Moral Hazard and Risk Spreading in Partnerships
AbstractPartnerships provide a classic example of the tradeoff between risk spreading and moral hazard. The degree to which firms choose to spread risk and sacrifice efficiency incentives depends upon risk preferences, for which data are typically unavailable. We use a unique dataset on medical group practice to investigate this tradeoff. Risk aversion leads to compensation arrangements, which spread risk through greater sharing of revenues. We find that compensation arrangements with greater degrees of revenue sharing significantly reduce physician effort. The results imply that changing the method of physician payment from fee-for-service to capitation will dramatically reduce physician effort.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 26 (1995)
Issue (Month): 4 (Winter)
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Web page: http://www.rje.org
Other versions of this item:
- I10 - Health, Education, and Welfare - - Health - - - General
- I19 - Health, Education, and Welfare - - Health - - - Other
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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