Asymmetric Information from Physician Agency: Optimal Payment and Healthcare Quantity

Philippe Chone () and Ching-to Albert Ma ()
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Philippe Chone: CREST-LEI

No WP2006-006, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: 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.

Keywords: Physician Agency; Altruism; Optimal Payment; Healthcare Quantity; Managed Care (search for similar items in EconPapers)
JEL-codes: D82 I1 I10 L15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-mic
Date: 2006-02
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Working Paper: Asymmetric Information from Physician Agency:Optimal Payment and Healthcare Quantity (2005)
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