London School of Economics, Centre for Economic Performance, NBER and CEPR
J.Vanreenen{at}lse.ac.uk
Received January 2013.
Accepted September 2014.
Abstract
We analyse the causal impact of competition on managerial quality and hospital performance. To address the endogeneity of
market structure we analyse 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.
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