Using Two-Part Contracts to Identify Cross Price Elasticities: An Application to Family Doctors

Abstract We propose an empirical test for determining if rewarded tasks are cost complements or substitutes in a pay for performance scheme with kinks on linear task-specific reward functions. The test is based on the... [ view full abstract ]

Abstract We propose an empirical test for determining if rewarded tasks are cost complements or substitutes in a pay for performance scheme with kinks on linear task-specific reward functions. The test is based on the insensitivity of effort exerted on a particular task to variations in the price of competing tasks for agents who are bunched near the kinks. As a case study, we consider the case of the Quality and Outcomes Framework (QOF). This system accounts for nearly a quarter of family doctors’ income and is the largest pay-for-performance programme for primary care services in the world. We found that changes introduced in the system in 2011 were tasks that were complements of many of the unmodified tasks. As a result, there is no evidence of effort-diversion as a result of the changes.