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Cost Incentives for Doctors: A Double-Edged SwordChristoph SchottmüllerUniversity of Copenhagen - Department of Economics; Tilburg Law and Economics Center (TILEC) September 15, 2011 TILEC Discussion Paper No. 2011-041 CentER Discussion Paper No. 2011-105 Abstract: If doctors take the costs of treatment into account when prescribing medication, their objectives differ from their patients' objectives because the patients are insured. This misalignment of interests hampers communication between patient and doctor. Giving cost incentives to doctors increases welfare if (i) the doctor's examination technology is sufficiently good or (ii) (marginal) costs of treatment are high enough. If the planner can costlessly choose the extent to which doctors take costs into account, he will opt for less than 100%. Optimal health care systems should implement different degrees of cost incentives depending on type of disease and/or doctor.
Number of Pages in PDF File: 31 Keywords: cheap talk, communication, health insurance, market design JEL Classification: D82, D83, I10 working papers seriesDate posted: September 21, 2011 ; Last revised: August 15, 2012Suggested CitationContact Information
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