Optimal Health Care Contract under Physician Agency

Ching-to Ma and Philippe Choné

No WP2010-022, 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 health care quantity. The physician aims to maximize a combination of physician profit and patient benefit. The degree of substitution between profit and patient benefit in the physician agency is the physician’s private information, as is the patient’s intrinsic valuation of treatment quantity. The equilibrium mechanism depends only on the physician agency parameter, and exhibits extensive pooling, with prescribed quantity and payment being insensitive to the agency characteristic or patient’s actual benefit. The optimal mechanism is interpreted as managed care where strict approval protocols are placed on treatments.

Pages: 28 pages
Date: 2010-01
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Related works:
Journal Article: Optimal Health Care Contract under Physician Agency (2011)
Working Paper: Optimal Health Care Contracts under Physician Agency (2007)
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