Monitoring institutions in healthcare markets: Experimental evidence

Abstract This paper investigates the impact of monitoring institutions on market outcomes in health care. Healthcare markets are characterized by asymmetric information. Physicians have an information advantage over patients with respect to appropriate treatments, which they may exploit through over‐ or under‐provision or by overcharging. We introduce two types of costly monitoring: endogenous and exogenous monitoring. When monitoring detects misbehavior, physicians have to pay a fine. Endogenous monitoring can be requested by patients, while exogenous monitoring is performed randomly by a third party. We present a toy model that enables us to derive hypotheses and test them in a lab...

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