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Physician incentives: Cure versus prevention

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  • De Jaegher, Kris

Abstract

This paper distinguishes between two scenarios for the physician-patient encounter. In the cure scenario, the patient does not know whether a loss can be recovered. In the prevention scenario, the patient faces a threat but does not know whether this threat is real enough to justify preventive action. The patient wants to induce the physician both to give an accurate diagnosis and to put appropriate effort into cure or prevention. It is shown that in the cure scenario, a contingent fee solves both these incentive problems. In the prevention scenario, however, putting up with low effort makes it easier to get an accurate diagnosis, and the use of contingent fees should be limited. These results are interpreted as providing a rationale for observed exceptions to legal and ethical restrictions on the use of contingent fees. Indeed, such exceptions are often granted for cases that fit the cure scenario.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Health Economics.

Volume (Year): 29 (2010)
Issue (Month): 1 (January)
Pages: 124-136

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Handle: RePEc:eee:jhecon:v:29:y:2010:i:1:p:124-136

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Web page: http://www.elsevier.com/locate/inca/505560

Related research

Keywords: Physician incentives Cure Prevention Hidden action Hidden information;

References

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  1. Dana, James D, Jr & Spier, Kathryn E, 1993. "Expertise and Contingent Fees: The Role of Asymmetric Information in Attorney Compensation," Journal of Law, Economics and Organization, Oxford University Press, vol. 9(2), pages 349-67, October.
  2. Darby, Michael R & Karni, Edi, 1973. "Free Competition and the Optimal Amount of Fraud," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 67-88, April.
  3. Asher Wolinsky, 1993. "Competition in a Market for Informed Experts' Services," RAND Journal of Economics, The RAND Corporation, vol. 24(3), pages 380-398, Autumn.
  4. Drew Fudenberg & Jean Tirole, 1988. "Moral Hazard and Renegotiation in Agency Contracts," Working papers 494, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  6. Dezsö SZALAY, 2003. "The Economics of Clear Advice and Extreme Options," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 03.09, Université de Lausanne, Faculté des HEC, DEEP.
  7. Taylor, Curtis R, 1995. "The Economics of Breakdowns, Checkups, and Cures," Journal of Political Economy, University of Chicago Press, vol. 103(1), pages 53-74, February.
  8. Gromb, Denis & Martimort, David, 2004. "The Organization of Delegated Expertise," CEPR Discussion Papers 4572, C.E.P.R. Discussion Papers.
  9. Emons, Winand, 2000. "Expertise, contingent fees, and insufficient attorney effort," International Review of Law and Economics, Elsevier, vol. 20(1), pages 21-33, March.
  10. Ingela Alger & Francois Salanie, 2001. "A Theory of Fraud and Over-Consumption in Experts Markets," Boston College Working Papers in Economics 495, Boston College Department of Economics, revised 09 Nov 2004.
  11. Canice Prendergast, 2003. "The Limits of Bureaucratic Efficiency," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 929-958, October.
  12. Rogerson, William P, 1985. "The First-Order Approach to Principal-Agent Problems," Econometrica, Econometric Society, vol. 53(6), pages 1357-67, November.
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Cited by:
  1. Winand Emons, 2010. "Incentive Compatible Reimbursement Schemes for Physicians," Diskussionsschriften dp1001, Universitaet Bern, Departement Volkswirtschaft.

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