Working Paper: CEPR ID: DP6911
Authors: Oddvar Martin Kaarboe; Luigi Siciliani
Abstract: We present a model of optimal contracting between a purchaser and a provider of health services when quality has two dimensions. We assume that one dimension of quality is verifiable (dimension 1) and one dimension is not verifiable (dimension 2). We show that the power of the incentive scheme for the verifiable dimension depends critically on the extent to which quality 1 increases or decreases the provider's marginal disutility and the patients' marginal benefit from quality 2 (i.e. substitutability or complementarity). Our main result is that under some circumstances a high-powered incentive scheme can be optimal even when the two quality dimensions are substitutes.
Keywords: Altruism; Pay for Performance; Quality
JEL Codes: D82; I11; I18; L51
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pay-for-performance (P4P) schemes (J33) | quality of health services (I14) |
| high-powered incentive scheme (M52) | quality of health services (I14) |
| low-powered incentive scheme (J33) | quality of health services (I14) |
| verifiable quality dimension (L15) | non-verifiable quality dimension (L15) |
| non-verifiable quality dimension (L15) | quality of health services (I14) |
| complementarity between quality dimensions (L15) | high-powered incentive scheme (M52) |