The model of managerial effort in Section 2.4 implies that effort will be
correlated with the number of practitioners if the marginal cost of practitioners is
reduced by managerial effort Ž . C -0 and if the manager cares about administra- a x
tive costs Ž . Ž .Ž. b1)0 . The assumed cost function is of the form Csf x, qha
which implies C -0. b reflects both managerial preferences and the incentive a x 1
structure in primary care administration. Thus the fact that the Hausman test
indicates that unobserved area effects which pick up the effects of unobserved
managerial effort are not correlated with the regressors including the numbers of
practitioners may suggest that incentives to reduce primary care administration
costs are weak.