Incentive contracts for gatekeepers who control patient access to specialist medical services provide too-weak incentives to investigate cost further when the expected cost of treatment is greater than the benefit. Making gatekeepers residual claimants with a fixed fee from which treatment costs...

Suppliers who are better informed than purchasers, such as physicians treating insured patients, often have discretion over what to provide. I show how, when the purchaser observes what is supplied but neither the recipient type nor the actual cost incurred, optimal provision differs from what...