This paper examines selection and matching incentives of performance-based contracting (PBC) in a model of patient heterogeneity, provider horizontal differentiation and asymmetric information. Treatment effectiveness is affected by the match between a patient's illness severity and a provider's treatment intensity. Before PBC, a provider's revenue is unrelated to treatment effectiveness; therefore, providers supply treatments even if their treatment intensities do not match with the patients' severities. Under PBC, budget allocation is positively related to treatment performance; patient-provider mismatch is reduced because patients are referred more often. Using data from the state of Maine, we show that PBC leads to more referrals and better match between illness severity and treatment intensity. Moreover, we find that PBC has a positive but insignificant effect on dumping.

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We examine restructuring, divestiture, and deregulation of a vertically integrated public utility, (e.g., electricity), from a public finance perspective. How an optimal restructuring plan for the utility depends on the cost of public funds and on the X-efficiency gains from privatization, how the optimal degree of competition in the upstream and downstream segments are connected, and implications of privatization for consumer prices are examined. The higher the cost of public funds, the more likely the post-privatization price will exceed the regulated public utility price. The greater the X-efficiency gains from privatization, the more likely the post-privatization price will fall. JEL classification: H4, L1, L9Privatisation optimale dans un service public verticalement intégré. Ce texte examine la restructuration, le désaississement et la dérèglementation d'un service public intégré verticalement (comme par exemple l'industrie de l'électricité), du point de vue des finances publiques. On montre qu'un plan optimal de restructuration dépend du coût des fonds publics et des gains en efficacité de type X quiémergent de la privatisation, ainsi que du degré optimal de concurrence dans les segments en amont et en aval. On examine aussi les implications de la privatisation sur les prix aux consommateurs. Plus les coûts des fonds publics sontélevés, plus il y a de chance que les prix après la privatisation vont excéder les prix du service public réglementé. Plus les gains en efficacité de type X sont importants comme résultat de la privatisation, plus il y a de chance que le prix post-privatisation tombe.

This paper analyzes the strategic incentive of oligopolists to create autonomous rival divisions when products are differentiated. We consider a two-stage game where firms choose the number of autonomous divisions in the first stage and all the divisions engage in Cournot competition in the second. It is shown that product differentiation ensures the existence of an ( ) interior subgame perfect Nash equilibrium SPNE , and the equilibrium number of divisions increases with the degree of substitution among products and the number of firms. Further, if divisions are allowed to divide further, they always will, which leads to total rent dissipation. Thus, parent firms have incentives to unilaterally restrict their divisions from further dividing. In the free-entry equilibrium, it is found that the possibility of setting up autonomous divisions is a natural barrier to entry. Incumbents may persistently earn abnormally high profits. In the cases where product differentiation is difficult, the only pure-strategy free-entry SPNE is the monopoly outcome even if the entry cost is relatively low.

This paper analyzes the strategic incentive of oligopolists to create autonomous rival divisions when products are differentiated. We consider a two‐stage game where firms choose the number of autonomous divisions in the first stage and all the divisions engage in Cournot competition in the second. It is shown that product differentiation ensures the existence of an interior subgame perfect Nash equilibrium (SPNE), and the equilibrium number of divisions increases with the degree of substitution among products and the number of firms. Further, if divisions are allowed to divide further, they always will, which leads to total rent dissipation. Thus, parent firms have incentives to unilaterally restrict their divisions from further dividing. In the free‐entry equilibrium, it is found that the possibility of setting up autonomous divisions is a natural barrier to entry. Incumbents may persistently earn abnormally high profits. In the cases where product differentiation is difficult, the only pure‐strategy free‐entry SPNE is the monopoly outcome even if the entry cost is relatively low.