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Dynamic, incentive-compatible contracting for health services

Author

Listed:
  • Rosella Levaggi

    (Department of Economics and Management, University of Brescia)

  • Michele Moretto

    (Department of Economics and Management, University of Padua)

  • Paolo Pertile

    (Department of Economics, University of Verona)

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

  • Rosella Levaggi & Michele Moretto & Paolo Pertile, 2023. "Dynamic, incentive-compatible contracting for health services," Working Papers 2023.16, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2023.16
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    More about this item

    Keywords

    hospital payments; dynamic mechanism design; DRG; two-part tariffs; adverse selection; moral hazard;
    All these keywords.

    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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