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Optimal Health Care Contract under Physician Agency

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  • Philippe CHONÉ
  • Ching-to Albert MA

Abstract

We model asymmetric information arising from physician agency and its effect on the design of payment and health care quantity. The physician aims to maximize a combination of physician profit and patient benefit. The degree of substitution between profit and patient benefit in the physician agency is the physician's private information, as is the patient's intrinsic valuation of treatment quantity. The equilibrium mechanism depends only on the physician agency parameter, and exhibits extensive pooling, with prescribed quantity and payment being insensitive to the agency characteristic or patient's actual benefit. The optimal mechanism is interpreted as managed care where strict approval protocols are placed on treatments.

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Bibliographic Info

Article provided by ENSAE in its journal Annals of Economics and Statistics.

Volume (Year): (2011)
Issue (Month): 101-102 ()
Pages: 229-256

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Handle: RePEc:adr:anecst:y:2011:i:101-102:p:11

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  1. Ellis, Randall P., 1998. "Creaming, skimping and dumping: provider competition on the intensive and extensive margins1," Journal of Health Economics, Elsevier, Elsevier, vol. 17(5), pages 537-555, October.
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  4. Dranove David & Spier Kathryn E., 2003. "A Theory of Utilization Review," The B.E. Journal of Economic Analysis & Policy, De Gruyter, De Gruyter, vol. 2(1), pages 1-21, August.
  5. Rochaix, Lise, 1989. "Information asymmetry and search in the market for physicians' services," Journal of Health Economics, Elsevier, Elsevier, vol. 8(1), pages 53-84, March.
  6. James R. Baumgardner, 1991. "The Interaction between Forms of Insurance Contract and Types of Technical Change in Medical Care," RAND Journal of Economics, The RAND Corporation, vol. 22(1), pages 36-53, Spring.
  7. Frank, Richard G. & Glazer, Jacob & McGuire, Thomas G., 2000. "Measuring adverse selection in managed health care," Journal of Health Economics, Elsevier, Elsevier, vol. 19(6), pages 829-854, November.
  8. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, Elsevier, vol. 49(2), pages 294-313, December.
  9. Jullien, Bruno, 2000. "Participation Constraints in Adverse Selection Models," Journal of Economic Theory, Elsevier, Elsevier, vol. 93(1), pages 1-47, July.
  10. Ching-to Albert Ma, 1997. "Cost and Quality Incentives in Health Care: Altruistic Providers," Papers, Boston University - Industry Studies Programme 0084, Boston University - Industry Studies Programme.
  11. Mark Dusheiko & Hugh Gravelle & Rowena Jacobs & Peter Smith, 2003. "The Effects of Budgets on Doctors Behaviour: Evidence from a Natural Experiment," The Centre for Market and Public Organisation, Department of Economics, University of Bristol, UK 03/064, Department of Economics, University of Bristol, UK.
  12. David Bardey & Jean-Charles Rochet, 2010. "Competition Among Health Plans: A Two-Sided Market Approach," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 19(2), pages 435-451, 06.
  13. Timothy Besley & Maitreesh Ghatak, 2003. "Competition and incentives with motivated agents," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 2202, London School of Economics and Political Science, LSE Library.
  14. Ma, Ching-to Albert, 1994. "Health Care Payment Systems: Cost and Quality Incentives," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 3(1), pages 93-112, Spring.
  15. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, Elsevier, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
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Cited by:
  1. Luigi Siciliani, 2007. "Paying for performance with altruistic or motivated providers," Discussion Papers, Department of Economics, University of York 07/33, Department of Economics, University of York.
  2. Godager, Geir & Wiesen, Daniel, 2011. "Profit or Patients' Health Benefit? Exploring the Heterogeneity in Physician Altruism," HERO On line Working Paper Series, Oslo University, Health Economics Research Programme 2011:7, Oslo University, Health Economics Research Programme.
  3. Bardey, David & Canta, Chiara & Lozachmeur, Jean-Marie, 2010. "Health Care Providers Payments Regulation when Horizontal and Vertical Differentiation Matter," TSE Working Papers, Toulouse School of Economics (TSE) 10-164, Toulouse School of Economics (TSE).

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