Cost Incentives for Doctors: A Double-Edged Sword
University 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
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, I10working papers series
Date posted: September 21, 2011 ; Last revised: August 15, 2012
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