ABSTRACT
Introduction The health care sector is characterized by a great deal of delegation of authority. In particular, the patient as the ultimate consumer of health care services frequently delegates decision making with respect to several dimensions to the physician in charge, such as the timing of the treatment, the procedures to be followed, the provider of some components of care, and the location of treatment. Delegation of authority occurs because the physician has superior knowledge of the health effects these choices have. However, the question then arises of how the physician can be made to choose in the best interest of his or her patient. Clearly, the same problem exists whenever asymmetry of information forces delegation of authority. The generic solution to the problem is principal-agent modelling, whose main result states that the agent may be controlled through the judicious choice of a payment scheme (Holmström, 1979).
