Principal Agency Theory and Health Care Utilization

Helen Schneider and Alan Mathios

Economic Inquiry, 2006, vol. 44, issue 3, pages 429-441

Abstract: This article uses a principal agent framework to examine the role that monitoring costs faced by an insurer have on health care utilization. We compare hospital lengths of stay for fee-for-service and capitated patients in low and high monitoring cost situations. Monitoring costs associated with a particular procedure are assumed to be high when there is large variation across patients in hospital lengths of stay. The empirical results indicate that differences in utilization between fee-for-service and capitated patients increase as monitoring costs increase. However, we do not find that fee-for-service reimbursement is used less in the difficult to monitor situations. (JEL I1) Copyright 2006, Oxford University Press.

JEL-codes: I1 (search for similar items in EconPapers)

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