Cost Incentives for Doctors: A Double-Edged Sword

TILEC Discussion Paper No. 2011-041

CentER Discussion Paper No. 2011-105

31 Pages Posted: 21 Sep 2011 Last revised: 15 Aug 2012

See all articles by Christoph Schottmüller

Christoph Schottmüller

University of Cologne; Tilburg Law and Economics Center (TILEC)

Date Written: September 15, 2011


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.

Keywords: cheap talk, communication, health insurance, market design

JEL Classification: D82, D83, I10

Suggested Citation

Schottmüller, Christoph and Schottmüller, Christoph, Cost Incentives for Doctors: A Double-Edged Sword (September 15, 2011). TILEC Discussion Paper No. 2011-041, CentER Discussion Paper No. 2011-105 , Available at SSRN: or

Christoph Schottmüller (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE

University of Cologne ( email )

Cologne, 50923

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