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Payment Mechanisms in the Healthcare Industry: An Experimental Study of Physician Incentives in a Multiple Principal Agent Setting

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  • Ellen P. Green

    () (Department of Economics, University of Delaware)

Abstract

Current failures in the healthcare industry emphasize the need for a more fundamental understanding of how these contracts incentivize doctors. To aid this understanding, we treat the established physician-client-employer relationship as a multiple principal agent problem. We use a laboratory experiment, with a real-effort task, to test the relative performance of common payment mechanisms employed in this dual-principal agent relationship (Piece Rate, Flat Rate, Salary, Bonus, and Socialization). This study suggests, contrary to standard contract theory, that relying on extrinsic incentives to motivate physicians may be detrimental and costly for the healthcare industry.

Suggested Citation

  • Ellen P. Green, 2012. "Payment Mechanisms in the Healthcare Industry: An Experimental Study of Physician Incentives in a Multiple Principal Agent Setting," Working Papers 12-11, University of Delaware, Department of Economics.
  • Handle: RePEc:dlw:wpaper:12-11.
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    File URL: http://graduate.lerner.udel.edu/sites/default/files/ECON/PDFs/RePEc/dlw/WorkingPapers/2012/UDWP2012-11.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Multiple principal agent theory; intrinsic motivation; other-regarding behavior; Fee-For-Service; Capitation; Salary;

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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