cep discussion paper no 983 may 2010 (revised november 2014).pdf

ISSN 2042-2695 CEP Discussion Paper No 983 May 2010 (Revised November 2014) The Impact of Competition on Management Quality: Evidence from Public Hospitals Nicholas Bloom, Carol Propper, Stephan Seiler and John Van Reenen Abstract We analyze the causal impact of competition on managerial quality and hospital performance. To address the endogeneity of market structure we analyze the English public hospital sector where entry and exit are controlled by the central government. Because closing hospitals in areas where the governing party is expecting a tight election race (“marginals”) is rare due to the fear of electoral defeat, we can use political marginality as an instrumental variable for the number of hospitals in a geographical area. We find that higher competition results in higher management quality, measured using a new survey tool, and improved hospital performance. Adding a rival hospital increases management quality by 0.4 standard deviations and increases survival rates from emergency heart attacks by 9.7%. We confirm the robustness of our IV strategy to “hidden policies” that could be used in marginal districts to improve hospital management and to changes in capacity that may follow from hospital closure. JEL Classifications: J45, F12, I18, J31 Keywords: management, hospitals, competition, productivity This paper was produced as part of the Centre’s Productivity and Innovation Programme. The Centre for Economic Performance is financed by the Economic and Social Research Council. Acknowledgements This is an extensively updated version of Bloom et al (2010). We would like to thank David Card, Amitabh Chan