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Welfare Consequences of Alternative Insurance Contracts in the Mixed For‐Profit/Nonprofit Hospital Market

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  • Avi Dor
  • Harry Watson

Abstract

With the advent of managed competition, contingent insurance contracts are replacing traditional fee‐for‐service plans that were based on pooling principles. Under contingent contracts, insurance is tied to particular providers, while under pooling contracts, insurance is provided for services rendered by all competing providers. To examine the implications of such contracts in hospital care, we model two competing hospitals, a for‐profit and a nonprofit, within the framework of a two‐stage game. With various assumptions concerning the objectives of the nonprofit, we are able to explore the welfare implications of different insurance contracts and the overprovision problem.

Suggested Citation

  • Avi Dor & Harry Watson, 1998. "Welfare Consequences of Alternative Insurance Contracts in the Mixed For‐Profit/Nonprofit Hospital Market," Southern Economic Journal, John Wiley & Sons, vol. 64(3), pages 698-712, January.
    • Handle: RePEc:wly:soecon:v:64:y:1998:i:3:p:698-712
    DOI: 10.1002/j.2325-8012.1998.tb00088.x
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    References listed on IDEAS

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    1. Fournier, Gary M & Mitchell, Jean M, 1992. "Hospital Costs and Competition for Services: A Multiproduct Analysis," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 627-634, November.
    2. Clarkson, Kenneth W, 1972. "Some Implications of Property Rights in Hospital Management," Journal of Law and Economics, University of Chicago Press, vol. 15(2), pages 363-384, October.
    3. Friedman, Bernard & Pauly, Mark, 1981. "Cost Functions for a Service Firm with Variable Quality and Stochastic Demand: The Case of Hospitals," The Review of Economics and Statistics, MIT Press, vol. 63(4), pages 620-624, November.
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