essays in public finance and industrial organization a dissertation ...

CHAPTER 2. HEALTH PLAN CHOICE 110
Figure 1B: Efficient allocation assigns high-risk to plan A
Figure 1A: Efficient allocation assigns high-risk to plan B
"c(!)
Value ($)
Value ($)
High-risk always self-select into plan B.
Choice of "p can induce any threshold.
No uniform "p generates the efficient
allocation.
"v(!)
"v(!)
High-risks always self-select into plan B.
Choice of "p can induce any threshold.
"p= "c( !* ) generates the efficient
allocation of risk types across plans.
"c(!)
"p
"p
Efficiently in A
Efficiently in B
Efficiently in B
Efficiently in A
Consumer Risk (!)
!*
Consumer Risk (!)
!*
Figure 2B: Efficient allocation assigns high-risk to HMO
Figure 2A: Efficient allocation assigns high-risk to PPO
High (!,") always self-select to PPO.
Choice of #p can induce any translation
of the pictured indifference curve.
#v(!,")=#p
Consumer
taste for
choice(")
High (!,") always self-select to PPO.
Choice of #p can induce any translation
of the pictured indifference curve.
#v(!,")=#p
Consumer
taste for
choice(")
#v(!,")=#c(!)
Choose
HMO
inefficiently
Choose PPO
efficiently
Choose PPO efficiently
Choose HMO,
Efficiently in PPO
Choose PPO
Efficiently in HMO
Choose HMO
efficiently
Choose HMO
efficiently
Consumer risk (!)
!’ s.t
#c(!’)=#p
Choose #v(!,")=#c(!)
PPO
inefficiently
Consumer risk (!)
!’ s.t
#c(!’)=#p