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Torts, Expertise, and Authority: Liability of Physicians and Managed Care Organizations

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  • Jennifer Arlen

    () (New York University)

  • W. Bentley MacLeod

    () (Columbia and IZA, Bonn)

Abstract

We examine optimal individual and entity-level liability for negligence when expected accident costs depend on both the agent's level of expertise and the principal's level of authority. We consider these issues in the context of physician and managed care organization (MCO) liability for medical malpractice. Under current law, physicians generally are considered independent contractors and hence MCOs are not liable for negligent acts by physicians. We find that the practice of reviewing the medical decisions of physicians affects their incentives to take care, which in turn implies that it is efficient for MCOs to be held liable for the torts committed by their physicians.

Suggested Citation

  • Jennifer Arlen & W. Bentley MacLeod, 2005. "Torts, Expertise, and Authority: Liability of Physicians and Managed Care Organizations," RAND Journal of Economics, The RAND Corporation, vol. 36(3), pages 494-519, Autumn.
  • Handle: RePEc:rje:randje:v:36:y:2005:3:p:494-519
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    Cited by:

    1. Bisso, Juan Carlos & Choi, Albert H., 2008. "Optimal agency contracts: The effect of vicarious liability and judicial error," International Review of Law and Economics, Elsevier, vol. 28(3), pages 166-174, September.
    2. James B. Rebitzer & Mark E. Votruba, 2011. "Organizational Economics and Physician Practices," NBER Working Papers 17535, National Bureau of Economic Research, Inc.
    3. Chen, Yongmin & Li, Jianpei & Zhang, Jin, 2017. "Liability in Markets for Credence Goods," MPRA Paper 80206, University Library of Munich, Germany.
    4. Daniel Montanera, 2016. "The importance of negative defensive medicine in the effects of malpractice reform," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 17(3), pages 355-369, April.
    5. Lakdawalla, Darius N. & Seabury, Seth A., 2012. "The welfare effects of medical malpractice liability," International Review of Law and Economics, Elsevier, vol. 32(4), pages 356-369.
    6. Janet Currie & W. Bentley MacLeod, 2008. "First Do No Harm? Tort Reform and Birth Outcomes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 795-830.
    7. Paola Bertoli & Veronica Grembi, 2017. "Medical Malpractice: How Legal Liability Affects Medical Decisions," CERGE-EI Working Papers wp600, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    8. Donald J., Wright, 2011. "Medical malpractice and physician liability under a negligence rule," International Review of Law and Economics, Elsevier, vol. 31(3), pages 205-211, September.
    9. Janet Currie & W. Bentley MacLeod, 2017. "Diagnosing Expertise: Human Capital, Decision Making, and Performance among Physicians," Journal of Labor Economics, University of Chicago Press, vol. 35(1), pages 1-43.
    10. Randall D. Cebul & James B. Rebitzer & Lowell J. Taylor & Mark E. Votruba, 2008. "Organizational Fragmentation and Care Quality in the U.S. Healthcare System," Journal of Economic Perspectives, American Economic Association, vol. 22(4), pages 93-113, Fall.
    11. Daniel Carvell & Janet Currie & W. Bentley MacLeod, 2012. "Accidental death and the rule of joint and several liability," RAND Journal of Economics, RAND Corporation, vol. 43(1), pages 51-77, March.

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