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Asymmetric Information from Physician Agency: Optimal Payment and Healthcare Quantity

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  • Philippe Chone

    ()
    (CREST-LEI)

  • Ching-to Albert Ma

    ()
    (Department of Economics, Boston University)

Abstract

We model asymmetric information arising from physician agency, and its effect on the design of payment and healthcare quantity. The physician-patient coalition aims to maximize a combination of physician profit and patient benefit. The degree of substitution between profit and patient benefit in the physician-patient coalition is the physician’s private information, as is the patient’s intrinsic valuation of treatment quantity. The equilibrium mechanism depends only on the physician-patient coalition parameter. Moreover, the equilibrium mechanism exhibits extensive pooling, with prescribed quantity and payment being insensitive to the agency characteristics or patient’s actual benefit. The optimal mechanism is interpreted as managed care where strict approval protocols are placed on treatments.

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Bibliographic Info

Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2006-006.

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Length: 37 pages
Date of creation: Feb 2006
Date of revision:
Handle: RePEc:bos:wpaper:wp2006-006

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Keywords: Physician Agency; Altruism; Optimal Payment; Healthcare Quantity; Managed Care;

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References

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  12. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier.
  13. Keeler, Emmett B. & Carter, Grace & Newhouse, Joseph P., 1998. "A model of the impact of reimbursement schemes on health plan choice," Journal of Health Economics, Elsevier, vol. 17(3), pages 297-320, June.
  14. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
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  16. Jean-Charles Rochet & Philippe Chone, 1998. "Ironing, Sweeping, and Multidimensional Screening," Econometrica, Econometric Society, vol. 66(4), pages 783-826, July.
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Citations

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Cited by:
  1. Josse Delfgaauw, 2007. "Dedicated Doctors: Public and Private Provision of Health Care with Altruistic Physicians," Tinbergen Institute Discussion Papers 07-010/1, Tinbergen Institute, revised 17 Sep 2007.
  2. Aubert, Cecile, 2006. "Work incentives and household insurance: Sequential contracting with altruistic individuals and moral hazard," Economics Letters, Elsevier, vol. 92(1), pages 82-88, July.
  3. Fahad Khalil & Martin Chalkley, 2005. "Third Party Purchasing of Health Services: Patient Choice and Agency," Working Papers UWEC-2003-35-P, University of Washington, Department of Economics.
  4. David Bardey & Jean-Charles Rochet, 2010. "Competition Among Health Plans: A Two-Sided Market Approach," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(2), pages 435-451, 06.

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