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9 Cards in this Set

  • Front
  • Back
Why are there variations in treatment?
1) Demand Side

2) Supply Side

3) Situations

Doctors and patients have different incentives considerations in their utility functions
What are the demand side factors that effect variation in treatment?
- Income

- Severity (may differ by region)

- Price (price may vary around the country)
What are the supply side factors that effect variation in treatment?
- Culture

- Fee (profit opportunity)

(supplier induced demand)
What are the situational factors that effect variation in treatment?
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.
What is the principle-agent theory?
- 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
Model equation
y = a + E

w = s + by

y= output
a=ability or effort
E = random error
w= salary
s=fixed sum
b=bonus
Agent utility maximizing function
w - c(a)
wage - cost * effort
Principle utility maximizing function
y - w

output - wage
What are the options for an optimal contract?
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