Payments to Medical Personnel as Incentives to Demand Induction: A theoretical-game application

TEMPORELLI KARINA

San Francisco, California, Usa.

Congreso; International Health Economic Association`s 4th World Congress; 2003

International Health Economics Association

In an Health System, demand induction may arise because of the incentives toincrease the demand of health services in behalf of patients. This is avariant of the Principal- Agent problem that arises due to the asymmetry ofknowledge about medical issues. The agency costs generated by demandinduction become higher when a third party (a insurance company)  covers thetotal amount of medical costs.We will first put this problem in the context of the literature on HealthEconomics. A simple game-theoretical model will be used to show in whichcases a demand induction arises. The difference among those cases arisesbecause of the structure of payments to M.D.s. We find that some systems maynot provide the incentives for demand induction, but at the price oflowering the quality of the medical services provided. J.E.L. Classification: I2, H4