Working Paper: CEPR ID: DP7880
Authors: Nicholas Bloom; Carol Propper; Stephan Seiler; John Van Reenen
Abstract: 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.
Keywords: competition; hospitals; management; productivity
JEL Codes: F12; I18; J31; J45
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Higher local competition (D49) | Increased management quality (L15) |
| Increased management quality (L15) | Reduction in heart attack mortality rates (I14) |
| Higher local competition (D49) | Reduction in heart attack mortality rates (I14) |
| Additional rival hospital (I19) | Increased management quality (L15) |
| Increased management quality (L15) | Better hospital outcomes (I11) |