Provider Competition in a Dynamic Setting

In this paper, we examine provider and patient behaviour where effort is non-contractible and where competition between providers is modeled in an explicit way. More specifically, we construct a model where physicians repeatedly compete for patients and where patients’ outside options are solved for in equilibrium. In our model, physicians are characterized by an individual-specific ethical constraint which allows for unobserved heterogeneity in the physicians market. By doing so, we introduce uncertainty in the patient’s likely treatment if he were in fact to leave his current physician to seek care elsewhere. We find that competition between providers may serve as an important incentive for physicians in treating their patients with desired levels of care.