Can Yardstick Competition Reduce Waiting Times?

Savva, N, Tezcan, T and Yildiz, O (2019) Can Yardstick Competition Reduce Waiting Times? Management Science, 65 (7). pp. 3196-3215. ISSN 0025-1909 OPEN ACCESS


Yardstick competition is a regulatory scheme for local monopolists (e.g., hospitals), where the monopolist's reimbursement is linked to performance relative to other equivalent monopolists. This regulatory scheme is known to provide cost-reduction incentives and serves as the theoretical underpinning behind the hospital prospective reimbursement system used throughout the developed world. This paper uses a game-theoretic queueing model to investigate how yardstick competition performs in service systems (e.g., hospital emergency departments), where in addition to incentivizing cost reduction the regulator wants to incentivize waiting time reduction. We first show that the form of cost-based yardstick competition used in practice results in inefficiently long waiting times. We then demonstrate how yardstick competition can be appropriately modified to achieve the dual goal of cost and waiting-time reduction. In particular, we show that full efficiency (first-best) can be restored if the regulator makes the providers' reimbursement contingent on their service rates and is also able to charge a provider-specific "toll" to consumers. More importantly, if such a toll is not feasible, as may be the case in healthcare, we show that there exists an alternative and particularly simple yardstick-competition scheme, which depends on the average waiting time only, that can significantly improve system efficiency (second-best). This scheme is easier to implement as it does not require the regulator to have detailed knowledge of the queueing discipline. We conclude with a numerical investigation that provides insights on the practical implementation of yardstick competition for hospital Emergency Departments and also present a series of modelling extensions.

More Details

Item Type: Article
Subject Areas: Management Science and Operations
Additional Information:

© 2018 INFORMS

This manuscript was accepted for publication in Management Science. The version of record can be found at

Date Deposited: 29 Mar 2018 11:52
Date of first compliant deposit: 22 Mar 2018
Subjects: Regulations
Hospital management
Game theory
Last Modified: 17 Jul 2024 01:34

Export and Share


Accepted Version - Text
Supplemental Material - Text


View details on Dimensions' website

Downloads from LBS Research Online

View details

Actions (login required)

Edit Item Edit Item