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Cost Incentives for Doctors: A Double-Edged Sword

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  • Schottmuller, C.

    (Tilburg University, Center for Economic Research)

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    Abstract

    Incentivicing 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 Info

    Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2011-105.

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    Date of creation: 2011
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    Handle: RePEc:dgr:kubcen:2011105

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    Web page: http://center.uvt.nl

    Related research

    Keywords: cheap talk; communication; health insurance; market design;

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    1. 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.
    2. 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.
    3. 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.
    4. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
    5. Ching-to Albert Ma & Thomas G. McGuire, 1995. "Optimal Health Insurance and Provider Payment," Papers 0059, Boston University - Industry Studies Programme.
    6. 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.
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