We found a match
Your institution may have access to this item. Find your institution then sign in to continue.
- Title
Clustering, Agency Costs and Operating Efficiency: Evidence from Nursing Home Chains.
- Authors
Lu, Susan F.; Wedig, Gerard J.
- Abstract
Models of horizontal integration typically describe a trade-off between multiunit efficiencies and managerial agency costs. In extreme cases where managers cannot be incented contractually, private ownership is thought to be the primary organizational substitute. In this paper we explore geographic clustering as an alternative strategy for controlling managerial agency costs within the chain form of organization. Clustering may facilitate scale efficiencies in both monitoring and supervision, resulting in reduced agency costs and improved application of the chain's business model. We test this hypothesis in the nursing home industry, which is characterized by managerial contract costs resulting from multitask models of production. We find that clustered nursing homes achieve higher quality, conditional on labor inputs and patient characteristics. The clustering effect is concentrated on reductions in minor/potential harm violations, which are difficult to observe without close monitoring. Several proxies for local organizational experience ("local learning") cannot account for our findings, which are robust to a variety of alternative clustering definitions and competing explanations based on gaming behavior. Further tests indicate that chains endogenously pursue clustering, presumably to realize the benefits of improved quality outcomes.
- Subjects
INDUSTRIAL clusters; AGENCY costs; ECONOMIC efficiency; HORIZONTAL integration; HEALTH care industry; NURSING home chains; ROBUST statistics; QUALITY of service; CERTIFICATES of need in health facilities; STANDARD deviations; STOCHASTIC models; REGRESSION analysis
- Publication
Management Science, 2013, Vol 59, Issue 3, p677
- ISSN
0025-1909
- Publication type
Article
- DOI
10.1287/mnsc.1120.1611