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Principal Agency Theory and Health Care Utilization


  • Helen Schneider
  • Alan Mathios


This article uses a principal agent framework to examine the role that monitoring costs faced by an insurer have on health care utilization. We compare hospital lengths of stay for fee-for-service and capitated patients in low and high monitoring cost situations. Monitoring costs associated with a particular procedure are assumed to be high when there is large variation across patients in hospital lengths of stay. The empirical results indicate that differences in utilization between fee-for-service and capitated patients increase as monitoring costs increase. However, we do not find that fee-for-service reimbursement is used less in the difficult to monitor situations. (JEL I1) Copyright 2006, Oxford University Press.

Suggested Citation

  • Helen Schneider & Alan Mathios, 2006. "Principal Agency Theory and Health Care Utilization," Economic Inquiry, Western Economic Association International, vol. 44(3), pages 429-441, July.
  • Handle: RePEc:oup:ecinqu:v:44:y:2006:i:3:p:429-441

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    Cited by:

    1. Yan, Yu-Hua & Hsu, Shuofen & Yang, Chen-Wei & Fang, Shih-Chieh, 2010. "Agency problems in hospitals participating in self-management project under global budget system in Taiwan," Health Policy, Elsevier, vol. 94(2), pages 135-143, February.

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    JEL classification:

    • I1 - Health, Education, and Welfare - - Health


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