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Contract Enforcement and Preventive Healthcare: Theory and Evidence

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  • Shiv Dixit

    (Indian School of Business)

Abstract

I study how enforcement frictions in health insurance contracts determine the distribution of preventive care. I show that when contracts are weakly enforced, insurers underinvest in preventive care to perpetuate the need for insurance. This mechanism is self-enforcing, whereby low levels of prevention today breed low levels of prevention in the future. In contrast, I show that dynamic contracts that are perfectly enforced do not feature such history dependence. Leveraging these results, I devise a test to show that the hypothesis of limited commitment cannot be rejected in the data. (Copyright: Elsevier)

Suggested Citation

  • Shiv Dixit, 2023. "Contract Enforcement and Preventive Healthcare: Theory and Evidence," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 1048-1094, December.
    • Handle: RePEc:red:issued:21-360
    DOI: 10.1016/j.red.2023.09.008
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    More about this item

    Keywords

    dynamic contracting; endogenous risk; limited commitment;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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