Research Details

Abstract

This paper argues that common-agency problems may impede efficient contracting between insurers and providers. We find that common agency can lead to a coordination failure when incentive contracts aim to elicit organizational innovations involving lumpy investments or fixed costs. This coordination failure leads to an inefficient equilibrium in which contracts offer no incentives at all. Our results have specific implications for healthcare policy. Interventions such as Medicare's ACOs ameliorate the common-agency market failure in two ways: by subsidizing investments by providers and by jumpstarting more efficient contracting by private payers.

Type

Article

Author(s)

Brigham Frandsen, Michael Powell, James Rebitzer

Date Published

2019

Citations

Frandsen, Brigham, Michael Powell, and James Rebitzer. 2019. Sticking Points: Common-Agency Problems and Contracting in the U.S. Healthcare System. RAND Journal of Economics.