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9 Cards in this Set
- Front
- Back
Why are there variations in treatment?
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1) Demand Side
2) Supply Side 3) Situations Doctors and patients have different incentives considerations in their utility functions |
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What are the demand side factors that effect variation in treatment?
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- Income
- Severity (may differ by region) - Price (price may vary around the country) |
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What are the supply side factors that effect variation in treatment?
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- Culture
- Fee (profit opportunity) (supplier induced demand) |
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What are the situational factors that effect variation in treatment?
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1) Availability heuristics (psychological, perceptions); if you live in an area where a lot of people do something, it is reinforced and people may do it more.
2) Framing; How you word something may affect the decision of the patient. |
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What is the principle-agent theory?
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- The principle is the boss and wants agent to:
- put in effort - skill acquisition Agent wants high salary as possible, principle wants to pay as low salary as possible P4P vs Fee for service Search for optimal contract |
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Model equation
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y = a + E
w = s + by y= output a=ability or effort E = random error w= salary s=fixed sum b=bonus |
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Agent utility maximizing function
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w - c(a)
wage - cost * effort |
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Principle utility maximizing function
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y - w
output - wage |
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What are the options for an optimal contract?
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1) Fixed salary (b = 0)
disadvantage: no incentive to work hard (both agent and principle) 2) Mix - good option if you don't like risk, but want some incentive to work hard - Fixed has good insurance, but bad incentive for working hard - Bonus has bad insurance, but good incentive for working hard 3) Only bonus - Bad for risk averse The more uncertainty, the more you'll agree to fixed salary |