Contract enforcement and preventive healthcare: Theory and evidence

Dixit, S (2023) Contract enforcement and preventive healthcare: Theory and evidence. Review of Economic Dynamics. ISSN 1094-2025 (In Press)

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I study how enforcement frictions in health insurance contracts determine the distribution of preventive care. I show that when contracts are weakly enforced, insurers underinvest in preventive care to perpetuate the need for insurance. This mechanism is self-enforcing, whereby low levels of prevention today breed low levels of prevention in the future. In contrast, I show that dynamic contracts that are perfectly enforced do not feature such history dependence. Leveraging these results, I devise a test to show that the hypothesis of limited commitment cannot be rejected in the data.

Item Type: Article
Subjects: Economics
Date Deposited: 20 Oct 2023 04:46
Last Modified: 20 Oct 2023 04:46

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