Contract Enforcement and Preventive Healthcare: Theory and Evidence

Shiv Dixit
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Shiv Dixit: Indian School of Business

Review of Economic Dynamics, 2023, vol. 51, 1048-1094

Abstract: I study how enforcement frictions in health insurance contracts determine the distribution of preventive care. I show that when contracts are weakly enforced, insurers underinvest in preventive care to perpetuate the need for insurance. This mechanism is self-enforcing, whereby low levels of prevention today breed low levels of prevention in the future. In contrast, I show that dynamic contracts that are perfectly enforced do not feature such history dependence. Leveraging these results, I devise a test to show that the hypothesis of limited commitment cannot be rejected in the data. (Copyright: Elsevier)

Keywords: dynamic contracting; endogenous risk; limited commitment (search for similar items in EconPapers)
JEL-codes: D81 D86 G22 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1016/j.red.2023.09.008

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