The Impact of Competition on Management Quality: Evidence from Public Hospitals

Posted by D. Daniel Sokol

Nicholas Bloom (Stanford - Econ) Carol Propper (Imperial College - Econ), Stephan Seiler (LSE - Econ), and John Van Reenen (LSE - Econ) explore The Impact of Competition on Management Quality: Evidence from Public Hospitals.

ABSTRACT: In this paper we examine the causal impact of competition on management quality. We analyze thehospital sector where geographic proximity is a key determinant of competition, and English publichospitals where political competition can be used to construct instrumental variables for marketstructure. Since almost all major English hospitals are government run, closing hospitals in areaswhere the governing party has a small majority is rare due to fear of electoral punishment. We findthat management quality - measured using a new survey tool - is strongly correlated with financialand clinical outcomes such as survival rates from emergency heart attack admissions (AMI). Moreimportantly, we find that higher competition (as indicated by a greater number of neighboringhospitals) is positively correlated with increased management quality, and this relationshipstrengthens when we instrument the number of local hospitals with loca! l political competition.Adding another rival hospital increases the index of management quality by one third of a standarddeviation and leads to a 10.7% reduction in heart-attack mortality rates.