We wish to thank Daniel Ackerberg, David Balan, Steven Garber, Eric Helland, Mireille Jacobson, Raphael Thomadsen, Robert Town, William Vogt, the Editor and two anonymous referees for helpful comments. John Romley also thanks Frank Wolak, Peter Reiss and Jonathan Levin for their advice. This research was supported by the National Institute on Aging (P30AG024968 and 1R03AG031990) and the Bing Center for Health Economics.
How Costly is Hospital Quality? A Revealed-Preference Approach†
Version of Record online: 19 DEC 2011
© 2011 The Authors. The Journal of Industrial Economics © 2011 Blackwell Publishing Ltd and the Editorial Board of The Journal of Industrial Economics
The Journal of Industrial Economics
Volume 59, Issue 4, pages 578–608, December 2011
How to Cite
Romley, J. A. and Goldman, D. P. (2011), How Costly is Hospital Quality? A Revealed-Preference Approach. The Journal of Industrial Economics, 59: 578–608. doi: 10.1111/j.1467-6451.2011.00468.x
- Issue online: 19 DEC 2011
- Version of Record online: 19 DEC 2011
We analyze the cost of quality improvement in hospitals, dealing with two challenges. Hospital quality is multidimensional and hard to measure, while unobserved productivity may influence quality supply. We infer the quality of hospitals in Los Angeles from patient choices. We then incorporate ‘revealed quality’ into a cost function, instrumenting with hospital demand. We find that revealed quality differentiates hospitals, but is not strongly correlated with clinical quality. Revealed quality is quite costly, and tends to increase with hospital productivity. Thus, non-clinical aspects of the hospital experience (perhaps including patient amenities) play important roles in hospital demand, competition, and costs.