Cost Incentives for Doctors: A Double-Edged Sword
AbstractIncentivicing doctors to take the costs of treatment into account in their prescription decision could lead to lower health care expenditures and higher welfare. This paper shows that also the opposite effects can result. The reason is a misalignment of doctor and patient incentives: Because of health insurance, the patient does not take the costs of treatment fully into account. This misalignment hampers communication between patient and doctor, e.g. the patient may overstate the intensity of symptoms. It is shown that cost incentives for doctors increase welfare if (i) the doctor's examination technology is sufficiently good or (ii) (marginal) costs of treatment are high enough. Optimal health care systems should implement different degrees of cost incentives depending on type of disease and/or doctor.
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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-105.
Date of creation: 2011
Date of revision:
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Web page: http://center.uvt.nl
cheap talk; communication; health insurance; market design;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- I10 - Health, Education, and Welfare - - Health - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-10-01 (All new papers)
- NEP-COM-2011-10-01 (Industrial Competition)
- NEP-CTA-2011-10-01 (Contract Theory & Applications)
- NEP-HEA-2011-10-01 (Health Economics)
- NEP-IAS-2011-10-01 (Insurance Economics)
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