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Asymmetric Information from Physician Agency:Optimal Payment and Healthcare Quantity

  • Philippe Chone

    ()

    (CREST-LEI and CNRS URA 2200)

  • Ching-to Albert Ma

    ()

    (Department of Economics, Boston University)

We model asymmetric information arising from physician agency, and its effect on the design of payment and healthcare quantity. The physician-patient coalition aims to maximize a combination of physician profit and patient benefit. The degree of substitution between profit and patient benefit in the physician-patient coalition is the physician’s private information, as is the patient’s intrinsic valuation of treatment quantity. The equilibrium mechanism depends only on the physician-patient coalition parameter. Moreover, the equilibrium mechanism exhibits extensive pooling, with prescribed quantity and payment being insensitive to the agency characteristics or patient’s actual benefit. The optimal mechanism is interpreted as managed care where strict approval protocols are placed on treatments.

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Paper provided by Boston University - Department of Economics in its series Boston University - Department of Economics - Working Papers Series with number WP2005-006.

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Length: 38 pages
Date of creation: Feb 2005
Date of revision:
Handle: RePEc:bos:wpaper:wp2005-006
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  17. Lewis, Tracy R. & Sappington, David E. M., 1989. "Countervailing incentives in agency problems," Journal of Economic Theory, Elsevier, vol. 49(2), pages 294-313, December.
  18. Ching-to Albert Ma, 1997. "Cost and Quality Incentives in Health Care: Altruistic Providers," Papers 0084, Boston University - Industry Studies Programme.
  19. Rochaix, Lise, 1989. "Information asymmetry and search in the market for physicians' services," Journal of Health Economics, Elsevier, vol. 8(1), pages 53-84, March.
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