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Cost incentives for doctors: A double-edged sword

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  • Schottmüller, Christoph

Abstract

If doctors take the costs of treatment into account when prescribing medication, their objectives differ from their patients' objectives because the patients are insured. This misalignment of interests hampers communication between patient and doctor. Giving cost incentives to doctors increases welfare if (i) the doctor's examination technology is sufficiently good or (ii) (marginal) costs of treatment are high enough. If the planner can costlessly choose the extent to which doctors take costs into account, he will opt for less than 100%. Optimal health care systems should implement different degrees of cost incentives depending on type of disease and/or doctor.

Suggested Citation

  • Schottmüller, Christoph, 2013. "Cost incentives for doctors: A double-edged sword," European Economic Review, Elsevier, vol. 61(C), pages 43-58.
    • Handle: RePEc:eee:eecrev:v:61:y:2013:i:c:p:43-58
    DOI: 10.1016/j.euroecorev.2013.03.001
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    References listed on IDEAS

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    Cited by:

    1. Boone, Jan, 2018. "Basic versus supplementary health insurance: Access to care and the role of cost effectiveness," Journal of Health Economics, Elsevier, vol. 60(C), pages 53-74.

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    More about this item

    Keywords

    Cheap talk; Patient–doctor communication; Health insurance; Health market design;
    All these keywords.

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • I10 - Health, Education, and Welfare - - Health - - - General

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