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Supplier Discretion over Provision: Theory and an Application to Medical Care

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Author Info
James Malcomson

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Abstract

Suppliers who are better informed than purchasers, such as physicians treating insured patients, often have discretion over what to provide. This paper shows how, when the purchaser observes what is supplied but neither recipient type nor the actual cost incurred, optimal provision differs from what would be efficient if the purchaser had full information, whether or not the supplier can extract informational rent. The analysis is applied to, among other things, data on tests for coronary artery disease and to Medicare diagnosis-related groups defined by the treatment given, not just the diagnosis, illustrating the biases in provision that result.

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Publisher Info
Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 221.

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Date of creation: 2005
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Handle: RePEc:oxf:wpaper:221

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Postal: Manor Rd. Building, Oxford, OX1 3UQ
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Web page: http://www.economics.ox.ac.uk/
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Related research
Keywords: Supplier discretion Procurement Public provision Diagnosis-related groups Medicare Prospective payment Cost-effectiveness

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Find related papers by JEL classification:
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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  1. Ellis, Randall P & McGuire, Thomas G, 1993. "Supply-Side and Demand-Side Cost Sharing in Health Care," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 135-51, Fall. [Downloadable!] (restricted)
  2. Mark McClellan, 1997. "Hospital Reimbursement Incentives: An Empirical Analysis," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(1), pages 91-128, 03. [Downloadable!] (restricted)
  3. Chalkley, Martin & Malcomson, James M., 2002. "Cost sharing in health service provision: an empirical assessment of cost savings," Journal of Public Economics, Elsevier, vol. 84(2), pages 219-249, May. [Downloadable!] (restricted)
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  4. James M. Malcomson, 2004. "Health Service Gatekeepers," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 401-421, Summer.
    Other versions:
  5. Chalkley, M. & Malcomson, J.M., 1998. "Government Purchasing of Health Services," Discussion Paper Series In Economics And Econometrics 9821, Economics Division, School of Social Sciences, University of Southampton.
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  6. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier. [Downloadable!] (restricted)
  7. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May. [Downloadable!] (restricted)
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