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Investment in Health Technologies in a Competitive Model with Real Options

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  • PAOLO PERTILE

Abstract

This paper adopts a real options approach to study the optimal timing of investment in new technologies by health care providers competing for patients and the role of alternative payment systems in the adoption decision. The innovative technology provides a better health outcome, thus attracting a larger number of patients. On the other hand, at the early stages of innovation it is assumed to involve a larger degree of uncertainty and higher costs. The role of the payment system turns out not always to be intuitive. In particular, it is shown that a more generous scheme does not always induce earlier investment. By comparing the competitive solution with the social optimal timing, some policy implications are finally discussed. Copyright � 2008 Wiley Periodicals, Inc..

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Bibliographic Info

Article provided by Association for Public Economic Theory in its journal Journal of Public Economic Theory.

Volume (Year): 10 (2008)
Issue (Month): 5 (October)
Pages: 923-952

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Handle: RePEc:bla:jpbect:v:10:y:2008:i:5:p:923-952

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Cited by:
  1. Rosella Levaggi & Michele Moretto & Paolo Pertile, 2010. "Static and Dynamic Efficiency of Irreversible Health Care Investments under Alternative Payment Rules," Working Papers 2010.130, Fondazione Eni Enrico Mattei.
  2. Meyer, Elisabeth & Rees, Ray, 2012. "Watchfully waiting: Medical intervention as an optimal investment decision," Journal of Health Economics, Elsevier, vol. 31(2), pages 349-358.

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