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IZA Seminar

Place: Schaumburg-Lippe-Str. 9, 53113 Bonn

Date: 08.05.2012, 12:15 - 13:30


Presentation by 

John Van Reenen (MIT Sloan School of Management)


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 contestability as an instrumental variable for the number of hospitals in a geographical area. 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). We find that higher competition is positively correlated with management quality, and this relationship strengthens when we instrument the number of rival hospitals with whether these rivals are located in marginal districts. Adding a rival hospital increases management quality by 0.4 standard deviations and increases in-hospital survival rate from emergency heart attacks by 8.8%. We confirm the validity of our IV strategy by conditioning on own hospital marginality which controls for any “hidden policies” that could be used in marginals districts to improve hospital management (thus identifying purely off the marginality of rival hospitals). Further, we successfully run a placebo test of marginality on schools, a public service where the central government has no formal influence.

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