Dynamic, incentive-compatible contracting for health services

Rosella Levaggi, Michele Moretto and Paolo Pertile

No 2023.16, Working Papers from Fondazione Eni Enrico Mattei

Abstract: This paper aims to characterise a dynamic, incentive-compatible contract for the provision of health services, allowing for both moral hazard and adverse selection. Patients’ severity changes over time following a stochastic process and is private information of the provider. We characterise the optimal dynamic contract and show that it is made up of two components: a time-invariant payment, which depends on the structural characteristics of the provider, and a time-varying component, which is affected by both patient and hospital characteristics. To illustrate the characteristics of the dynamic contract and compare it with a more standard static contract, we provide a numerical exercise calibrated with data from hip replacement hospitalisations in Italy.

Keywords: hospital payments; dynamic mechanism design; DRG; two-part tariffs; adverse selection; moral hazard (search for similar items in EconPapers)
JEL-codes: D82 H42 I18 (search for similar items in EconPapers)
Date: 2023-09
New Economics Papers: this item is included in nep-cta and nep-hea
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Working Paper: Dynamic, incentive-compatible contracting for health services (2023)
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