The Cost of Freedom of Choice: Evidence From a Public Procurement Auction

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master_Lackbergh_Jenna_2019.pdf (4.54 MB)

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School of Business | Master's thesis
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Date

2019

Department

Taloustieteen laitos

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Mcode

Degree programme

Economics

Language

en

Pages

53 + 6

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Abstract

Is offering freedom of choice to patients reasonable? In my thesis I study, how offering freedom of choice to patients impacts offers that providers bid in procurement auctions. I execute this by comparing Kela’s and Finnish municipalities’ procurement data of physiotherapy services. Both Kela and municipalities procure physiotherapy services by organizing auctions. The two procurement are similar regarding the designs but Kela allows patients to choose the service pro-vider they want. Municipalities, on the other hand, are allocating patients so that the lowest bid-der gets its capacity filled first and then the second lowest bidder and so forth. This increases the incentives to bid lower prices as the lower the bid, the higher is the probability to get patients. I have data of Kela’s procurement auctions of physiotherapy services in 2006, 2010 and 2014 and procurement auctions of municipalities from 2010 to 2017. I compare the offers of the pro-curement auctions and find that bids to Kela’s auctions are on average lower than bids to munici-palities’ auctions. However, when comparing only offers that are comparable, the average offer of municipalities decreases below the average offer of Kela. Kela’s bids are on average lower probably because a big part of the auctions was organized before the municipalities’ auctions and prices increase already because of inflation. The results of my study indicate that physiotherapy services procured by Kela are more expen-sive than services procured by municipalities. Therefore, offering the freedom of choice could be rethought and further studied with more extensive data.

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Thesis advisor

Liski, Matti

Keywords

public procurement, freedom of choice, physiotherapy, Kela, municipalities, procurement auction

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https://urn.fi/URN:NBN:fi:aalto-202002092075

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