THE INTERACTION BETWEEN FORMS OF INSURANCE CONTRACT AND TYPES OF TECHNICAL CHANGE IN MEDICAL-CARE

A simple three-parameter description of medical technology is introduced to investigate the relationships between technical change, welfare, and type of insurance contract. The value of a particular change in technology depends on the existing form of contract. The marginal equilibrium expected utility to consumers of different types of technical change hinges on the manner in which the insurance arrangement is designed to mitigate moral hazard. These results open the way for a positive model of the effects of insurance arrangements on the types of technology that are adopted and the effects of technical changes on the prevalent forms of insurance contract.