Payment Mechanisms in the Healthcare Industry: An Experimental Study of Physician Incentives in a Multiple Principal Agent Setting

Ellen Green

No 12-11, Working Papers from University of Delaware, Department of Economics

Abstract: Current failures in the healthcare industry emphasize the need for a more fundamental understanding of how these contracts incentivize doctors. To aid this understanding, we treat the established physician-client-employer relationship as a multiple principal agent problem. We use a laboratory experiment, with a real-effort task, to test the relative performance of common payment mechanisms employed in this dual-principal agent relationship (Piece Rate, Flat Rate, Salary, Bonus, and Socialization). This study suggests, contrary to standard contract theory, that relying on extrinsic incentives to motivate physicians may be detrimental and costly for the healthcare industry.

Keywords: Multiple principal agent theory; intrinsic motivation; other-regarding behavior; Fee-For-Service; Capitation; Salary (search for similar items in EconPapers)
JEL-codes: I10 I12 I18 J01 J3 L2 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2012
New Economics Papers: this item is included in nep-cta, nep-exp, nep-hea and nep-hrm
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