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Dynamic, incentive-compatible contracting for health services

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  • Levaggi, Rosella
  • Moretto, Michele
  • Pertile, Paolo

Abstract

This paper aims to characterise a dynamic, incentive-compatible contract for the provision of health services, allowing for both moral hazard and adverse selection. Patients’ severity changes over time following a stochastic process and is private information of the provider. We characterise the optimal dynamic contract and show that it is made up of two components: a time-invariant payment, which depends on the structural characteristics of the provider, and a time-varying component, which is affected by both patient and hospital characteristics. To illustrate the characteristics of the dynamic contract and compare it with a more standard static contract, we provide a numerical exercise calibrated with data from hip replacement hospitalisations in Italy.

Suggested Citation

  • Levaggi, Rosella & Moretto, Michele & Pertile, Paolo, 2023. "Dynamic, incentive-compatible contracting for health services," FEEM Working Papers 338404, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemwp:338404
    DOI: 10.22004/ag.econ.338404
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    More about this item

    Keywords

    Health Economics and Policy; Research Methods/ Statistical Methods;

    JEL classification:

    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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