Variable structure control for parabolic evolution equations

In this paper it is considered a class of infinite-dimensional control systems in a variational setting. By using a Faedo-Galerkin method, a sequence of approximating finite dimensional controlled differential equations is defined. On each of these systems a variable structure control is applied to constrain the motion on a specified surface. Under some growth assumptions the convergence of these approximations to an ideal sliding state for the infinite-dimensional system is shown. Results are then applied to the Neumann boundary control of a parabolic evolution equation.Comment: Submitted for presentation to the Joint 44th IEEE Conference on Decision and Control and European Control Conference ECC 2005; 13 page

The Flypaper Effect: Evidence from the Italian National Health System

Public expenditure reduction in Italy is achieved through a revision of social security and health care programmes. In particular, public health expenditure control has been implemented through a reform that imposes more stringent budget rules at local level and a considerable reduction in the grants-in-aid from central government. The response to a decrease in categorical lump-sum grants from the central to local governments might result in an asymmetrical response to intergovernmental grants: local spending is highly responsive to increases in grants, but it is relatively insensitive to grants reduction [Stine, 1994; Gramkhar and Oates, 1996]. In our paper we have estimated this hypothesis using a sample of cross-sectional and time- observations covering the 20 Italian regions over the period 1989-1993. Two different models have been estimated based on different budget balance rules. The empirical results of our model show the existence of a standard and a super flypaper effect in both models. The introduction of the soft-budget constraint hypothesis results in a stronger effect of grants and a lower response of own resources which shows that before reducing expenditure regional governments prefer to incur some deficit.flypaper effect, health care, Italy, soft-budget constraint

Investment in hospital care technology under different purchasing rules: a real option approach

Quality of health care is the product of several factors as the literature has long recognized. In this article we focus on the relationship between quality and investment in health technology by analysing the optimal investment decision in a new health care technology of a repre sentative hospital that maximises its surplus in an uncertain environment. The new technology allows the hospital to increase the quality level of the care provided, but the investment is irreversible. The article uses the framework of the real option literature to show how the purchaser might inuence the quality level by setting a quality-contingent long-term contract with the hospital.The investment in new technology is in fact best incentivated within a long-term contract where the number of treatments reimbursed depends on the level of investment made when the technology is new. In this way, asymmetry of information does not affect the outcome of the contract. In our model in fact the purchaser can verify the level of the investment only at the end of each period but the purchasing rule has an anticipating e¤ect on the decision to invest.Health care technologies, Medical quality, Irreversible investments, Real options.

It takes three to tango: Soft budget constraint and cream skimming in the hospital care market

Cream skimming is an illegal behaviour that consists in choosing to treat patients according to their ability to recover. It arises from the use of prospective payment schemes in an asymmetry of information framework. In this context in fact the provider can observe some relevant information (freely or at a cost) before making its effort which will then be used to its own advantage. The paper studies the scope for these types of behaviour in a mixed market for hospital care where the hospitals do not share the same objectives. We show that in this context cream skimming is made possible by the presence of two important elements: the public hospital prefers to treat high severity patients and the regulator is unable to enforce hard budget constraint rules. The paper adds an important dimension to the study of cream skimming as proposed by the traditional literature where asymmetry of information alone is considered the cause of this market failure. In our context, in fact, cream skimming arises mainly from a regulatory failure.

Merit goods provision and optimal tax evasion

In a recent article Davidson, Lawrence and Wilson propose a model showing that, in the presence of distortionary taxation and goods of different quality, tax evasion can be an optimal device. Here, we show that this result, although quite interesting, cannot be generalised to a framework where Government activity consists of supplying merit goods and levying taxes to finance their provision.

Rent Extraction through Alternative Forms of Competition in the Provision of Paternalistic Goods

We compare the properties in terms of rent extraction of spatial competition and monopoly franchises using Dutch first price auctions, two of the most widely used tools to regulate public service provision. In a framework where the regulator can imperfectly observe costs, but the latter are not necessarily private information to each competitor, spatial competition is more effective in extracting rent if providers are very different in their productivity and if they can observe the costs of their competitors. When they are quite similar and have limited information on the competitors' characteristics, the use of a monopoly franchise through an auction mechanism should be preferred. In the latter environment, a multiple object auction allows more rent to be extracted from the provider

Investment in Hospital Care Technology under Different Purchasing Rules: A Real Option Approach

In this article, we analyse the optimal investment decision in a new health care technology of a representative hospital that maximises its surplus in an uncertain environment. The new technology allows the hospital to increase the quality level of the care provided, but the investment is irreversible. The article uses the framework of the real option literature to show how the purchasing rules might influence the level of investment. We show that the investment in new technology is best incentivate within a long term contract where the number of treatments reimbursed depends on the level of investment made in the period when the technology is new. In this way, asymmetry of information does not affect the outcome of the contract. In our model in fact the purchaser can verify the level of the investment only at the end of each period but the purchasing rule has an anticipating effect on the decision to invest.Health care technologies, Medical quality, Irreversible investments, Real options

Reconciling social and industrial goals: a bargaining model to pricing pharmaceuticals

The issues at stake for determining the price of a drug are related to finding an "equitable" trade-off between the legitimate need for the pharmaceutical industry to make a profit and full exploitation of the consumer’s surplus in a market with asymmetry of information. This paper develops a bargaining process where the regulator sets the price of drug in order to maximise the society’s net benefit while the pharmaceutical industry maximises its profit. The resulting price is a weighted average of willingness to pay and cost of the new drug. The weights are represented by the relative strength of the two actors which we show to depend on the importance of the drug for society (other alternatives on the market, the degree of innovation and effectiveness), and on the sustainability of the threat by the pharmaceutical industry to sell the drug only on the private market (medicaments not reimbursed by public healthcare system). Our proposed method allows to set the price of new drugs in different market contexts, i.e. where less effective alternatives are already sold or in new therapeutic areas. Keywords: Pharmaceutical Industry, Regulation, Health Care