A demand-smoothing incentive for cesarean deliveries

We study the demand-smoothing incentives for private hospitals to perform c-sections. First, we show that a policy change in Chile that increased delivery at private hospitals by reducing the out-of-pocket cost for women with public insurance increased the probability of a c-section by 8.6 percentage points despite private hospitals receiving the same price for a vaginal or cesarean delivery. Second, to understand hospitals’ incentives to perform c-sections, we present a model of hospital decisions about the mode of delivery without price incentives. The model predicts that, because c-sections can be scheduled, a higher c-section rate increases total deliveries, compensating the forgone higher margin of vaginal deliveries. Finally, we provide evidence consistent with the demand-smoothing mechanism: hospitals with higher c-section rates are more likely to reschedule deliveries when they expect a high-demand week.