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Supplier Discretion Over Provision: Theory and an Application to Medical Care

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Author Info
James M. Malcomson () (University of Oxford)

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Abstract

Suppliers who are better informed than purchasers, such as physicians treating insured patients, often have discretion over what to provide. I show how, when the purchaser observes what is supplied but neither the recipient type nor the actual cost incurred, optimal provision differs from what would be efficient if the purchaser had full information, whether or not the supplier can extract informational rent. The analysis is applied to, among other things, data on tests for coronary artery disease and to Medicare diagnosis-related groups defined by the treatment given, not just the diagnosis, illustrating the biases in provision that result. Ordering information: This article can be ordered from https://pubs3.rand.org/cgi-bin/rje/pdf.cgi.

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Publisher Info
Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 36 (2005)
Issue (Month): 2 (Summer)
Pages: 412-429
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Handle: RePEc:rje:randje:v:36:y:2005:2:p:412-429

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Ellis, Randall P & McGuire, Thomas G, 1993. "Supply-Side and Demand-Side Cost Sharing in Health Care," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 135-51, Fall. [Downloadable!] (restricted)
  2. Mark McClellan, 1997. "Hospital Reimbursement Incentives: An Empirical Analysis," Journal of Economics & Management Strategy, Blackwell Publishing, vol. 6(1), pages 91-128, 03. [Downloadable!] (restricted)
  3. Chalkley, Martin & Malcomson, James M., 2002. "Cost sharing in health service provision: an empirical assessment of cost savings," Journal of Public Economics, Elsevier, vol. 84(2), pages 219-249, May. [Downloadable!] (restricted)
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  4. James M. Malcomson, 2004. "Health Service Gatekeepers," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 401-421, Summer.
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  5. Chalkley, M. & Malcomson, J.M., 1998. "Government Purchasing of Health Services," Discussion Paper Series In Economics And Econometrics 9821, Economics Division, School of Social Sciences, University of Southampton.
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  6. Armstrong, Mark & Sappington, David E.M., 2007. "Recent Developments in the Theory of Regulation," Handbook of Industrial Organization, Elsevier. [Downloadable!] (restricted)
  7. Siciliani, Luigi, 2006. "Selection of treatment under prospective payment systems in the hospital sector," Journal of Health Economics, Elsevier, vol. 25(3), pages 479-499, May. [Downloadable!] (restricted)
  8. McGuire, Thomas G., 2000. "Physician agency," Handbook of Health Economics, in: A. J. Culyer & J. P. Newhouse (ed.), Handbook of Health Economics, edition 1, volume 1, chapter 9, pages 461-536 Elsevier. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Luigi Siciliani & Elín J. G. Hafsteinsdóttir, 2008. "DRG prospective payment system: refine or not refine?," Discussion Papers 08/29, Department of Economics, University of York. [Downloadable!]
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This page was last updated on 2008-12-28.

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