working papers

• Facility Management Services in UK Hospitals: In-house or Outsourcing

  This paper examines the institutional organization of UK hospitals through both traditional procurement and private finance initiatives (PFIs). Initially, it describes the structure of the UK healthcare sector, highlighting the provision of hard facility management (FM) services such as building maintenance, as well as soft FM services like catering and cleaning, which can be managed either in-house or outsourced. By developing an applied principal-agent model for this sector and considering the builder's partial warranty provided against construction risk, the study demonstrates that PFIs internalize the externality between builders and hard FM service suppliers, while also necessitating the payment of a risk premium, which may become excessive under significant hard FM risk. In contrast, traditional procurement generates a reverse moral hazard due to the builder’s warranty that intensifies with higher levels of hard FM risk. Furthermore, traditional procurement lacks incentives for outsourcing soft FM services. Ultimately, the paper argues that PFI procurement is optimal under conditions of sufficiently low and high hard FM risk.

  Submitted to the Journal of Public Economic Theory

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• The Impact of Public-Private Partnership on Facility Management Costs: Evidence from the Healthcare Sector in England

  The PFI is a type of public-private partnership (PPP) that has been extensively used in England since the 1990s. This study employs the ERIC panel dataset spanning from 2018 to 2021 to evaluate how hospital procurement type affects the costs of both hard and soft FM services. By employing OLS and 2SLS estimations, followed by propensity score matching and Hausman-Taylor estimations, the findings indicate that PFI is associated with increases in both hard and soft FM costs, up to 37.1% and 20.3%, respectively. This effect is particularly pronounced for hospital sites with pre-existing buildings before the signing of PFI contracts, although the trend reverses for soft FM costs. Furthermore, the study reveals that partial PFI financing is linked to higher costs compared to hospital sites procured entirely through PFI. Nonetheless, the study suggests the potential for limited cost savings by considering moderate- and low-risk backlog maintenance costs, as well as capital investments in new construction.

  Submitted to the Journal of Health Economics

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• Healthcare Provider Efforts vs Fees: Striking the Right Balance

  This study explores how parties within the healthcare sector can achieve an equilibrium by utilizing internal enforcement alongside external enforcement mechanisms. It particularly investigates how the optimal balance between external and internal enforcement varies with changes in the sensitivity of healthcare output to the efforts of healthcare providers and service suppliers. The analysis is conducted within the framework of a repeated game with imperfect public monitoring under double moral hazard. The study examines an optimal relational contract by solving the game in a stationary environment. The main result suggests that with an increase in healthcare output sensitivity to parties’ efforts, external enforcement should increase, while internal enforcement should decrease.

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