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Agent-based Investigation of Price Inflation In Health Insurance

Carl A. Johnston () and Interdisciplinary Center for Economic Science
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Carl A. Johnston: Interdisciplinary Center for Economic Sc George Mason University

No 155, Computing in Economics and Finance 2006 from Society for Computational Economics

Abstract: Frech-Ginsburg showed that medical insurance reimbursement systems with certain price-control characteristics cause chronic price inflation. We construct a three-party market in which Experts, Non-Experts and Insurers negotiate with each other for services, insurance coverage and cash in such a way that we can observe prices over successive rounds of negotiations and observe whether or not they show inflationary tendencies. We use agent-based software to simulate the agents. We find that three-party transactions between Insurer-Expert-Non-Expert show inflationary tendencies, but two-party transactions between Experts and Non-Experts do not. The findings suggest that institutional sources of price inflation can exist based on the order of negotiations when there is an intermediary between consumer and supplier. Inflation rates appear sensitive to the number of negotiations in each round

Date: 2006-07-04
New Economics Papers: this item is included in nep-hea and nep-ias
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