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Asymmetric information and pooling contracts in hospital sector

  • Mougeot, Michel
  • Naegelen, Florence

Most of regulators in health care systems use pooling contracts such that payment do not depend on the level of severity. This policy is motivated by concerns about the moral hazard problem. In this paper, we show that it can be optimal when patient severity is private information because of the non-responsiveness phenomenon. We show in which cases the hospital may be non responsive to the regulator objective under adverse selection. We exhibit necessary conditions under which pooling contracts are optimal and we characterize these mechanisms when the hospital is self-interested and perfectly altruistic. In the first case, the fixed payment is equal to the cost of treating the patient with the highest severity whereas it is equal to the mean value of the treatment cost in the second one.

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Paper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/5993.

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Date of creation: 2014
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Publication status: Published in JITE : Journal of Institutional and Theoretical Economics, 2014, Vol. 170, no. 2. pp. 365-386.Length: 21 pages
Handle: RePEc:dau:papers:123456789/5993
Contact details of provider: Web page: http://www.dauphine.fr/en/welcome.html

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  1. Chalkley, M. & Malcomson, J.M., 1995. "Contracting for health services when patient demand does not reflect quality," Discussion Paper Series In Economics And Econometrics 9514, Economics Division, School of Social Sciences, University of Southampton.
  2. Jack, William, 2005. "Purchasing health care services from providers with unknown altruism," Journal of Health Economics, Elsevier, vol. 24(1), pages 73-93, January.
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  8. Morand Pierre-Henri & Thomas Lionel, 2003. "On Non-responsiveness in Adverse Selection Models with Common Value," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-15, August.
  9. Michel Mougeot & Florence Naegelen, 2009. "Adverse Selection, Moral Hazard, and Outlier Payment Policy," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 177-195.
  10. Andrei Shleifer, 1985. "A Theory of Yardstick Competition," RAND Journal of Economics, The RAND Corporation, vol. 16(3), pages 319-327, Autumn.
  11. Guesnerie, Roger & Laffont, Jean-Jacques, 1984. "A complete solution to a class of principal-agent problems with an application to the control of a self-managed firm," Journal of Public Economics, Elsevier, vol. 25(3), pages 329-369, December.
  12. 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.
  13. Ellis, Randall P. & McGuire, Thomas G., 1990. "Optimal payment systems for health services," Journal of Health Economics, Elsevier, vol. 9(4), pages 375-396, December.
  14. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, June.
  15. Culyer, A J, 1989. "The Normative Economics of Health Care Finance and Provision," Oxford Review of Economic Policy, Oxford University Press, vol. 5(1), pages 34-58, Spring.
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