Abstract: Two ingredients seem essential in understanding the patient-physician relationship: (i) the physician's informational advantage and (ii) the relevance of the patient's emotions. Health economics has placed great emphasis on the first phenomenon, whereas the second has been considered only recently, that is with the growth of fields of analysis such as Economics and Psychology and Behavioral Medicine, and few investigations have been undertaken. In this article, we survey and discuss the important changes of perspective which the theory that studies the patient-physician relationship has undergone over time. We focus, in particular, on the attitude of patients towards health information and on the role of patient information in physician agency.

Abstract: The cost of hospital care depends on the quality of the service, on the personal characteristics of the patient, on the effort of the medical staff and on information asymmetry. In this article the cost minimizing properties of alternative payment systems will be discussed in a context where hospitals can observe patient severity and compete according to the rules of Hotelling's spatial competition. The scheme is designed from the standpoint of a purchaser that sets up a contract with several providers for services of a given quality at the least possible cost. Patients' severity cannot be observed and quality cannot be verified, but the latter can be inferred through the choice of patients. The model shows that in the health care market, prospective payments and yardstick competition are weak instruments for cost containment; incentive compatible schemes are, at least from a theoretical point of view, better instruments especially in a context where the purchaser can use signals relating to the variables it cannot observe. Cost inflation has two components: the information rent paid to the provider and inefficiency. In our model the information rent is used by the provider to get more patients to his hospital; spatial competition can then be used to curb the cost of providing hospital care.

Abstract: The White Paper Working for Patients has produced dramatic changes in the organization of health care in the UK that will soon be followed by analogous reforms in other countries. The core of the reform is represented by the separation of the responsibility for purchasing health care from providing the services. The creation of this internal market is said to enhance efficiency, but some peculiar characteristics of health care prevent a Pareto optimal solution being reached. This paper describes the purchaser-provider relationship using an innovative principal agent model to assess the relative merits of the different forms of contracts. The model is also used to show how competition among providers allows the purchaser to extract this private information. From a theoretical point of view, the approach is innovative in the formulation of the principal's objective function; the interesting finding is that the presence of a stringent budget constraint alters both risk-sharing conditions and the First-best contract proposed by the literature. From a policy point of view, the paper explains why in the first wave over 75% of contracts between purchasers and providers were block contracts. It is also demonstrated why this contractual form should be avoided.