At dinner tonight, my wife told me that between 1/3 to 1/2 of COVID-19 deaths have taken place at nursing homes. I asked her a Chicago Price Theory question. I said; "If up to date COVID-19 Nursing home specific death rates are posted, won't private nursing homes devote more effort to reducing their death rate to better compete for customers?" The net effect of this competition among differentiated products will be lower COVID-19 contagion risk for the elderly who live in these homes. The children of the elderly have strong incentives to research the relative risk at these nursing homes and to transfer their elderly parents from the dangerous nursing homes. The elderly could be brought home or transferred to another nursing home with higher quality conditions Competition between nursing homes facilitates risk exposure reduction.
Do public nursing homes have equally strong incentives to minimize contagion risk? In my co-authored 2017 paper, we discuss the benefits of privatization for reducing public transit costs. In this nursing home case, would privatization of public nursing homes help to reduce the negative externality because the decision makers in charge would have stronger incentives to take more self protection steps to minimize the externality within the nursing home? If a public nursing home loses money (because occupancy falls), who is the residual claimant? Does the management team get in trouble or do they get bailed out?
Here are the current New York State death counts by nursing home. I realize that a denominator is not included listing the current capacity at each nursing home. Restaurants post calories on their menus. In a similar spirit, nursing homes from now on can update COVID-19 information about their facilities. Information regulation has proven effective in many settings.
My point is that nursing homes are differentiated products and competing on low contagion death rate should be another measure of quality. If those nursing homes with higher death counts lose paying customers then this market discipline encourages risk minimization. Market forces will help to reduce the death count from this disease.
I realize that there are capacity constraints but these can quickly be relaxed over time. In China, this hotel was built in 48 hours. What scarce factors create an "inelastic supply" of safe nursing home beds? A nursing home features beds, and staff and equipment. At a time of high unemployment, which of these inputs is scarce? A better answer is to focus on management. If Jeff Bezos operated a nursing home, how would he do it? What safety precautions would be used and how would information technology be deployed?