Working Paper: CEPR ID: DP10177
Authors: Jan Boone; Rudy Douven
Abstract: This paper compares the welfare effects of three ways in which health care can be organized: no competition (NC), competition for the market (CfM) and competition on the market (CoM) where the payer offers the optimal contract to providers in each case. We argue that each of these can be optimal depending on the contracting environment of a speciality. In particular, CfM is optimal in a clinical situation where the payer either has contractible information on provider quality or can enforce cost efficient protocols. If such contractible information is not available NC or CoM can be optimal depending on whether patients react to decentralized information on quality differences between providers and whether payer's and patients' preferences are aligned.
Keywords: competition; health care; mechanism design; overutilization; selective contracting
JEL Codes: D82; I11; L5
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| first-best contracting opportunities (H57) | competition for the market (CFM) is optimal (D41) |
| competition for the market (CFM) (L13) | welfare losses under second-best conditions (D69) |
| patients react to decentralized information (D89) | competition on the market (COM) becomes optimal (D41) |
| no competition (NC) (D41) | prevents overtreatment by low-quality providers (I18) |
| absence of effective contracting (D86) | NC can reduce overtreatment compared to COM (L42) |