Abstract |
Directing consumers to higher-quality service providers has been considered an effective policy to improve service outcomes and consumer welfare in various contexts. However, higher-quality providers may tend to be more congested, and congestion may be detrimental to outcomes and welfare. We study this congestion-quality tradeoff and discuss its policy implications in the context of Japanese nursing facilities. We find evidence that (1) within nursing facilities, higher occupancy leads to poorer care outcomes but (2) between nursing facilities, occupancy and outcome-based quality measures are positively correlated. To evaluate the welfare impact of patient reallocation policy, we then develop and estimate a model of demand for nursing facility care where choice set is potentially constrained in an unobserved manner by providers’ rationing behavior. We find that nursing facilities are less likely to admit patients at higher occupancy but no evidence that patients dislike congestion. Simulation of a reallocation policy suggests a potential gain from occupancy smoothing even though the policy sends patients to lower-quality care providers on average.
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