Asymmetric information in health economics: Can contract regulation improve equity and efficiency?

This chapter focuses on issues related to asymmetric information in the healthcare market. To be more precise, we concentrate on pure asymmetric information issues and leave aside moral hazard. In other words, we consider situations where one of the parties in the relationship has privileged information on the environment or his/her own characteristics. The two main frameworks studied are health insurance, where the individual has private information on his/ her health risks; and the doctor’s prescription and referral strategies, where the doctor has private information on the actual health condition of the patient. Our main objective is to study whether contract regulation can palliate the distortions that arise in laissez faire (lack of coverage, overtreatment and undertreatment, inappropriate referral to a specialist). We also review the empirical evidence, both in-the-field and in laboratory experiments.