream skimming is made possible by the presence of two important elements: the public hospital prefers to treat high severity patients and the regulator is unable to enforce hard budget constraint rules. The paper adds an important dimension to the study of cream skimming as proposed by the traditional literature where asymmetry of information alone is considered the cause of this market failure. In our context, in fact, cream skimming arises mainly from a regulatory failure.

Suggested Citation

  • Levaggi, Rosella & Montefiori, Marcello, 2005. "It takes three to tango: Soft budget constraint and cream skimming in the hospital care market," POLIS Working Papers 48, Institute of Public Policy and Public Choice - POLIS.
    • Handle: RePEc:uca:ucapdv:48
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    Cited by:

    1. Carla Marchese, 2009. "Rewarding the Consumer for Curbing the Evasion of Commodity Taxes?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 65(4), pages 383-402, December.
    2. Ottone, Stefania, 2006. "fairness: a survey," POLIS Working Papers 57, Institute of Public Policy and Public Choice - POLIS.
    3. Giovanni B. Ramello, 2006. "What'S In A Sign ? Trademark Law And Economic Theory," Journal of Economic Surveys, Wiley Blackwell, vol. 20(4), pages 547-565, September.
    4. Giovanni B. Ramello & Francesco Silva, 2006. "Appropriating signs and meaning: the elusive economics of trademark," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 15(6), pages 937-963, December.
    5. Marchese, Carla & Montefiori, Marcello, 2005. "Mean voting rule and strategical behavior: an experiment," POLIS Working Papers 49, Institute of Public Policy and Public Choice - POLIS.
    6. Stefania Ottone, 2008. "Are people Samaritans or Avengers?," Economics Bulletin, AccessEcon, vol. 3(10), pages 1-3.
    7. Guido Ortona & Stefania Ottone & Ferruccio Ponzano, 2008. "A Simulative Assessment of the Italian Electoral System," Springer Books, in: Fabio Padovano & Roberto Ricciuti (ed.), Italian Institutional Reforms: A Public Choice Perspective, chapter 0, pages 21-36, Springer.
    8. Ottone, Stefania, 2004. "Transfers and Altruistic Punishments in Third Party Punishment Game Experiments," POLIS Working Papers 41, Institute of Public Policy and Public Choice - POLIS.
    9. Nicita Antonio & Ramello Giovanni B., 2007. "Property, Liability and Market Power: The Antitrust Side of Copyright," Review of Law & Economics, De Gruyter, vol. 3(3), pages 767-791, December.
    10. Ortona, Guido & Ottone, Stefania & Ponzano, Ferruccio & Scacciati, Francesco, 2008. "Labour supply in presence of taxation financing public services. An experimental approach," Journal of Economic Psychology, Elsevier, vol. 29(5), pages 619-631, November.
    11. Cugno Franco & Ottoz Elisabetta, 2006. "Static Inefficiency of Compulsory Licensing: Quantity vs. Price Competition," Department of Economics and Statistics Cognetti de Martiis. Working Papers 200606, University of Turin.
    12. Yasuo Sanjo, 2009. "Quality choice in a health care market: a mixed duopoly approach," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 10(2), pages 207-215, May.
    13. Breton, Albert & Scott, Anthony & Fraschini, Angela, 2007. "Explaining differences in environmental governance patterns between Canada, Italy and the United States," POLIS Working Papers 87, Institute of Public Policy and Public Choice - POLIS.
    14. Bissey, Marie-Edith & Ortona, Guido, 2007. "The program for the simulation of electoral systems ALEX4.1: what it does and how to use it," POLIS Working Papers 82, Institute of Public Policy and Public Choice - POLIS.
    15. Stefania Ottone & Ferrucio Ponzano & Roberto Ricciuti, 2009. "Simulating Voting Rule Reforms for the Italian Parliament: An Economic Perspective," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 3(3), pages 292-304, October.
    16. Bia, Michela, 2007. "The Propensity Score method in public policy evaluation: a survey," POLIS Working Papers 79, Institute of Public Policy and Public Choice - POLIS.
    17. Ottone, Stefania, 2005. "Transfers and Altruistic Punishments in Solomon's Game experiments," POLIS Working Papers 50, Institute of Public Policy and Public Choice - POLIS.
    18. Marchese, Carla & Privileggi, Fabio, 2007. "Increasing the efficiency of the 'Studi di Settore' might backfire," POLIS Working Papers 83, Institute of Public Policy and Public Choice - POLIS.
    19. Bia, Michela & Mattei, Alessandra, 2007. "Application of the Generalized Propensity Score. Evaluation of public contributions to Piedmont enterprises," POLIS Working Papers 80, Institute of Public Policy and Public Choice - POLIS.
    20. Ottone, Stefania & Ponzano, Ferruccio, 2005. "An Extension to the Model of Inequity Aversion by Fehr and Schmidt," POLIS Working Papers 51, Institute of Public Policy and Public Choice - POLIS.
    21. Rosella Levaggi, 2005. "Hospital Health Care: Pricing and Quality Control in a Spatial Model with Asymmetry of Information," International Journal of Health Economics and Management, Springer, vol. 5(4), pages 327-349, December.

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    More about this item

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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