Venue: The Fuqua School of Business, Duke University, 1 Towerview Drive, Durham, NC 27708-0120

 

Presentation

How rational are bargainers? Using the Stole/Zweibel bargaining model to examine hospital selective contracting

Authors:

Presenter: David Dranove (Northwestern University)

Discussant: Fiona Scott Morton (Yale University)

Session: Industrial Organization and Health Insurance

Room: Classroom E

When: Monday 5:15 p.m. - 6:45 p.m.

We adapt the bargaining model of Stole and Zweibel (S/Z) to study selective contracting between hospitals and managed care purchasers. A main feature of the S/Z model is what we call "level N" rationality. Specifically, if there are N suppliers bargaining with one purchaser then all players consider outcomes if each successive level of bargaining breaks down. We solve the S/Z model for all levels of rationality; for example, at level 1 rationality, bargainers only consider the consequences if one level of bargaining breaks down. We estimate the model using data from several markets in California. By comparing theoretical bargaining solutions to actual outcomes, we establish the level of rationality among bargainers in each market.