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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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:
Contact details of provider:
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)
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.:
- Ching-to Albert Ma & Thomas G. McGuire, 1995.
"Optimal Health Insurance and Provider Payment,"
0059, Boston University - Industry Studies Programme.
- Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008. "When Does Coordination Require Centralization? Corrigendum," American Economic Review, American Economic Association, vol. 98(3), pages 1195-96, June.
- Glied, Sherry, 2000. "Managed care," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 13, pages 707-753 Elsevier.
- Sherry Glied & Joshua Zivin, 2000.
"How Do Doctors Behave When Some (But Not All) of Their Patients are in Managed Care?,"
NBER Working Papers
7907, National Bureau of Economic Research, Inc.
- Glied, Sherry & Zivin, Joshua Graff, 2002. "How do doctors behave when some (but not all) of their patients are in managed care?," Journal of Health Economics, Elsevier, vol. 21(2), pages 337-353, March.
- Crawford, Vincent P & Sobel, Joel, 1982.
"Strategic Information Transmission,"
Econometric Society, vol. 50(6), pages 1431-51, November.
- Ricardo Alonso & Wouter Dessein & Niko Matouschek, 2008.
"When Does Coordination Require Centralization?,"
American Economic Review,
American Economic Association, vol. 98(1), pages 145-79, March.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Richard Broekman).
If references are entirely missing, you can add them using this form.