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Are Invisible Hands Good Hands? Moral Hazard, Competition, and the Second-Best in Health Care Markets

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Author Info
Martin Gaynor
Deborah Haas-Wilson
William B. Vogt

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Abstract

The nature and normative properties of competition in health care markets have long been the subject of much debate. In this paper we consider what the optimal benchmark is in the presence of moral hazard effects on consumption due to health insurance. Intuitively, it seems that imperfect competition in the health care market may constrain this moral hazard by increasing prices. We show that this intuition cannot be correct if insurance markets are competitive. A competitive insurance market will always produce a contract that leaves consumers at least as well off under lower prices as under higher prices.

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Publisher Info
Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 108 (2000)
Issue (Month): 5 (October)
Pages: 992-1005
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Handle: RePEc:ucp:jpolec:v:108:y:2000:i:5:p:992-1005

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Frech, H E, III, 1979. "Market Power in Health Insurance, Effects on Insurance and Medical Markets," Journal of Industrial Economics, Blackwell Publishing, vol. 28(1), pages 55-72, September. [Downloadable!] (restricted)
  2. Feldman, Roger & Dowd, Bryan, 1991. "A New Estimate of the Welfare Loss of Excess Health Insurance," American Economic Review, American Economic Association, vol. 81(1), pages 297-301, March.
  3. Ching-to Albert Ma & Michael Riordan, 1997. "Health Insurance, Moral Hazard, and Managed Care," Papers 0080, Boston University - Industry Studies Programme.
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  4. Milgrom, Paul & Shannon, Chris, 1994. "Monotone Comparative Statics," Econometrica, Econometric Society, vol. 62(1), pages 157-80, January. [Downloadable!] (restricted)
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  5. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February. [Downloadable!] (restricted)
  6. A. Mitchell Polinsky & William P. Rogerson, 1983. "Products Liability, Consumer Misperceptions, and Market Power," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 581-589, Autumn. [Downloadable!] (restricted)
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  7. Ma, Ching-to Albert & McGuire, Thomas G, 1997. "Optimal Health Insurance and Provider Payment," American Economic Review, American Economic Association, vol. 87(4), pages 685-704, September. [Downloadable!] (restricted)
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  8. Carl Shapiro, 1982. "Consumer Information, Product Quality, and Seller Reputation," Bell Journal of Economics, The RAND Corporation, vol. 13(1), pages 20-35, Spring. [Downloadable!] (restricted)
  9. Buchanan, James M, 1969. "External Diseconomies, Corrective Taxes, and Market Structure," American Economic Review, American Economic Association, vol. 59(1), pages 174-77, March. [Downloadable!] (restricted)
  10. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M. [Downloadable!] (restricted)
  11. Robinson, James C. & Luft, Harold S., 1985. "The impact of hospital market structure on patient volume, average length of stay, and the cost of care," Journal of Health Economics, Elsevier, vol. 4(4), pages 333-356, December. [Downloadable!] (restricted)
  12. Martin Gaynor & Deborah Haas-Wilson, . "Change, Consolidation, and Competition in Health Care Markets," GSIA Working Papers 1999-E31, Carnegie Mellon University, Tepper School of Business. [Downloadable!]
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Darius Lakdawalla & Neeraj Sood, 2005. "Insurance and Innovation in Health Care Markets," NBER Working Papers 11602, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  2. Martin Nell & Andreas Richter & Jörg Schiller, 2005. "When prices hardly matter: Incomplete insurance contracts and markets for repair goods," Risk and Insurance 0501002, EconWPA. [Downloadable!]
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  3. Donald J Wright, 2004. "Insurance and monopoly power in a mixed private/public hospital system, CHERE Discussion Paper No 55," Discussion Papers 55, CHERE, University of Technology, Sydney. [Downloadable!]
  4. Parry, Ian, 2001. "On the Efficiency of Public and Private Health Care Systems: An Application to Alternative Health Policies in the United Kingdom," Discussion Papers dp-01-07, Resources For the Future. [Downloadable!]
  5. Mattoo, Aaditya & Rathindran, Randeep, 2005. "Does health insurance impede trade inhealth care services?," Policy Research Working Paper Series 3667, The World Bank. [Downloadable!]
  6. Darius Lakdawalla & Neeraj Sood, 2006. "Health Insurance as a Two-Part Pricing Contract," NBER Working Papers 12681, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Alan M. Garber & Charles I. Jones & Paul M. Romer, 2006. "Insurance and Incentives for Medical Innovation," NBER Working Papers 12080, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Robin Boadway & Manuel Leite-Monteiro & Maurice Marchand & Pierre Pestieau, 2002. "Social Insurance and Redistribution," Working Papers 1004, Queen's University, Department of Economics. [Downloadable!]
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