- A Blomqvist: Department of Economics, University of Western Ontario, London, Canada.
In a model incorporating uncertainty and state-dependent utility of health services, as well as information asymmetry between patients/buyers and physicians/sellers, two types of equilibria are compared: (1) when consumers have conventional third-party insurance and doctors are paid on the basis of fee-for-service; and (2) when insurance is through an HMO which provides health services through its own doctors. Conditions are found under which contractual or legal incentives can overcome the information asymmetry problem and bring about an efficient allocation of resources to health services provision.